The Importance of Indemnification Provisions

Indemnification provisions are found in many types of agreements and particularly those involving real estate, such as construction and license agreements. Such provisions constitute important tools for allocating risk between the parties to the agreement. Although many gloss over such provisions, they are essential in ensuring that the indemnifying party absolves the other party from responsibility and reimburses the other party for claims, damages and losses.

A typical indemnification provision provides that the indemnifying party will agree to “defend, indemnify and hold harmless.” With these words, the responsibility for addressing certain costs and expenses is passed from one party to another. Such a shift in responsibility is especially beneficial to the indemnified party for third party claims. Due to the indemnification provision, the indemnifying party would be required to cover the costs and losses of the other party in a potential lawsuit, including, oftentimes, the costs of the indemnified party’s legal defense. In this way, property owners and businesses can protect themselves against potential and unforeseen risks and damages.

By way of example, suppose you are the owner of an apartment building in which a commercial tenant wants to renovate the commercial space. It would be essential to not only enter into an agreement with the tenant to address the scope of the work to be conducted, but to include in the agreement an indemnification provision so as to hold the tenant responsible for any damages to the building or injury to others and thereby ensure that you, as the owner, can be indemnified from such liability.