What a hold harmless agreement is
A Hold Harmless Agreement is a common real estate contract provision that basically excuses one party from some of the liabilities or obligations that they may have under the contract itself and possibly under some applicable laws from having to make the other party whole for those liabilities or obligations.
More simply put, a hold harmless provision in a real estate contract or lease means that for some specified liabilities the parties agree that a party who is liable for those liabilities will not seek to make the other party whole from that liability.
For example, in a residential lease, a tenant might agree to be responsible for all injuries to such tenant or any of his guests or invitees that occur in or about the premises, but with the understanding that any such liability will be capped at the limit of the tenant’s insurance policy covering the incident. So in this example, the tenant is saying that he or she will hold the landlord harmless from all injuries to the tenant and his or her guests or invitees occurring on the rental premises.
This liability is capped at the cost to post a bond for payment of any potential judgment arising from the injured party’s claim and for the cost of an insurance policy (e.g. liability policy or renter’s insurance policy) for any of the injuries.
The hold harmless agreement to a certain extent is a contract term that requires a party agreeing to the clause to indemnify (i.e. to protect) another party to the contract or a third party not otherwise involved in the contract , by requiring the indemnifying party to compensate the other party for a loss or expense suffered as a result of liability incurred by that party.
It is important to understand that a hold harmless agreement with respect to a real estate contract does not necessarily require legal advice be offered to a party prior to entering into the agreement as a warranty by the drafter or offeror of the clause to the other party.
Most of the time, a hold harmless agreement or clause will be limited in nature and while it may govern liability with respect to certain obligations in the contract (e.g. obligation to pay damages for injury to a party’s property or injury caused by that party to other’s property, or bodily injury to a person involved in a contractual business or service), and so it may not cover all liabilities or it may exclude certain specified liabilities in that contract.
The application of a hold harmless clause may be that although the clause will not completely indemnify a party for all liability or all claims made against that party, it may require contribution to the indemnified party’s loss or cost in a way that could limit or reduce the liability that ultimately may exist (i.e. a waiver of any liability above the coverage amount to avoid a potential loss to that party).
The example with the residential lease does not completely indemnify the landlord for any injury to a tenant’s guests or invitees, it only requires the tenant to hold the landlord harmless from any injuries up to the amount of the tenant’s liability coverage. However, it does limit the landlord’s liability to the amount of insurance the tenant has, which in many cases may not be sufficient to cover all potential losses or claims made against the landlord.
Elements of a real estate hold harmless agreement
A. Parties
Pretty much the first question with any agreement, and certainly one of the most important require consideration. A Hold Harmless Agreement (Agreement) is a contract between two or more parties (defendant-user). Typically the defendant-user includes the landlord, lender, or property owner who wants the indemnifications rendered. Because there can be more than one indemnifying party, it is prudent to list the indemnifying parties at the outset of the Agreement; alternatively, identifying all of the parties under the Agreement in the recitals is acceptable.
B. Indemnification
The next component of a Hold Harmless Agreement is the body of the Agreement itself. The key parts of the agreement are the scope of indemnities provided, which are typically provided at the second through fourth clauses of the document.
It is critical to include all potential liabilities that you foresee, if any, in the drafting of the Agreement; consequently, the more details you include, the better.
Include indemnification from consequential damages that may include, but are not limited to loss of rents, lease termination damages, management costs, attorneys’ fees, and general leasehold damages. These consequential damages must be spelled out in the Agreement and are subject to negotiation; so, the level of care taken by the preparer will be reflected in the level of indemnification sought.
Liability caps should also be included in this section of the Agreement. This is often a touchy subject, because the landlord’s interests lie with holding the tenant/user responsible for all liability, while the user will want to limit it as much as possible. In either case, the liability cap is typically a function of the risk assessment for that particular negotiation. As an example, a liability cap of $50,000 would be reasonable for a 20 year tenant with no known liabilities. Alternatively, a $50,000 liability cap would be unreasonable for a short-term tenant with known environmental liabilities. It all depends on the risk assessment performed associated with the deal.
C. Limitations and Conditions
When drafting a Hold Harmless Agreement, it is advantageous to include a few additional conditions and limitations. While many of these are spelled out under state-specific laws, they are always worth including at the end of the Agreement. These include exclusions for indemnifications rendered against third-party liability, personal injury or death, acts of God, intentional misconduct by the other party, and negligence on the part of the other party. These limitations can be modified as appropriate given the parties agreed-upon risk tolerance threshold. Modified versions of these limitations are acceptable as long as both agreement parties agree to the terms.
Why you might use a hold harmless agreement for real estate
In real estate transactions, the use of a hold harmless agreement can provide significant legal protections for buyers, sellers, landlords and tenants. Such agreements minimize risk to the parties and transfer certain responsibilities to them.
When a buyer or seller signs a purchase and sale agreement with a hold harmless provision, one party is essentially removing any legal obligation it has to the other if something goes wrong. The agreement will specify what aspects each party will not be responsible for (e.g., a defect in the property or loss of funds). It is a method of allocating liability and protecting the party purchasing or selling the property.
For landlords and tenants, hold harmless agreements not only protect the parties from any liability that may result from the damages to property or harm to an individual, but they also designate who is responsible for maintaining or repairing certain parts of the property. Such agreements are especially common when a tenant makes structural changes to a commercial property while in residence or when a landlord has action items it must fulfill for liability protection.
When you first enter into a contract or lease, before any money changes hands, it’s always good to have a hold harmless agreement in place.
Downloading a PDF of a real estate hold harmless agreement
If you are already familiar with the different types of real estate hold harmless agreements and their uses, you may be looking for a sample or template real estate hold harmless agreement in PDF format. There are several ways to find one online. You can use a search engine or go directly to a specific department of any state website that you are interested in. You can also find a PDF that has multiple samples and templates of hold harmless agreements related to real estate. When looking for a template, you may find it beneficial to type "hold harmless agreement real estate template" into a search engine. This will usually bring up any plain Word or PDF documents that you can download onto your computer. From here, you can fill it out and print it . Sometimes it’s best to use an official department website. In California, for example, the Department of Consumer Affairs typically has downloadable templates for different types of legal documents, including those contain a hold harmless agreement. In the event that you don’t find anything through these methods, there are typically online sites that will offer more samples or templates. When using these sites, make sure that you are downloading an original copy of the template. Some sites just have copies of an old template that is not up to date, which can be a hassle to try to transfer information from your own hold harmless agreement. When searching for a real estate hold harmless agreement, be sure to look at the most recent upload date of the PDF.
How to customize a hold harmless agreement for your particular situation
A hold harmless contract can be customized to fit the particular needs of a specific transaction. While many hold harmless agreements are fairly straightforward, others can be complicated. All parties must reach an understanding regarding which specific obligations the parties have under a hold harmless agreement. The timing of the hold harmless agreement should also be considered. For example, if you are an owner who is going to relocate in a condominium we are representing, you may want to execute a specific hold harmless agreement regarding all condominium associations that you are going to reside in.
Parties should enlist the help of a lawyer to ensure the terms of the hold harmless agreement protect everyone’s best interests.
Legal considerations and limitations
While hold harmless agreements can offer a high degree of protection for the parties involved and limit their liability after the fact, they are not infallible. A contracting party may still use them as leverage to seek damages in court if that party cannot be or refuses to be held responsible – whether suing on a basis of negligence, fraud or intentional harm.
That said, hold harmless agreements are generally enforceable, provided that they are agreed to by both parties. However, the law can limit the scope of their terms. For example, an indemnitor may not be allowed to hold the indemnified liable for damages that were directly caused by the indemnified’s blatant negligence, since to do so might be seen as counter to public policy. Likewise, a hold harmless agreement that duty exempts one party for its own intentional acts, such as fraud, is not permitted and would likely be unenforceable.
Even if they are otherwise legally valid and effective , a real estate hold harmless agreement must conform with particular statutory requirements. An indemnification contract that does not comply with the statute is considered void and unenforceable. To be legally binding, a hold harmless agreement under California law (Civil Code Section 2782) must have the following elements:
There can be no third-party beneficiary of the contract.
Payment of the hold harmless agreement must not exceed the amount of damages that are actually paid by the indemnified party.
The indemnitor’s liability is limited to the amount paid by the indemnified party as long as it is substantiated and lawful.
The indemnity agreement must be in writing and signed by the indemnitor relevant to the property which specifies that the indemnification is for losses arising from known and unknown property condition defects.
Any indemnification clauses that violate Section 2792.04 of the Civil Code are automatically voided. This section explicitly prohibits indemnification concepts where the costs of repairing injuries directly caused by the negligent activities is being shifted from the contractor to the subcontractor.
