Beware of Exculpatory Clauses in Commercial Leases

Commercial leases often contain exculpatory clauses, and a recent California court of appeal decision clarifies the circumstances under which such clauses are enforced.

In Garci v. D/AQ Corporation, Plaintiff was the lessee under a lease for commercial premises that 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.

In April 2016, plaintiff fell down a staircase after hitting his head on a beam in the doorway at the top of the staircase. He sued defendants, 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.

Defendants moved for summary judgment and the trial court granted the motion, based on the exculpatory clause in the lease.

The appellate court affirmed the judgment.

Plaintiff inspected the premises twice before signing the lease, and the stairway was never changed or modified between that time and the date of the accident. He used the stairs and the doorway to the upstairs room a couple of times a month throughout his tenancy.

When the ownership changed, plaintiff met with Doran Tajkef, who worked for D/AQ. and there was no discussion of the staircase or the doorway at the top, and Tajkef did not go upstairs.

Plaintiff did not communicate any concerns about the stairway or the doorway to defendants before the accident.

The accident occurred at the top of the staircase, at the doorway to an upstairs office room then being used for storage. Plaintiff intended to go into the office room. When he got to the top stair, he reached for the door handle. It didn’t open because it "kind of sticks". He pushed harder on the door, which gave way suddenly. He didn’t bend down far enough and hit the crown of his head on the beam at the top of the door frame, which knocked him backwards.

Plaintiff had used both the doorway and the staircase as part of his business at various times before his injury.  He had seen another person hit his head on the low doorway at least once before his injury.

Defendants sought summary judgment on two grounds. First, Plaintiff could not establish the element of duty, defendants asserted, because a landlord out of possession is not liable for dangerous conditions of property of which it has no actual knowledge.

They further contended that, even if a duty could be established, the clause in the lease exempting the lessor from liability for injury to plaintiff was enforceable.

Plaintiff’s opposition argued defendants did not relinquish control of the premises to plaintiff, and owed him a duty to maintain the premises in safe condition. He contended his fall was a direct result of the staircase’s inherently dangerous condition due to extensive building code violations that were never inspected or remedied by defendants.

The exculpatory clause was not enforceable, plaintiff asserted, because it did not release defendants from their duty to reasonably inspect the premises. Plaintiff presented a declaration from an expert in construction and building codes, who concluded the staircase violated nine sections of the building code, including a requirement for a conforming landing at the top of the stairway.

The trial court granted defendants’ summary judgment motion on the ground the lease exempted defendants from liability, and it did not address the issue of duty.

The principles governing exemptions from liability in a commercial lease are described in Frittelli, Inc. v. 350 North Canon Drive, LP (2011) 202 Cal.App.4th 35, 43-44 (Frittelli).  As pertinent in the Garcia case, Frittelli observed: Courts have affirmed lease terms that exempted the landlord from liability arising from conduct by the landlord.

To the extent the exemption purports to shield the lessor and its agents from liability for negligence, the exemption is subject to the public policy disfavoring attempts by contract to limit liability for future torts.

The court explained this policy finds expression in California Civil Code section 1668 that provides that all contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.

Frittelli explained that Civil Code section 1668 ordinarily invalidates contracts that purport to exempt an individual or entity from liability for future intentional wrongs and gross negligence. And it prohibits contractual releases of future liability for ordinary negligence when the “public interest” is involved or a statute expressly forbids it.

However, an exemption from liability located within a commercial lease between business entities does not implicate the public interest, although such a clause is strictly construed against the person relying upon it.

An exculpatory clause that does not specifically mention negligence would ordinarily be construed as shielding the lessor from liability only for passive negligence, not for active negligence.

Passive negligence is found in mere nonfeasance, such as the failure to discover a dangerous condition or to perform a duty imposed by law.

The question whether an exculpatory clause covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in the agreement that should control.  When the parties knowingly bargain for the protection at issue, the protection should be afforded.  This requires an inquiry into the circumstances of the damage or injury and the language of the contract; of necessity, each case will turn on its own facts.

Where, as in the Garcia case, no extrinsic evidence was submitted concerning the meaning of the exculpatory clause, the court determined the parties’ intentions as disclosed by the lease itself, looking at the plain language of the clause, viewed within the lease as a whole, and examined whether the clause clearly disclosed an intent to exempt the lessor from liability for ordinary negligence.

The clause entitled “Exemption of Lessor from Liability,” provided in pertinent part: Lessor shall not be liable for injury to the person of Lessee or any other person in or about the Premises whether the said injury results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places.

The clause expresses a clear intent to exempt defendants from liability for injury to plaintiff. There is no evidence the parties intended anything other than what the clause says. This is so under any construction, strict or otherwise. The public interest is not involved.

Plaintiff did not allege or present evidence of an intentional wrong, gross negligence, or active negligence. At most, plaintiff’s evidence showed defendants did not inspect the property for building code violations—establishing at most mere nonfeasance, such as the failure to discover a dangerous condition or to perform a duty imposed by law.

Plaintiff cited no authorities that supported a contrary conclusion.

Plaintiff cited Civil Code section 1953 (preventing modification or waiver of a landlord’s duty of care to prevent personal injury), but that only applies to residential leases, not commercial leases.

None of the cases plaintiff cited involves claims of passive negligence in maintaining a commercial property:

- Tunkl v. Regents of University of California involved an exculpatory clause in the conditions for admission to a charitable research hospital—not a commercial lease.

- Butt v. Bertola involved misconduct by a commercial lessor that was at the very least, active or affirmative negligence, not mere ordinary negligence.  Misconduct in knowingly maintaining defective sewerage facilities and in taking patently inadequate measures for the repair of those facilities, with knowledge of the injuries to plaintiff’s property which would ensue involved a complaint that the lessor was actively negligent in refusing to remediate the problems caused by the excessive moisture and mold infestation on the premises, and the court could not say as a matter of law that the exculpatory clause shield the lessor from liability.

- Henrioulle v. Marin Ventures, Inc. involved an exculpatory clause in a residential lease, not a commercial lease.

- Srithong v. Total Investment Co. included discussion of the principle that a lessor with a duty to maintain and repair the roof of its premises could not escape liability for injuries to a tenant by delegating its duty to repair water leaks to an independent contractor—not whether the two parties to a commercial lease can contract for a release of the lessor’s liability.

Plaintiff insisted the exculpatory clause did not release defendants from their duty to reasonably inspect the premises, including their failure to look for and/or remedy the violations of the Building Code Sections which created the dangerous condition causing plaintiff’s injuries and had existed throughout plaintiff’s tenancy, of which he had no knowledge.

While plaintiff did not know the staircase violated the building code, he certainly knew about the low beam at the top of the door frame that knocked him backward, and he had seen another person hit his head on the same low doorway. More to the point, as the trial court observed, failure to discover a dangerous condition is what the exculpatory provision purports to specifically cover.

In sum, plaintiff in the Garcia case alleged ordinary, passive negligence—the failure to discover a dangerous condition or to perform a duty imposed by law.

The exculpatory clause shielded the lessor from liability for ordinary negligence. Its language was clear, stating the lessor shall not be liable for injury to the person of Lessee.

These circumstances made this a case where, when the parties knowingly bargain for the protection at issue, the protection should be afforded.

LESSONS:

1.         It is always a good practice to read, carefully, any lease entered into, and commercial leases should be reviewed to detect any exculpatory clauses.

2.         Any defective conditions should be brought to the lessor's attention, and should be avoided by the tenant.

3.         California Civil Code section 1668 provides that all contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.

4          An exculpatory clause that shields the lessor from liability for ordinary negligence, where its language is clear, stating the lessor shall not be liable for injury to the person of Lessee, and the parties knowingly bargain for the protection at issue, the clause will be enforced against the tenant.