Drafting An Effective Lease Indemnity Agreement

When negotiating a lease, a landlord may require that the tenant provide security for the performance of the tenant's obligations under the lease. Such security will typically be in the form of a cash deposit, a letter of credit, a guarantee or indemnity from a third party, or a combination of the foregoing. This article will address lease indemnity agreements and why landlords prefer them over lease guarantee agreements, and some minimum requirements to ensure that an indemnity agreement is drafted so that it is legally effective.

The principal reason that landlords prefer lease indemnity agreements over lease guarantees stems from the difference in liability between an indemnifier and a guarantor. An indemnifier assumes a primary liability, independent of the tenant, whereas a guarantor assumes only a secondary liability. The following explanation taken from an often-cited Canadian case¹ succinctly describes this difference.