By Anita Byer and Martin Salcedo
Like owners of any other business, self-storage owners must take affirmative steps to protect the bottom line. Unfortunately, too many operators overlook perhaps the most important and effective step of all—using the rental agreement to limit their liability exposure.
Though it’s virtually impossible to completely insulate a business from liability, there are contractual provisions designed to eliminate, or at least limit, the exposures faced by self-storage operators. The challenge is to ensure provisions are drafted in a manner that comports with a facility’s particular situation and business practices, as well as any applicable laws. Though situational and jurisdictional variations typically undermine the effectiveness of boilerplate or one-size-fits-all templates, operators should consider incorporating some or all of the following protections in their rental agreements.
Limitation and Release of Liability
A limitation of liability clause is designed to contractually allocate each party’s risk in reasonable proportion to the benefits derived from the contractual relationship. Without such a clause, a self-storage facility may suffer liabilities that far exceed revenue. The overall purpose of the clause is to clarify and establish that the property is being stored at the sole risk of the tenant.
Depending on the circumstances, different approaches can be taken when drafting a limitation of liability clause. For example, a clause may place a maximum limit on the value of property a tenant may store in a unit, or it may provide that the parties agree to a fixed value for the property, which can be based on weight, size or some other factor. Another option is to limit the liability of a self-storage facility to the amount of rent paid by the tenant.
In addition to limiting liability, a rental agreement should stipulate that the tenant has agreed to release the facility from liability in the event of loss or injury. A release provision must be drafted clearly and state the release of liability applies to the tenant and any person authorized to enter the premises by the tenant. To provide the broadest applicability, the release of liability should cover injuries or losses regardless of who or what is involved.
It’s important to understand that the extent to which a party may contractually limit or be released from its liability may be restricted or otherwise governed by various state laws. Contractual provisions designed to release a party from the damages caused by its own negligence or exculpatory clauses illustrate this point.
Florida and Connecticut courts, for example, have held that although exculpatory clauses are disfavored, they’ll be enforced if properly drafted. An exculpatory clause must clearly and unequivocally state that it releases a party from liability for its own negligence so an ordinary and knowledgeable party will know what he is contracting away. Though some courts state using the word “negligence” is not necessarily required, it’s advisable to do so.
For example, in enforcing an exculpatory clause in a personal-injury case, the Supreme Court of Connecticut relied on the fact that the agreement refers to the negligence of the defendants three times and uses capital letters to emphasize the term “negligence.” In New York, however, a state statute requires such a provision be treated differently by the courts when a contract involves real property. Pursuant to this statute, a contractual provision exempting a landlord from liability for the landlord’s negligence is deemed to be void as against public policy. So, even if the lease contained an exculpatory clause addressing the facility’s negligence, it would likely be deemed unenforceable in New York.
The lesson here is that since exculpatory clauses are disfavored, they must be tailored to apply to each specific situation and comply with any applicable laws. Thus, the use of templates or boilerplate language increases the likelihood that such a clause will be unenforceable.
Indemnification and Hold Harmless
An indemnification provision requires a tenant to compensate the self-storage facility for any damages or losses caused by the tenant in which the facility owner may be required to pay. For example, if a third-party is injured by a hazardous condition created by a tenant, or anyone authorized by the tenant to be on the premises, then the self-storage owner may be liable to that injured party. An indemnification provision would typically require a tenant to compensate the self-storage operator for whatever amount the facility is liable to the injured party.
A hold-harmless provision stipulates that a tenant agrees not to hold the facility owner responsible for any loss, injury or legal liability caused by the tenant, or anyone invited on the premises by the tenant, or which is otherwise related to the tenant’s occupancy. If, for example, a tenant is injured while using a dolly made available by the self-storage facility, then the hold-harmless provision would prevent the tenant from recovering against the facility.
Since indemnification and hold-harmless provisions have been described as different sides of the same coin, it’s not uncommon for them to be combined into a single, contractual provision. Accordingly, they should be drafted with care and in a manner that’s consistent with applicable laws.