A hold harmless agreement is a stipulation found within a legal contract that establishes where a given party's responsibility for liabilities begins and ends.
Every real estate investor should be familiar with the means to protect their finances in event of damages and accidents happening on the property. When investors know how to protect themselves, they ensure their finances are secured.
Explore the potential of hold harmless agreements in real estate and the most important things to know about them below.
A hold harmless agreement is a stipulation found within a legal contract that establishes where a given party’s responsibility for liabilities begins and ends.
Hold harmless agreements can appear in many contracts: a gym might have a hold harmless agreement with their clients in the event of their injury, while a business may have an agreement with their employees. Hold harmless agreements may appear frequently in real estate contracts.
A hold harmless agreement in a real estate contract absolves one party involved in the contract from liability; the signer of the agreement—usually the buyer or the tenant—effectively takes on responsibility for the enumerated potential damages or accidents that may happen on the property.
Hold harmless agreements are generally open to discussion. They are features of real estate contracts where the two parties involved have the opportunity to determine each of their respective responsibilities in full.
By discussing the extent of liability transfer in the agreement, the parties involved make it abundantly clear who is liable in the event that the property is damaged, equipment on the property is damaged, or people on the property are injured.
Hold harmless agreements can be established through a number of written, contractual formats.
Hold harmless clauses provide the legal structure for the liability transfers of a hold harmless agreement in a real estate contract. They are the most common examples of hold harmless agreements in action; specific clauses in a given real estate contract outline the scope of liabilities related to the property.
The legal basis of a hold harmless agreement can also be established in hold harmless agreement letters or liability and lien waivers.
While there can be many ways to establish the legal basis of a hold harmless agreement, what’s most important is that the purview of the agreement is clear, with all parties signed on in full agreement.
Hold harmless agreements establish the legal basis upon which potential damages are settled. In effect, they outline the contractual obligations of the parties signed onto the real estate contract and legally protect the given parties’ finances.
Buyers and sellers, landlords and tenants, developers and contractors, and any party signed onto a hold harmless agreement has a legal and financial stake in the particulars of the hold harmless clauses outlined in the contract. They are of the utmost importance in discerning who is at fault, who isn’t, and who is responsible for extremely costly financial compensation.
Because of their legal and financial importance, the importance of clarity in a hold harmless agreement cannot be understated for every party involved. Accidents and damages can strike at any time. When these confounding events arise, a clear program forward makes addressing these events easier for all parties involved.
Depending on their context, hold harmless agreements can cover a number of liabilities; that’s why they are so important to a contract. In a real estate context, harmless agreements generally cover specific instances of property damage or accidents and injuries sustained on the property.
The waiver of liability outlined in a hold harmless agreement typically originates from the property owner or a transfer of liability from the former property owner of a sold property to the new one. Without a hold harmless agreement, property owners leave themselves vulnerable to financial risks as they may be liable for any damages left undefined.
Therefore, the scope of liabilities waivers covered by a rental agreement must be clearly established in the agreement. In most cases, agreements are unilateral; they cover a wide range of potential liabilities by establishing full liability on the signee.
In a real estate context, these liabilities may refer to:
Suppose a property owner hires a maintenance technician to make repairs on their property. Before doing so, they may include a hold harmless agreement that absolves the property owner of any injuries the technician may sustain while on the property grounds, like if they slipped, fell, and hurt themselves.
In this instance, the technician would be signing a unilateral liability waiver; they absolve the property owner of responsibility over any injuries.
Additionally, technicians may propose a reciprocal hold harmless agreement, wherein they are absolved of any injuries sustained in regard to the subject of their maintenance, such as roofing or electrical work.
To better protect their finances, real estate investors should know when they need to consider holding harmless clauses in their managed assets. There are many contexts in which real estate investors should think about including a hold harmless agreement in their contracts.
Here are three clear instances where a hold harmless agreement can save real estate investors from potential financial headaches: