The Hidden Risk: Understanding Indemnity Clauses in Lease Agreements

When a new café owner signed the lease for their dream space, excitement was the only thing on their mind. The rent was reasonable, the location was perfect, and opening day couldn’t come soon enough. The lease, thick with legal language, was skimmed quickly, after all, those dense provisions often feel like boilerplate. One clause, tucked under the heading “Indemnity,” barely registered. What harm could it cause?

Six months later, a customer slipped on a freshly mopped floor and broke their wrist. A lawsuit followed. The tenant assumed their business insurance would step in but soon learned that the landlord had also been sued. That’s when the real surprise surfaced: the lease required the tenant to cover not only their own liability but also the landlord’s legal fees, damages, and any settlement costs. That one skipped clause suddenly had very sharp teeth.

What obligations does an indemnity clause in a commercial lease impose on tenants, and why is it important to understand before signing?

An indemnity clause is more than just legal jargon, it’s a contractual promise. In most commercial leases, it requires the tenant to shield the landlord from liability for incidents connected to the tenant’s use of the property. This often extends to covering legal costs, damages, and settlements. Some clauses are written so broadly that they even hold tenants responsible for the landlord’s own negligence or continue obligations long after the lease ends.

Tenants often overlook indemnity clauses, assuming their insurance will provide a safety net. While insurance may cover certain risks, gaps frequently remain particularly when lease terms expand a tenant’s liability beyond ordinary expectations.

A careful tenant should ask:

• What liabilities am I agreeing to cover?
• Does this clause shift responsibility to me even if the landlord is at fault?
• Do my insurance policies cover these risks, or will I be left exposed?

Landlords, too, must be mindful. Overly aggressive indemnity provisions can create unnecessary disputes and discourage quality tenants. A balanced clause, fair to both sides, can provide clarity while protecting each party’s legitimate interests.

Lease agreements are more than rent and square footage; they are risk-sharing documents with real financial consequences. Overlooking indemnity clauses can turn a routine accident into a costly and stressful legal battle.

Whether you’re a tenant or landlord, never skim past indemnity clauses. Take the time to understand their reach, consult with professionals if needed, and align your insurance with your actual risks. In leasing, success isn’t just about finding the right space, it’s about knowing the risks you agree to share.