In commercial real estate transactions, indemnity provisions are frequently negotiated. However, one critical component is often overlooked: the obligation to cover attorneys’ fees related to indemnity claims.
When an indemnity claim arises, the indemnified party may face significant legal expenses. If attorneys’ fees are not expressly included in the indemnity provision, the party entitled to indemnification may be forced to absorb these costs, despite relying on contractual protections.
Why a “Duty to Defend” Isn’t Enough
It is sometimes argued that a duty to “defend” within the indemnity language is sufficient to cover attorneys’ fees arising out of the indemnity. However, in practice, indemnifying parties frequently delay their obligation to defend or refuse to do so altogether. During that period, the indemnified party must retain its own counsel and incur fees to protect its interests.
Without clear language requiring reimbursement of these defense costs, there is no assurance that the indemnified party will be made whole, even if the agreement includes a general attorneys’ fees provision elsewhere.
The Limits of Prevailing Party Provisions
Prevailing party attorneys’ fees provisions, commonly found in contracts, are unlikely to close this gap. These clauses typically only apply to legal fees incurred in enforcing the agreement between the contracting parties. They do not generally extend to attorneys’ fees incurred in defending against third-party claims.
As a result, removing specific language from the indemnity provision addressing defense costs can significantly weaken the intended protection, particularly in commercial real estate, where third-party claims are not uncommon.
[View source.]
