Indemnifier Beware!

A properly drafted indemnity agreement can be a powerful tool in a landlord's arsenal. All the more so since a recent Ontario court decision held that a landlord had no duty to mitigate its claim against an indemnifier under an indemnity agreement.

Indemnity Agreements and Mitigation

Indemnity agreements are used to backstop a tenant's obligations under a lease. Their purpose is to help the landlord to be kept whole if the tenant defaults under the lease. There was a time when landlords used guarantee agreements for the same purpose; however, courts did not always uphold a guarantor's liability (such as in the case of a tenant bankruptcy). Eventually, landlords found a way to "bulletproof the backstop", by casting the guarantor's obligation as a primary obligation—an indemnity—independent of the tenant's lease obligations. Courts accepted this recharacterization and began enforcing indemnity agreements in circumstances where previously they had not.