Understand Your Commitment Under Contract/Lease
The scope of an organisation’s risk
management program should be very broad, with the intention being to
address all matters that can have an impact on the organisation
achieving its objectives. One of the items requiring attention as part
of such a program is Contracts. It is important that appropriate
administrative procedures are in place that provide for review and
understanding of all contract terms and conditions prior to execution
or renewal, and then compliance with those terms and conditions for
the duration of the contract. A register of contracts and agreements
is recommended.
One of the contract types that has caused
considerable problems for sporting organisations in recent times is
property/facility leases or rental contracts, with the most common of
these being council ground leases. The prime area of concern
generally is associated with some council’s insistence that the lease
agreement includes a contractual obligation for the tenant to fully
indemnify the council against all actions and claims that may be
brought against them arising out of the use of the property.
Of course not all lease wordings are the
same, and there have generally been two different types of strategies
involved, with the common aim of these strategies being to transfer
the liability of the landlord to the tenant or the tenant’s insurer.
We will address later in this article the author’s opinion on whether
or not these strategies are appropriate, but first we will look at the
methods that either have been or are being used by some local councils
in achieving this transfer of liability, and the implications of each
method for the tenant organisation. |
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One strategy has been for the local
council to require that it be included as a Joint Insured under the
organisation’s public liability policy. What this is attempting to
do is to extend the cover provided by the insurance company to not
only indemnify the sporting organisation should that organisation be
found to be legally liable for damages in the case of injury or
property damage, but also to indemnify the council should the
council be found to be legally liable. This is obviously a totally
different situation from the insurers perspective as the risk
involved has changed dramatically – the cover they are now providing
is not only covering the liability of the organisation but also the
liability of the council. It is highly unlikely an insurance
company is going to be prepared to accept this exposure, but if they
are they are certainly going to require a dramatically increased
premium in comparison to cover only for the sporting organisation.
The second strategy being adopted by
some local councils is for them to include indemnity or hold
harmless conditions in their lease contracts. Such conditions have
the effect of the organisation indemnifying the council (i.e.
agreeing to hold the council harmless) should the council have
actions, claims, charges or damages brought against them in relation
to the use of the council facility. In other words, the
organisation takes on the liability of the council for common use
facilities.
The very important issue here from the
organisation’s perspective is that public liability insurance
policies exclude liability incurred by the insured as a result of
indemnity or hold harmless agreements.
Continued
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