Business and Legal Insights

Many of the topics we cover in this space ultimately come down to problems in drafting (such as here, here, and here).  Of course, these drafting issues aren’t apparent when the parties execute the lease, contract, or other document.

A new case about an exculpatory clause (a provision that limits or eliminates the liability of one of the parties to a contract to the other) in a lease is a good example.  In Obsessions in Time, Inc. v. Jewelry Exchange Venture, LLLP, out of Florida’s Third District Court of Appeal, a jewelry vendor leased a booth from a jewelry exchange.  The landlord offered the tenant the use of a safe for the valuable jewelry that the vendor would be selling.  According to the tenant’s lawsuit, during the lease term an employee of the landlord let an authorized person have access to the safe, who stole some $2 million worth of jewelry belonging to the tenant.

The lease contained this provision:

In making this lease, it is hereby agreed that lessor does not assume the relations and duty of bailee and shall not be liable for any loss or damage to the contents of the vault within the premises caused by burglary, fire, or any cause whatsoever, but that the entire risk of such loss or damage is assumed by the lessee. The lessor shall not be liable for any delay caused by failure of the vault doors to lock, unlock or otherwise operate and the sole liability of the lessor hereunder is limited to the exercise of ordinary care to prevent the opening of said vault or boxes contained therein by any person other than lessee or the authorized agent of the lessee.

Presumably both the landlord jewelry exchange and tenant vendor thought this provision made sense when they signed the lease.  At first glance, it seems to relieve the landlord of any liability.  The landlord defended the tenant’s eventual lawsuit on the grounds that the exculpatory clause prevented any liability.  The trial court dismissed the tenant’s complaint with prejudice.

On closer look by the appellate court, however, the exculpatory clause was ruled to be ambiguous because it contains conflicting language.  On the one hand, the first sentence says that the landlord can’t be liable at all.  But the second sentence limits the landlord’s liability to “the exercise of ordinary case…”  The second sentence imposes a duty on the landlord (to exercise ordinary care) and limits liability to when the landlord doesn’t fulfill that duty.  In other words, the second sentence means that the landlord can be liable under certain circumstances, which directly conflicted with the first sentence’s proviso that the landlord cannot be liable at all.

In reinstating the tenant’s complaint, the appellate court noted that Florida law dislikes exculpatory clauses in contracts because (when drafted correctly) they relieve one of the parties of the obligation to exercise due care and, in turn, shift the risk to the other party, who is usually the one less equipped to bear the risk.  As a result, Florida law requires that exculpatory clauses be strictly construed against the party seeking to avoid liability.

The court walked through three other cases concerning exculpatory clauses which had the same ambiguity of absolving a party of liability but still imposing a duty on that party.  The main lesson to draw from this case is that if a lease is going to include an exculpatory clause, it cannot be at all ambiguous because a Florida court is required to construe it against the party trying to avoid liability (usually the landlord).