Contracts can include a variety of terms, including exemption clauses. There are several purposes for exemption clauses:
- The parties are limited in their ability to sue for damages.
- Defining the scope of contractual responsibilities.
- Limiting the remedies available for breach of contract.
The exemption clause, also known as an exclusion clause, is a term that can limit the contracted parties in some way. When a contract involves two parties, an exemption clause can be used to prevent one of them from being held liable if there is a problem. To include an exclusion clause in an agreement, certain statutory requirements must be met. A party must also prove that the exclusion clause is part of the contract.
By signing a contract with an exclusion clause, you agree to be bound by it.
Even if you did not fully read the contract or did not understand the clause, it is still legally binding. Various complications can arise when an unsigned document, such as a ticket, contains an exemption clause. It is necessary to notify parties in advance of the exemption clause in these situations.
You can think of an exclusion clause as a disclaimer that warns you of your risks. Due to their abdication of responsibility, the law does not view exemption clauses very favorably.
Nevertheless, if both parties understand the terms and the clause is written correctly, these clauses are legally permissible.
Requirements of Exemption Clauses
Multiple requirements must be met for an exemption clause to be valid:
- Contracts must contain the clause.
- The clause should be disclosed to the other party when entering the contract.
- A reasonable period of time should be allowed for the clause to be notified.
- Whether a contract is reasonable depends on the circumstances surrounding it.
Exclusion clauses are usually considered unfair because one party has to accept them. An exclusion clause might be found in the terms and conditions of a product, which usually states that the manufacturer is not responsible for any harm caused by incorrect use.
An exemption clause protects the party who is writing the contract from a lawsuit filed by the other party. Risk can also be distributed between both parties using these clauses.
There are two types of exemption clauses: exclusion clauses and limitation clauses.
A clause that excludes liability can eliminate liability for specific circumstances described in the clause. Contracts related to foreign trade, for example, can contain an exemption clause absolving a bank of liability for injuries unless the opposing party can establish negligence.
There are three ways to include exemption clauses in a contract:
- Incorporation by signature.
- Incorporation by notice.
- Incorporation based on previous business dealings.
By signing the contract, both parties agree to include the clause. An exclusion clause is incorporated by notice if the party requesting it has notified the other party about it. Terms that have previously been incorporated into the contract are considered incorporated by earlier dealings.
One of the biggest benefits of an exemption clause is that it can completely remove a party’s liability. Unfortunately, these clauses can be extremely difficult to enforce.
Often, courts overturn exemption clauses if they aren’t written correctly, and they view them with extreme suspicion if they aren’t. Courts rarely accept exemption clauses unless they are reasonable and clearly written.
You must also state that the exclusion clause was part of the original contract. Here are some ways to verify this information:
- Reasonable notice of term
- A prior course of dealing between both parties
An exclusion clause in a contract binds the party who signs it. The same applies even if the document was not read or understood by the other party. In the event that you or the other party misrepresent the facts, a signed document may be rendered ineffective.
Unsigned documents, such as notices or tickets, can contain exclusion clauses. There should be sufficient notice about the exclusion clause if you encounter this. A contract must contain this clause, not a receipt that acknowledges payment. Furthermore, the exclusion clause must exist before the contract begins. Unless both parties are aware of the clause, the courts will not enforce it.
Even without sufficient notice, an exclusion clause can be triggered. A previous interaction between the two parties could lead to this. It is possible that the exclusion clause was part of the original contract as a result of custom or trade usage.
The courts will rule that the exclusion clause does not protect the individual if privity is involved. An individual cannot become involved in this process if they are not a third party. As a result, employees are considered third-party consortium members.
What Role Should Contract Forms Play?
If you send a contract form that specifies specific terms, but the other party accepts the contract according to its own terms, you have a problem. As a result, the contract usually involves the last set of terms sent.
In the event of an exclusion clause, the whole contract must be examined to determine whether it covers the breach. The courts must investigate vague clauses. You should use precise language in the exclusion clause to avoid liability issues.
Does a Landlord Liability Exemption Clause in a Lease Apply to Third Parties Who Are Injured on the Property?
It depends on the situation. In some states, such as California, Illinois, Indiana, and New York, a liability exemption clause in a lease does not apply to anyone but the tenant. Even if a lease has an exemption clause, a landlord can still be held liable for injuries to third parties on the property.
Imagine that A signs a lease for an apartment complex with a faulty stairway. In the lease, A agrees not to hold B liable for any injuries caused by the faulty stairs. Suppose A invites C to her apartment, and the stairway collapses as she walks down it. Regardless of A’s agreement with B, C can still hold B accountable for her injuries.
The liability exemption clause signed by a tenant can, however, also be applied to third parties in states such as Georgia, Massachusetts, and Pennsylvania. Despite not having signed the lease, third parties injured on the property cannot sue the landlord.
When States Allow an Exemption Clause to Apply, What Factors Are Considered?
Liability exemption clauses are usually determined by some relationship between the tenant and the injured party. Included in this are:
- Children and spouses of the tenant
- Tenant’s employees
- Tenant’s invited guests
Other factors may also be considered, such as:
- Injury site
- Violations of statutes or ordinances by the landlord
- Owners of leases with original exemption clauses
What Can a Lawyer Do For Me?
If you were injured on someone else’s leased property, you should contact a landlord-tenant attorney immediately to assess your case. A knowledgeable lawyer can determine whether liability exemption clauses are applicable in your state and whether they were included in the lease.
The laws surrounding exemption clauses vary from state to state. If you were injured, you’d want an attorney to help you recover the full amount you are owed. Use LegalMatch to find the right landlord-tenant attorney in your area today.