There are many elements of running a successful laundry business that are not clear cut. Leases, contracts and other legal agreements frequently include language that it takes a lawyer to comprehend. Unfortunately, these agreements are also essential for limiting your personal and professional liability. Today, we will take a look at the importance of Mutual Waivers of Subrogation.
If you rent the building in which you operate your laundromat, you almost certainly have a lease. This lease may or may not contain what is known as a Mutual Waiver of Subrogation. Subrogation refers to the right of recovery in the event of damages, but most often applies specifically to situations in which insurance might be involved. In almost every property insurance policy – which your landlord is generally obliged to have – there is a “Subrogation Clause” which transfers his or her right to subrogation to the company in the event of a covered incident.
A Mutual Waiver of Subrogation eliminates this right, meaning that it is not there for an insurance company to claim. Importantly, this is only possible before an incident that is covered by insurance – after the incident, the right already belongs to the insurance company, which is unlikely to waive it.
Why is this important?
Many leases include a clause that places some of the responsibility for the property’s upkeep onto the tenant. In theory, this might make you – the tenant – financially responsible for damage to the property that came about as a result of your negligence. In practice, this is not always enforced. Should, for example, your roof cave in because you hadn’t cleaned out the gutters on the property, most landlords would accept that this was not really your responsibility, even if the language in the lease suggests otherwise.
An insurance company would not be so forgiving. In the above situation, after writing a check for the landlord’s losses, the insurance company could turn around and pursue you for the same amount of money. This is known as subrogation. Even if the landlord were to ask that the company not pursue you, the right is no longer his or hers.
This entire situation can be avoided, however, with a Mutual Waiver of Subrogation. With this clause in the lease, both the tenant and landlord are protected from situations like the above, to some degree treating the tenant as an additionally insured party under the landlord’s policy.
As a laundry business owner, you should take the time to review your lease. If such a clause isn’t included, speak with your landlord to limit both of your liabilities.
Written by Larry Trapani, President, Brooks-Watersburn Corp.