Limit Owner’s Exculpation Clause Two Ways

April 19, 2018
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If you’re close to the end of your lease for space at an office building or shopping center, and you’ve had a good experience with the owner, you might not foresee any issues. Or maybe there have been various problems on either your or the owner’s side of the deal. But regardless of the reason you’re moving out of that space, you could have a hard time recouping money that the owner rightfully owes you. The most common item that office building or retail owners refuse to refund to a tenant is the security deposit or excess prepayment. If the owner of your space won’t acknowledge a credit or pay you a judgment, you may be forced to sue the owner to recover the money you’re owed.

So before you sign your next lease, be aware that—if the new owner refuses to sign a lease without an exculpation clause—you should try to limit the clause’s scope so you can get your full refund, credit, or judgment quickly and easily.

One important protection you can add to your lease to achieve this is to exclude the security deposit from the exculpation clause. Carve out the security deposit from the reach of the owner’s exculpation clause and any other clause that may limit your ability to get paid. When you draft your lease, your provisions should say that the owner will be personally liable for refunding the security deposit to you despite what any other lease clause says. This way, the owner must pay you the security deposit out of its funds.

For a second key protection you can incorporate into your lease, plus a Model Lease Clause that includes both measures, see “Take Two Steps to Push Owner into Returning Funds at Lease's End,” available to subscribers here.