In a previous blog post, I wrote about a case involving a major resort in Las Vegas Nevada that hired somebody to help ensure that its resort modifications were in compliance with the Americans with Disabilities Act. When it turned out that those modifications were not in accordance with the ADA and the resort was sued, they sought indemnification. The Nevada Supreme Court said that the ADA was a nondelegable duty and that the resort was not going to be able to get indemnification. Does that mean indemnification is dead? The answer is not exactly. In Reid v. Summit Claiborne, LLC 2013 WL 486783 (E.D. La. February 6, 2013), Summit brought a third party complaint for indemnity against AARD NOLA and Mainstream Development, the prior owners that they purchased the building from. The underlying suit involved a lawsuit by Reid against Summit alleging that the building violated the ADA.
Here are the critical facts:
1. The building was purchased from two different entities (Mainstream Development LLC and AARD NOLA ST. Claude LLC, two separate entities). It was AARD NOLA that moved for summary judgment.
2. The purchase agreement and other relevant documents did not include an express indemnity clause.
3. There was a lease between the lessee and Mainstream LLC regarding the building being in ADA compliance and continuing to be in ADA compliance for the duration of the lease, but AARD NOLA was not on that lease, rather only Mainstream Development was.
4. The purchase agreement between Summit and AARD NOLA made numerous references to that lease , but the purchase agreement said that to seller’s knowledge the lease was a true and correct copy.
5. Purchase agreement stated that the seller was making no representation or warranty as to the information or accuracy disclosed in the survey and reports and that the seller was transferring to purchaser the property without warranty except the title.
6. The purchase agreement also contained a clause (I call it the parol evidence clause), that said that the agreement was the sole and entire agreement of the parties and that there was no other agreement other than what was set forth in the written agreement. These kind of clauses are quite common in contracts and what they do is they set up a system whereby any negotiations prior to the signing of the agreement disappear unless they are contained within that agreement.
7. There were numerous representations and warranties in the purchase agreement, but ADA compliance was not one of them.
8. Cash sale document said that there were no statements or representations or declarations of any kind being made regarding the existence or nonexistence of any quality, characteristic or condition of the property being sold.
The above facts can be found at 2013 WL 486783, **1-4.
Based upon the above facts, the court reasoned as follows. First, nothing in the documents themselves imposed a contractual duty to indemnify. Id. at *2. Second, AARD NOLA was not a party to the lease containing the language that the building had to be an ADA compliance. Id. at *3. Third, even though AARD NOLA was not on that lease, the purchasing agreement could still have incorporated that lease but did not do so. Id. Fourth, while there may have been discussions about ADA compliance done the negotiations leading up to purchase, the parol evidence clause that was part of the purchase agreement made those negotiations disappear. Id. at *4. Fifth, the seller sold the property as is. Id. Sixth, there were numerous representations and warranties in the purchase agreement, but ADA compliance was not one of them. Id. Seventh, saying that a copy of the lease is true to the best of the seller’s knowledge, is not the same as incorporating that lease and agreeing to abide by its terms. Id. at *3. Finally, the court noted that any continuing obligation to ensure compliance with the ADA was assumed by Summit during the property purchase. Id.
Preventive tips: For anyone involved in commercial real estate, this case demonstrates that a close review of documents is always in order. It also demonstrates that you need to have specific references to ADA compliance in the purchase documents. It would also be a good idea if in the purchase documents one of the representations and warranties is ADA compliance. Finally, in addition to all that, it would be wise for the purchaser to have someone knowledgeable about the ADA architectural guidelines inspect the building before purchase goes through so that the purchaser can know exactly what the ADA risks are. Once those risks are known, the purchaser could either demand that the seller bring the building into compliance as a condition of the purchase going through, or that the seller knock off money off the sale price leaving it to the purchaser to remedy the ADA violations.