Hey, You Can’t Sue Me For That! The Importance of Exculpatory Clauses in Leases
By: Rob Kozloski
The freedom to contract is one of the greatest liberties allowed under Georgia law. However, not all contract provisions will be enforced by a Georgia court. In a case that is pending before the Court of Appeals of Georgia, JBL Wisteria Shopping Center, LLC v. The Awkward Cup, LLC, Swift, Currie, McGhee & Hiers represents a commercial landlord who leased a shopping center suite to a tenant. The landlord included an exculpatory clause in the lease – a clause that states the tenant could not sue the landlord for lost business income. However, even though the lease contained this exculpatory clause, the tenant tried to sue the landlord for lost business income when a leak developed in an interior wall with the neighboring suite.
Even though the parties expressly agreed to these terms of the lease, the tenant tried to seek lost business income by unilaterally nixing this provision after that fact. In doing so, the tenant argued to the court that it was unenforceable pursuant to a public policy exception. Georgia law provides:
A contract that is against the policy of the law cannot be enforced. Contracts deemed contrary to public policy include but are not limited to: a covenant, promise, agreement, or understanding in or in connection with…maintenance of a building structure . . . purporting to require that one party to such contract or agreement shall indemnify, hold harmless, insure, or defend the other party to the contract or other named indemnitee . . . against liability or claims for damages, losses, or expenses, including attorney fees, arising out of bodily injury to persons, death, or damage to property caused by or resulting from the sole negligence of the indemnitee . . . is against public policy and void and unenforceable.
O.C.G.A. § 13-8-2(b). The landlord argued that because the injury in question was not bodily injury and was not damage to property (i.e. solely monetary damages), then the public policy exception does not apply and the provision is in fact enforceable.
As further evidence to support the landlord’s position, the landlord argued that the Georgia Court of Appeals has held on numerous occasions that in the context of an insurance contract interpretation, loss of money is not considered property damage. In Mack v. Nationwide Mut. Fire Ins. Co., an insured attempted to recover for loss of use of money, but the court determined this was not property damage covered under the policy:
Money is one of the great inventions of civilization without which life, as we know it, could not continue. It exists, however, solely within our minds and thus cannot be touched, weighed, or seen. Therefore, it is not tangible, but is intangible . . . . Nonetheless, rather than avoiding this important issue, we apply the common meaning of the words involved to hold that money is not tangible property. The claims at issue in this case do not involve any specific coin or notes, and we do not intend that this decision affect those cases finding that specific metal or paper which represents money is tangible property . . . . This brings us to the conclusion that Mack’s claim is not for “property damage” as defined in the insurance policy.
Mack v. Nationwide Mut. Fire Ins. Co., 238 Ga. App. 149, 150 (1999). Therefore the question that must be addressed by the Court of Appeals of Georgia is whether lost business income will be treated like money/intangible property as in Mack or if the lost business income will be treated as property. This important decision will dictate if the public policy exception applies to the exculpatory clause in the lease and whether it is enforceable since it only applies if lost business income is treated like property. Surprisingly, this is a gray area of Georgia law that has yet to be addressed by the Supreme Court of Georgia or the Georgia Court of Appeals.
Swift, Currie, McGhee & Hiers favors the interpretation that the public policy exception does not apply because lost business income, like money, should not be treated as property. While this matter is still pending before the Court of Appeals of Georgia, the court will likely issue an opinion in the coming months. However, this case serves as a gentle reminder that exculpatory clauses in leases are a great way to protect landlords by preventing tenants from recovering from unrelated and unnecessary claims.
Attorney Contact Info
Rob Kozloski
robert.kozloski@swiftcurrie.com
404.888.6278
