Facility usage agreements: key provisions and best practices
What are facility usage agreements?
A facility usage agreement is a legal document that outlines the terms and conditions under which one party grants another party the right to access and utilize its real property. These agreements aim to provide clarity between the parties regarding the usage of the property so that expensive and time-consuming disputes are avoided. Depending on the needs of any particular party, a facility usage agreement may be a stand-alone legal document, or it may be incorporated into a larger agreement, such as a lease (where it is commonly referred to as a "work letter" in a commercial leasing context).
Facility usage agreements are often utilized in a variety of situations , including: (1) when a tenant is granted the right to access the building of which its rented space is a part for use by its employees at no charge; (2) when a landowner allows a contractor to access its property to perform work; or (3) when a company permits a contractor to work on its existing building at a location where the buildings are normally not available for casual contractor work. Such agreements can also cover agreements allowing contractors to access a "stockpiled deposit of usable material," such as earth, to restore real property to its original condition after completion of approved construction.
Key provisions of a facility usage agreement
A facility usage agreement, sometimes referred to as a facility rental agreement, is a contract between the owner and/or operator of a facility and an individual or organization that is seeking to use the property for a specified purpose. While the terms of a facility usage agreement can vary widely depending on the applicable laws in the jurisdiction where the property is located, the parties involved, the subject matter of concern and other factors, these agreements often include numerous key elements. Depending on the nature of the agreement, both the lessee and lessor can be held liable for violations of these terms.
Terms of Use
Typically, facility use agreements aim to set appropriate boundaries and expectations for both parties with regard to the use of the property. This can cover appropriate and inappropriate uses of the property, as well as identifying restricted areas of the property and providing guidelines for the type of events that will and will not be permitted. For example, prohibitions against smoking tobacco products, gambling or other criminal or illicit activity may be included in a facility use agreement. The agreement will outline an acceptable level of behavior and decorum for all visitors, guests and attendees in order for all parties to have an enjoyable and productive experience at the property.
Responsibilities of the Parties
This section of the facility usage agreement outlines the responsibilities of both parties, including the lessee and lessor. Any specifics surrounding financial obligations related to either party should be outlined in this portion of the agreement, including details regarding the amount of payment, the form of payment and when it should be made. The general upkeep of the property before, during and after the use and cleaning, if necessary, can also be addressed in this section. Finally, this area of the agreement should include information establishing the time period for which the property is being leased, under what circumstances it can be canceled, and if there is a cancellation fee, what that fee is.
Indemnification and Liability Provisions
Liability clauses are among the most important components of a facility use agreement. These clauses allow for the sharing of liability and responsibility for injuries and damages. In some cases, the lessor will want the lessee to assume responsibility for any accidents or injuries that occur while on the property, while the lessee will likely seek to limit their liability as much as possible and place any blame for accidents on the passive actor, namely the property owner. A well-written facility use agreement should strive for a middle ground that allows for all parties to fairly share responsibility for activities that may take place on the property.
Cancellation
The cancellation policy in a facility use agreement should address what will happen if either party cancels. The agreement needs to discuss whether there is a fee associated with the cancellation, how much notice needs to be issued, what happens if the property is not in a clean and acceptable condition, if the event is interrupted or if the space must be vacated for any reason other than the agreement expiration.
Facility use agreements can be the cornerstone to a successful and amicable relationship between a facility owner and an individual or organization that inquires about using the property. It’s important to receive proper counsel when entering into any facility usage agreement to make sure all parties’ rights are protected and that they will be protected in the event of a dispute.
Advantages of a facility usage agreement
The key benefits of having a facility usage agreement are the following:
Risk Management: A facility usage agreement can help mitigate the risk of liability by making clear the responsibilities of both the user and the facility owner when it comes to safety and security issues. A facility owner is generally required to provide a safe environment for visitors, but making sure users know about special risks can be very important, too.
Clarity of Responsibility: In the event of an injury or incident on the premises, whether to a person or to property, a facility usage agreement can clarify precisely who is responsible for damages under the law. This is especially important if both parties have joint liability in the absence of an agreement.
Confirming Legal Protections: A facility usage agreement can also explicitly confirm protections that apply as a matter of law for nonprofit use of real property. Washington law provides liability protection for owner/lessor against claims for injury to a user/lessee or other person on the property if the use is "occasional." "Occasional" includes activities such as community events, food banks, sports events, and practice sessions that are non-commercial in nature. An example of a non-occasion use would be a game or match played at a local field by a local team that regularly plays there.
Drafting a facility usage agreement
The first step in drafting a Facility Use Agreement is to clearly and concisely define the terms of this contract. Since the Agreements can run anywhere from one page for simple banquet hall rentals to 20 plus page complex contracts for those where large facilities are included as is the case with sports arenas, the best way to deal with this potential to over detail the Agreement is to reference applicable policies.
If you have general policies regarding, for example, the use of alcohol at your events or your speaker policy, place a section in your Agreement titled something like "Applicable Policies," and then insert a list of each such policy and then insert each policy as an Addendum to the Agreement and number them e.g., Addendum 1, Addendum 2 etc.
This way you are not going to confuse the user of the Agreement with so much detail as to be overwhelming because it is all contained in one place. You are not writing a law review article, you are writing a users agreement that is going to be signed by the parties, and if they are confused by what they are reading, they will just stop reading and form their own opinion which may be biased towards some sort of misdeed on your part.
Next, as part of the contract, define any and all of the parties that will be part of the contract to include not only the user and the Facility, but also Third parties or Ancillary Parties including the user=s officers, employees, board members, and volunteers as well as your own board members, officers, employees, and volunteers.
This is especially important since many of these parties have been involved in litigation in the past with their conduct being imputed upon the other parties in the case. For example, if one of the user=s board members commits an act that later is claimed to be a violation of the Agreement, maybe, for example, this alleged wrongful act results in a claim of negligence against the Facility for that user, why should the Facility take the hit for something the Facility had no real part in.
The intention is not to scare the user into thinking that they can do nothing at the Facility until you clarify this or that, but to tell them that if they are not clear on something, please ask us. The Facility should always do this anyway, whether you have an Agreement or not, as it is better for the user to ask questions rather than interpret some word that they don=t know and could very easily misinterpret as being something that it clearly is not.
The Summary provision is meant to do no more than that, to summarize the Agreement and draw the user=s attention to various sections that require their attention.
Of course, the "Exclusion" section is one of the most important as again it saves you from any liability that would otherwise be drained from you because of another party as being imputed upon you and should therefore be included as often as possible.
Legal issues in facility usage agreements
Facility use agreements must also contain adequate provisions for their enforcement. When a party does not live up to their side of the bargain, it is possible to bring a claim against them for breach of contract. There are some example contract templates available online, but someone drafting a facility use agreement should take care to ensure that all legal requirements are met in addition to the needs of both parties. The specific laws depend on the jurisdiction where a venue is located, so consultation with an attorney is required to ensure that the law is complied with and describes the specific situation. In particular, attorneys can ensure that any applicable zoning laws are followed.
For every venue, there are specific insurance requirements that must be met to protect both the event host and the venue itself. Typically , a facility use agreement should contain language that requires either the facility or the user to provide a copy of its insurance policy. It will also set minimum policy limits for liability the user must meet. The user in the agreement may be required to name the venue as an additional insured under their policy or obtain insurance from the venue for an additional charge.
Another important legal consideration in any facility use agreement is dispute resolution. An agreement should clearly state what happens if a contractual party fails to comply with its obligations under the contract. One common dispute resolution mechanism is alternative dispute resolution (ADR) in the form of arbitration or mediation. Alternative dispute resolution is preferred in some situations over litigation. In many cases, a trial can be a costly process and both sides of the agreement may benefit from a neutral third-party evaluation of the contract as well as proposed quantification of damages in the event of a breach. Other dispute resolution methods include litigation in a court, eviction from the facility when appropriate, and negotiation.
Examples of facility usage agreements in court cases
To illustrate the power of effective facility usage agreements, consider these scenarios:
Partnership Agreement: A coffee shop owner looking to expand its footprint considered opening a new location within a grocery store and proposed to share in the store’s profit from coffee sales in lieu of paying a percentage rent. This allowed the coffee shop owner not only to occupy the space at no upfront cost but also to benefit from the grocery store’s other purchases, which introduced the product to the grocery store’s customers. After signing the facility usage agreement, the grocery store’s clientele began to benefit from the high-quality, fresh-brewed coffee, and the coffee shop saw a significant increase in its customer base. In short, the grocery store was able to increase sales through the sale of coffee and its ancillary products, and the coffee shop increased sales through the facility usage agreement.
Food Truck Agreement: A food truck owner negotiated a revenue-sharing agreement with a mall. The agreement provided that the food truck would be located on the mall’s property, and in exchange, the food truck would contribute a percentage of its net revenues from sales to the mall. There were no costs for the food truck to operate on the mall’s property; however, the food truck did make improvements to the property in the form of landscaping and certain flooring requirements. The food truck increased foot traffic for the mall, and the food truck increased sales from mall patrons, all at virtually no cost to either party.
Sponsorship Agreement: In order to better align the museum’s interests with the goals of its sponsors, a museum structured a sponsorship agreement which featured an alternative deal structure. Rather than paying a fixed fee to ensure a sponsor’s exclusivity in the art industry, the museum agreed to sell a specific number of exclusive tickets to the sponsor at a set price. The sponsor marketed these tickets to its clients and constituents, and allowed for the sponsor’s clients to attend an exclusive evening at the museum featuring special exhibit tours and discounted drinks and merchandise. While the admission price was below the market price of the tickets themselves, the tickets included merchandise and discounted food and beverages, encouraging patrons to spend more once at the museum. The sponsor enjoyed exclusivity at the event without paying a high sponsorship fee, and the museum benefitted from the exclusivity at the event, exceeding its revenue targets for the evening.
Facility usage agreement FAQs
Facility usage agreements are designed to be a flexible framework for the use of facilities. Generally speaking, the parties can pick the terms for their usage agreements; however, we have found that the below issues generally arise:
How long do facility usage agreements last?
Because of their modular nature, usage agreements often contain provisions for their extension and renewal. We can structure them to create overlapping evergreen terms with a single notice period, and we can also create a tiered approach that gives one side priority for renewal in exchange for an additional fee .
What happens if either party cancels a date?
Generally, both parties attempt to mitigate against cancellation. This means that the timing and reason for which notice is provided are both important, along with how the parties divide the risk of cancellation.
What happens if one party doesn’t fulfill its obligations at the event?
Usage agreements often have remedies for the aggrieved party in the event of a breach, and those remedies can include the right to seek damages for any losses. For example, if the facility fails to provide food to the event, the customer may be entitled to recover any additional costs incurred to purchase the food from another vendor.