California Commercial Lease Liability: When Limitation Clauses May Be Invalid
In any transaction between two or more parties, each party, rightfully so, seeks to limit the amount of economic liability they may incur in the event that the agreement deviates from the “win-win” result each party is looking for when going into the agreement. As such, the written agreement underlying the transaction should, and generally will, contain language limiting each party’s liability to the other, or to third parties, in the event an unexpected issue arises in the performance of the transaction.
This applies to business law in Los Angeles, particularly in leases for commercial real property, where the landlord generally has more risk of economic exposure than the tenant. Such limitation of liability clauses are intended to protect the alleged wrongdoer from unlimited liability. For example, parties to a commercial lease may agree to limit liability for breaches of covenants in the lease. However, California courts may choose to restrict these protections in certain cases.
To the extent that a limitation of liability clause also attempts to shield a party from tort liability, it is subject to the public policy expressed in California Civil Code section 1668. This section provides that “[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his [or her] 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.” Civil Code section 1668 has been used to invalidate contractual provisions that purport to exempt liability for future intentional wrongs and gross negligence. It also prohibits provisions exempting ordinary negligence when the public interest is involved, or a statute expressly forbids it.
This does not mean that limitation of liability clauses will be stricken from the lease or cause the lease to be deemed void or voidable. It merely means that courts are willing to restrict the breadth of such restrictions in certain circumstances.
Therefore, while parties can write limitation of liability clauses in as broad of terms as they like, and each may agree to such terms by signing the lease contract, such joint agreement does not mean that a party who later suffers damages cannot challenge the scope of such clauses and have a court invalidate the application of such terms, even where the parties have equal bargaining power.CTA 3: Need assistance drafting or reviewing limitation of liability clauses? Trust Lerner & Weiss, leading California employer defense attorneys, to ensure your leases are legally sound. Get in touch today for a consultation.