Exculpatory Clauses and Your Business
Anthony J. Ellrod  |  February 17th, 2021
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The information provided in this “Adding an Exculpatory Clause to a Commercial Agreement.” article is for informational purposes only, and the author and WaiverSign make no representation that the contents will effectively protect any legal rights or satisfy your legal obligations, including but not limited to personal or corporate liabilities. In order to protect your legal rights, you should consult an attorney. The resources herein, including all verbal and written content, are not provided as legal advice to you, and should not be relied on as such.

Adding An Exculpatory Clause To A Commercial Agreement Can Protect A Business Owner

The vast majority of cases involving releases and express assumption of risk agreements arise in the context of membership or participation agreements. However, an exculpatory clause or exculpatory agreement can also be effective in other commercial agreements, including lease agreements.

    Exculpatory Clause in a Commercial Lease Agreement

    The court’s opinion in the recent case Garcia v. D/Aq Corp. (2020) 57 Cal. App. 5th 902 is illustrative. In Garcia plaintiff was the tenant under a lease for a commercial premises. The lease contained an exculpatory clause providing that the lessor “shall not be liable for injury … to the person … of Lessee” and others, whether resulting from conditions arising on the premises or from other sources.

    Plaintiff fell down a staircase after hitting his head on a beam in the doorway at the top of the staircase. He sued the landlord, alleging causes of action for premises liability and negligence. He alleged his fall was caused by the inherently dangerous condition of the staircase due to numerous building code violations. The landlord moved for summary judgment and the trial court granted the motion, based on the exculpatory clause in the lease. The court of appeal affirmed, stating that while “Civil Code section 1668 ordinarily ‘invalidates contracts that purport to exempt an individual or entity from liability for future intentional wrongs [citation] and gross negligence’ . . . [and] ‘prohibits contractual releases of future liability for ordinary negligence when ‘the “public interest” is involved or … an exemption from liability ‘located within a commercial lease between business entities’ does not implicate the public interest . . ..” (Garcia at 907.)

    Commercial Business Building

    Exculpatory Clause in Residential Lease Agreement

    Other cases have enforced exculpatory provisions in residential leases to a limited extent. While courts have consistently held that residential leases do in fact implicate the public interest, limited exculpatory agreements relating to certain non-essential aspects of a residential lease, such as a gym in an apartment complex, do not.

    In Lewis Operating Corp. v. Superior Court (2011) 200 Cal. App. 4th 940 the plaintiff tenant was injured while using a treadmill at an exercise facility operated by the landlord. The lease agreement contained an exculpatory clause whereby the tenant agreed to assume all risk of harm resulting from, and to waive claims against the landlords relating to, his use of the exercise facility. The court held that case law prohibiting exculpatory clauses affecting the public interest did not invalidate the exculpatory provision of the lease agreement because recreational activities, such as the tenant's use of the exercise facility, were not essential services or necessities affecting the public interest.

    As with releases in other contexts, to be enforced the release must be conspicuous, clear and unambiguous. If inserted as an exculpatory clause into a residential or commercial lease, the landlord would be wise to require a separate initial for the release in order to satisfy the conspicuous requirement. With respect to residential leases, the landlord should make it clear that the release applies only to specific non-essential portions of the leased premises such as on site gyms.

    Woman Running on Treadmill

    Exculpatory Clause in Other Commercial Agreements

    Exculpatory provisions in other commercial contracts are becoming increasingly popular, along with limitation of liability provisions. Absent public policy implications, there is no reason that such provisions should not be enforced. In fact, since the bargaining power of parties to commercial transactions are typically more equal than in consumer transactions, the argument for enforcement is even stronger. Therefore exculpatory provisions should be included any time they can be negotiated.

    When Does it Make Sense to Add An Exculpatory Clause vs. Create a Separate Release and Waiver?

    Best practices require all business owners to make efforts to reduce potential liability exposure as much as reasonably possible. For both commercial and residential landlords, this would include adding an exculpatory clause to their lease agreements. However such provisions must be drafted carefully to assure that they will be enforced. If properly constructed, an exculpatory clause in a lease agreement will provide another layer of protection for a landlord, and could end up saving your business.

    Under certain circumstances having a separate free-standing waiver and release should be considered. While there is some support for the proposition that multiple releases can cause confusion impacting enforcement (Conservatorship of Link (1984) 158 Cal.App.3d 138), so long as the releases are not contradictory they should remain enforceable. (Powers v. Superior Court (1987) 196 Cal.App.3d 318.) Further, the stand-alone release will provide protection in the event that there is some problem with the primary agreement which results in the agreement being deemed void.

    Anthony J. Ellrod, Esq. is a founding partner with Manning & Kass, Ellrod, Ramirez, Trester, LLP's Los Angeles office where he heads up the firm's Sports and Recreation and Commercial Transactions. Tony may be reached at (213) 6246900 or by email at AJE@manningllp.com. All information provided is of a general nature and is not intended nor represented to replace professional, specialized legal advice, nor should the information be relied upon as same.

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    Anthony J. Ellrod

    By Anthony J. Ellrod

    Anthony J. Ellrod, Esq. is a founding partner with Manning & Kass, Ellrod, Ramirez, Trester, LLP's Los Angeles office where he heads up the firm's Sports and Recreation and Commercial Transactions.  Tony may be reached at (213)624-6900 or by email at AJE@manningllp.com.  All information provided is of a general nature and is not intended nor represented to replace professional, specialized legal advice, nor should the information be relied upon as same.
    *All information is accurate as of February 2021.
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