I grew up in Massachusetts, but I haven't been to Cape Cod for ages, so I thought it might be fun to rent a vacation home on the Cape for a week or two this summer. Using Vacation Rental by Owner (VRBO), I found a place that seemed to fit the bill. I reached out to the owner (let's call him Duke) to reserve the property, and Duke advised me all I needed to do was sign and return his rental contract along with a 50% deposit and he would mark it as rented. Simple enough, until I saw his rental contract.
Full disclosure here--I am one of those people who reads most
contracts before I sign them. I have a healthy respect for contracts, developed
initially during my claims training at Liberty Mutual and steadily strengthened throughout the forty years I spent in the insurance business. Maybe my life would be simpler if I could
just learn to smile and sign on the dotted line once I've been presented with a
"standard" contract, but I am not comfortable doing that. So I read most contracts.
Duke's Vacation Lease Agreement did look pretty standard, at
first, until I got to section 11, which opened with this declaration:
Tenant waives any right to allege deficiency in the premises or to otherwise claim that Owner or Owner's Representative has misrepresented the property.
Since I wouldn't be seeing the property in person until July
when I arrived for vacation, it seemed a bit unreasonable for Duke to be asking
me to waive my rights to allege deficiency and/or misrepresentation now, but I
kept reading until I hit the showstopper two sentences later:
Tenant will indemnify Owner's Representatives and the Owner for any injuries, accident(al) or otherwise, that may be incurred or suffered upon the premises by tenant and guests or anyone associated with tenant for any cause whatsoever during the term of this contract even if caused by gross negligence on the part of the owner.
The emphasis in the last line above is
mine. Requiring a tenant to agree to reimburse the owner for any loss
associated with any injuries that might occur on the premises, even if those
injuries were caused by the owner's gross negligence, seemed to border on the outrageous. Imagine Duke had been warned that his electrical
system was so old and poorly maintained that it represented an imminent fire
hazard, or that his house was at serious risk of collapse because of severe structural
termite damage, yet he failed to do the necessary repairs and continued to rent
it. Then imagine the house collapsed and/or burned and injured the tenants and
others in the house, who had no knowledge of the potential danger. According to Duke's Vacation Lease Agreement,
the tenant would be required to reimburse him for any sums Duke was required to
pay to the injured people. Somehow that
didn't seem fair, to say nothing of the probability that it's against public policy, and might be
void and unenforceable, even in Massachusetts. Remember, gross negligence is distinctive,
since it embodies a materially greater lack of care than ordinary negligence. The law.com definition:
...carelessness which is in reckless disregard for the safety or lives of others, and is so great it appears to be a conscious violation of other people's rights to safety.
So I wrote back to Duke and told him I wouldn't be able to
sign the Vacation Lease Agreement unless he was willing to tone down the
indemnification language. Duke responded immediately, saying he needed to keep
the language intact in order to:
...add some shared responsibility onto otherwise unconcerned and unattached weekly renters who we are entrusting with our very expensive property.
Shared
responsibility? He also told me his rental contract was "very standard,
very boilerplate" and that no one had ever raised the issue I was raising
in the seven years he had been renting the property. That intrigued me, so I took
a look at the standard, boilerplate rental contracts available for owners who
list their properties on VRBO to use, but I couldn't find an indemnification
clause as broad and deep as Duke's.
Thinking that perhaps Duke wasn't familiar with the
concepts of indemnification, gross negligence and public policy, I wrote back
to him and outlined my concerns more fully.
He responded that the risk/reward ratio in life isn't always equal, explaining:
As it pertains to our house, 99% of our guests think that the reward of spending time with family and friends in a great house, outweigh the lack of recourse they may give up in a rental agreement that they sign.
Why didn't 100%
of his guests think that way, I wondered, particularly since they couldn't
become guests unless they signed his contract?
What about the other 1%? Did they disagree with the balance of risk and
reward but still sign the Vacation Lease Agreement? We'll never know, since I decided to end my
correspondence with Duke and make different vacation plans.
I did briefly wonder
whether Duke's tenants had actually read his Vacation Lease Agreement and fully
grasped the nature of the liability exposure they were assuming. Probably not. Most people don't read
contracts, and of course the penalty for not reading and comprehending
potentially adverse contract clauses is zilch, unless and until something bad
happens and triggers those clauses.
Does it make sense to do a risk evaluation on something as mundane as a
vacation home rental? As a potential short
term vacation home tenant, do you really need to analyze the rental contract,
identify exposures, try to secure more favorable terms and conditions, and make
sure you have insurance coverage or other risk transfer mechanisms in place
that will protect you if things go wrong?
Since risk management is often
described as a process of identifying, assessing, and reducing risk to an
acceptable level, the answer depends upon the mindset you bring to the
transaction, your risk tolerance, whether you believe things might go wrong,
and your ability to deal with the financial consequences if they do go wrong. I
decided to pass on Duke's house because I didn't like his attitude or his
contract, so for me the potential risk associated with signing the contract was
greater than the reward. But Florencia Marotta-Wurgler, a professor of law at New York
University, says people usually don't change
their behavior simply because of what's in a contract. In Alina Tugend's article Those Wordy Contracts We All So Quickly
Accept, Marotta-Wurgler explains why:
For the most part it [what's in the contract] doesn’t matter. Things don’t usually go wrong — except when they do. And then it matters.
I know one thing for certain, however. Once a
contract matters, it really matters, and suddenly everybody wants to read it.
No comments:
Post a Comment