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An Exculpatory Clause Is Not a 'Get Out of Jail Free' Card
Until recently, it appeared that exculpatory clauses could exonerate a party from liability under all circumstances. According to case precedent, in a landord/tenant context, it seemed as though a landlord need only cite economic self-interest as the basis for its non-performance under the lease agreement and enforce the exculpatory clause against its tenant, thereby limiting the tenant's remedies to specific performance, injunctive relief, and/or arbitration.
The purpose of an exculpatory clause is to limit the landlord's liability for monetary damages in the event of the landlord's non-performance under the lease agreement. Essentially, the exculpatory clause prevents the tenant from claiming monetary damages for lost income, loss of profits, and/or loss of business. While it is common business practice in commercial leasing to use an exculpatory clause, 'it is well settled that a commercial lease represents a 'valuable property interest' for which equitable protection is available.' (Banc of America Securities LLC v. Solow Building Company II, L.L.C. No. 9931 slip op. 09545 (N.Y.App. Div. Dec. 4, 2007) ('Solow')). Accordingly, the tenant's property rights can be severely handicapped if the landlord's conduct remains unrestricted.
For example, if a landlord fails to repair the leased premises in a timely fashion, thereby causing the commercial tenant to lose business income, an exculpatory clause would only allow the tenant to seek an order from the court demanding that the landlord repair the premises or, alternatively, seek redress through arbitration. The tenant would not be entitled to recover its loss of business income from the landlord. This dynamic effectively reduces the landlord's motivations to cure its breach because a cost-benefit analysis reveals that the landlord is better served (i.e., an economic self-interest) by allowing the breach to continue, which would trigger the protection of the exculpatory clause.
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