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How do indemnification clauses work?

Indemnification clauses are common in many leases. Indemnification clauses act as "poison pill" provisions to discourage unscrupulous property owners from shirking their obligations under the lease. Since they are such a prolific part of lease agreements, this pot will go over how indemnification clauses work and what they may mean for your leases.


Indemnification means that one or both parties agree to cover the other?s litigation costs or reimburse the other party. That means that one side agrees to cover the costs if a dispute arises with a third party due to a contract dispute and to cover any judgments that might be rendered. For example, indemnification clauses underpin all insurance contracts. Insurers agree to cover litigation costs in exchange for premiums, which is why many companies are accused of bad behavior when they try to weasel their way out of a contract.

In commercial properties, indemnification clauses shift the risk of doing business. For example, a prospective buyer may want to acquire property but is not confident that anticipated building expansions will be approved. The seller, to reassure the buyer, agrees to indemnify the buyer if anything comes up. As such, indemnification clauses carry huge risk for the party that is making the promise and should be undertaken only if you are supremely confident in the results.

If you are engaged in a contract dispute, you may want to retain the assistance of an attorney. A lawyer can review the nature of the breach and advise you of possible responses, not all of which are necessarily lawsuits. You need to focus on the bigger picture and bigger meaning of your business relationships. A lawyer can work with you to ensure that you combat unscrupulous business partners and secure your business for the future.


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