Contracts may include a variety of terms, including exemption clauses. There are several purposes for exemption clauses:
- They may limit the parties’ ability to sue for damages for breach of contract;
- They may limit the scope of the performance required by a contract;
- They may limit the remedies available for breach of contract;
- They may completely exclude one party’s liability to the other for breach of contract or other harm.
An exemption clause is a term that limits the parties to the contract in some way. When a contract involves two parties, an exemption clause can be used to prevent one of them from having any liability to the other if there is a problem. Certain requirements must be met to include an exemption clause in a contract. A party who wants to enforce an exemption clause must prove that the exemption clause is part of the contract.
By signing a contract with an exemption clause, a party to a contract agrees to be bound by it. Even if a person did not fully read the contract or did not understand the clause, a court may still enforce it. Various complications, however, may arise when an unsigned document, such as a ticket, contains an exemption clause.
An exemption clause is similar to a disclaimer that warns a party to a contract of certain risks and disclaims liability for them on the part of the other party. For this reason, the law does not view exemption clauses favorably in all states. Nevertheless, if both parties understand the terms and the clause is written correctly, these clauses may be legally allowed.
It is important to keep in mind that the laws regarding exemption clauses may be different in different states. Contract law is generally, with a few exceptions, a matter of state law. The courts in the various states would choose to enforce a clause or not according to the law of the state in which a person seeks to enforce a contract.
What Are the Requirements for a Valid Exemption Clause?
An exemption clause must meet several requirements if the clause is to be valid as follows:
- The clause must be expressly included in a contract;
- The clause should be disclosed to the other party when they enter into the contract;
- A reasonable period of time should be allowed for notification of the parties of the presence of the clause in their contract – time for the parties to understand and consider whether they want to agree to it.
What is reasonable depends on the circumstances surrounding the making of the contract.
Exemption clauses are usually considered unfair because one party puts them in a contract, and the other has no choice but to accept them. For example, an exemption clause might be found in the terms and conditions of the purchase of a product. In this context, it usually states that the manufacturer is not responsible for any harm caused by incorrect use of the contract.
An exemption clause is likely to be used to protect the party who writes the contract. However, risk can also be distributed between both parties using these clauses.
Two types of exemption clauses are as follows:
- Exclusion Clause: This is a clause that excludes liability for harm resulting from specific circumstances described in the clause. Contracts related to foreign trade, for example, can contain an exclusion clause absolving a bank of liability for harm unless the opposing party can establish negligence on the part of the bank;
- Limitation Clause: A limitation clause usually limits the liability for harm to one party to a contract. Or it may limit the responsibility they have under the contract.
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 a contract with the clause, both parties agree to include it in the contract.
An exclusion clause is incorporated by notice; the party who requests it must notify the other party of the fact that the contract includes this clause. Terms that have previously been incorporated into a contract between the parties are considered incorporated on the basis of the earlier dealings between the parties. So, notice need not be given every time the parties make the same agreement with the same clause.
One of the biggest benefits of an exemption clause is that it can completely eliminate a party’s liability. Unfortunately, these clauses may be more difficult to enforce than other kinds of exemption clauses.
Often, courts refuse to enforce exemption clauses because they are not written correctly. Courts rarely accept exemption clauses unless they are reasonable and clearly written.
A party to a contract must also state that the exemption clause was part of the original contract. Some ways to verify this fact are as follows:
- Offer proof that reasonable notice was given to all parties to the contract of the presence in the contract of the exemption term;
- Offer proof of a prior course of dealing between both parties that included the clause;
- Offer proof of a signature on the contract.
An exemption clause in a contract binds the party who signs the contract. The same applies even if the document was not read or understood by the other party. In the event that one party or the other party misrepresented the facts, a signed document may be rendered ineffective.
Unsigned documents, such as notices or tickets, may contain exemption clauses. There should be sufficient notice about the exemption clause if a person encounters this situation. A contract must contain this clause and not only a receipt that acknowledges payment.
Furthermore, the exemption clause must exist before the contract takes effect and not after the transaction has been completed. Unless both parties are aware of the clause, most state courts will not enforce it.
Even without sufficient notice, an exemption clause can be triggered. A previous interaction between the two parties could lead to this. It is possible that the exemption clause was part of the original contract due to customs or trade usage.
Does a Landlord Liability Exemption Clause in a Lease Apply to Third Parties Who Are Injured on the Property?
Whether a landlord liability exemption in a lease applies to a third party, not the tenant, depends on the state in which the property is located. 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.
For example, A may sign a lease for an apartment complex with a faulty stairway. In the lease, A agrees not to hold B, the landlord, liable for any injuries caused by the faulty stairs. But suppose A invites C to her apartment, and the stairway collapses as C 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;
- Subtenants.
Other factors may also be considered, such as:
- The site where the person was injured;
- Violations of statutes or ordinances by the landlord;
- Owners of leases with original exemption clauses.
The law of exemption clauses also applies to leases, so a party who wants to include one in a lease should become familiar with the applicable law.
Do I Need the Help of a Lawyer for My Exemption Clause Issue?
If you were injured on someone else’s leased property, you should contact a landlord-tenant attorney immediately to assess your case. LegalMatch.com can connect you to a knowledgeable lawyer who can determine whether liability exemption clauses are enforceable 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 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.
