A Tenant Improvement Allowance Agreement defines funding and construction terms for tenant space modifications. This playbook provides negotiation insights on payment schedules, approval rights, and completion standards.
Why This Matters: Overly broad indemnities or unlimited liability exposure can lead to catastrophic losses and insurer pushback.
Negotiation strategy
If you're the Landlord:
Ensure indemnity obligations are mutual and liability caps are clearly defined. Propose language that aligns with industry standards and protects against excessive risk.
If you're the Tenant:
Negotiate for reciprocal indemnity obligations and reasonable liability caps. Ensure the terms reflect fair risk distribution and comply with jurisdictional requirements.
Essential elements
1
Mutual Indemnification
Reciprocal indemnity obligations.
2
Liability Cap
Defines maximum liability exposure.
3
Jurisdiction Compliance
Adheres to local legal standards.
Action framework
ACCEPT
Propose edits when indemnity is not mutual or liability caps are absent.
EDIT
Reject clauses that expose parties to unlimited liability.
ADD
Add clauses to ensure mutual indemnity and capped liability.
PRO TIP
Always verify that indemnification clauses comply with local laws and industry standards.
Example clauses
FAVORABLE
Preferred Mutual Indemnification
"Each party agrees to indemnify, defend, and hold harmless the other party from any third-party claims arising from their own negligence, with liability capped at [specified amount]."
NEUTRAL
Fallback Mutual Indemnification
"Indemnification obligations shall be mutual, with liability capped at [specified amount] for direct damages only."
UNFAVORABLE
Unlimited Liability Exposure
"The Contractor shall indemnify the Company for all claims without any liability cap."
Fallbacks
High-Risk Projects
In high-risk projects, ensure indemnity covers specific risks and liability caps are adjusted to reflect potential exposure.
Cross-Border Transactions
For cross-border deals, tailor indemnity clauses to address international legal variations and enforceability.
Public Sector Contracts
Public sector contracts may require additional indemnity provisions to comply with governmental regulations.
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