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Commercial Leases: Exculpatory Clauses and Subrogation Interests

The law in Georgia is clear that a party may contract away liability to the other party for the consequences of his own negligence unless such an agreement contravenes public policy. Thus, under many circumstances a party may protect itself from liability when entering into a contract. However, Georgia law provides that a landlord may not relieve itself from all liability in a lease as such a broad exculpation is against public policy. O.C.G.A. § 13-8-2(b) provides in pertinent part:

A covenant, promise, agreement, or undertaking in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenance, and appliances, including moving, demolition, and excavating connected therewith, purporting to require that one party to such contract or agreement shall indemnify, hold harmless, insure, or defend the other party to the contract or other named indemnitee, including its, his, or her officers, agents, or employees, against liability or claims for damages, losses, or expenses, including attorney fees, arising out of bodily injury to persons, death, or damage to property caused by or resulting from the sole negligence of the indemnitee, or its, his, or her officers, agents, or employees, is against public policy and void and unenforceable.[1]

Thus, leases which contain bars to any suit against a landlord are void as against public policy. However, Georgia law holds that clauses in leases and contracts in which the parties clearly express their mutual intent to shift their mutual risks of loss to insurance do not violate O.C.G.A. § 13-8-2(b), but such exculpatory clauses may not free a landlord of all liability to its tenant, including its uninsured losses.[2] In May Dept. Store v. Center Developers, Inc., the Court held the clause evidenced the intent of the parties to the lease to shift the burden of losses to insurers, but such a clause could not, under Georgia law, waive the tenant's uninsured losses.[3]

Thus, a lease contract under Georgia law may limit a landlord's liability to its tenants by shifting the risk of loss to insurance, but such limitation will not insulate the landlord from liability for the uninsured losses of an insured tenant. Further, to the extent necessary, the tenant's insurer may be free to pursue a subrogation action against the tenant's insurer by instituting suit against the landlord in order to activate such coverage.

[1] O.C.G.A. § 13-8-2(b).

[2] May Dept. Store v. Center Developers, Inc., 266 Ga. 806, 807 (1996); see also Ameris Bancorp v. Ackerman, 296 Ga. App. 295 (2009), cert. denied.

[3] Id.

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