Waiver of Subrogation Clauses

A waiver of subrogation clause is good for both a tenant and a landlord. A waiver of subrogation is a two-way agreement in which each party agrees to give up subrogation rights against the other in the event of some kind of loss, such as damage to a building or personal possessions from a fire.

Generally, the idea behind the waiver is to prevent one person's insurance company from pursuing subrogation – in other words, from taking the other person to court in a lawsuit. The inclusion of a waiver of subrogation clause in a lease or other rental agreement is a good idea for both parties because it can prevent potentially expensive and time-consuming litigation after the loss.

Waiver of Subrogation Clauses in Action

For example, assume that a tenant accidentally causes a fire that damages the landlord's building six months into a one-year lease. The landlord then puts in an insurance claim and receives payment for their losses from their insurance company. Without a waiver of subrogation in place, the landlord's insurance company can then sue the tenant to try to get back what it paid to the landlord. If the tenant is sued and loses, this might be harmful to their financial viability, which would not be helpful to a landlord who depends on the tenant to pay rent.

On the other hand, if a landlord causes a fire or is otherwise negligent, a waiver of subrogation stops the tenant's rental insurance firm from turning around and suing the landlord after having paid the claim to the tenant. If a landlord loses, they might raise the rent to cover their additional risk.

A waiver of subrogation clause is usually mutual; it's a two-way street. Examine whether the waiver will include liability as well as property claims and whether either party needs to get a waiver of subrogation endorsement from an insurance company for the clause to go into effect.