Real Estate Tip: Risky Risk Allocation

Landlords and tenants spend a good deal of time deciding how to share risk, how to insure against it, and whether or not to provide indemnities with respect to it. When the leased premises is a place of public accommodation, one risk is whether the physical aspects of the location are in compliance with 42 USC Section 12181, et. seq.,Title III of the Americans with Disabilities Act.

Landlords and tenants can spar over who pays in the case of non-compliance, but what about the design professional who designed the non-compliant space? Landlords and design professionals also seek to allocate risk in their contracts with one another. A landlord might reasonably require that the design professional be the one to pay if the design of the space is not in fact compliant with the ADA.

Not so fast. A federal court in the case of Rolf Jensen & Associates v. District Court 282 P.3d 743 (Nev. 2012) would not allow the landlord to obtain indemnification from the design professional, despite the fact that bringing the building into compliance cost the landlord $20,000,000. The court said that landlords cannot shift the burden of payment to design professionals because that would be the equivalent of delegating their responsibility for ADA compliance to someone else, and that is not allowed. Whether or not you agree with this logic, other courts have agreed and it is fair to say that there is a trend in the law toward this understanding.

Contracts can be drafted to increase a landlord’s odds in such disputes. However, the better answer may lie in the landlord monitoring and inspecting both during and after construction. That, in turn, requires lease provisions that make the tenant(s) responsible for the cost of those additional inspections. If your business involves public accommodations, be certain to ask your real estate attorney how you can best allocate the risk associated with unintentional non-compliance with the ADA.

Today’s real estate tip is brought to you by Rick Smith, a LEED Accredited Professional and member of Bernstein Shur’s Real Estate Practice Group and Green Building Team. Stay tuned for more useful tips for real estate professionals.

For more information, contact Rick at rsmith@bernsteinshur.com or 603 623-8700 ext. 8829 or 207 774-1200.