Indemnification
Synonyms: hold harmless clause، contractual guarantee، indemnity obligation، liability assumption clause، contractual surety
Last updated: 2026-05-10
Short Definition
Undertaking by one party to bear losses of other in specific cases, common clause in commercial contracts, protecting from potential liability.
Overview
Legal Basis
Indemnification clauses in Saudi real estate contracts are based on the principle that the contract is the law of the contracting parties in the Civil Transactions Law, subject to public order constraints prohibiting exemption from liability for fraud or gross negligence.
Practical Example
Al-Asayel Restaurant Chain signed a lease for a restaurant in a shopping centre in Jeddah at an annual rent of 240,000 SAR. The contract included an indemnification clause obligating the chain to compensate the centre's owner for any claims by centre visitors arising from the restaurant's activities. A visitor suffered food poisoning and filed a compensation claim of 85,000 SAR against the centre owner as the legal operator of the building. The centre owner invoked the indemnification clause and demanded that the restaurant company undertake the defence and bear the full compensation. The restaurant company accepted and paid the compensation, acknowledging that the incident arose from its activities covered by the indemnification clause.
Common Mistakes
- ✗Drafting the indemnification clause broadly to cover all claims without exception, which may violate public order
- ✗Failing to specify a financial cap on indemnification, exposing the obligated party to unlimited open-ended obligations
- ✗Confusing indemnification with insurance; the former is a contractual agreement between the parties while the latter is a contract with an insurance company
- ✗Overlooking specification of who will handle the legal defense when a claim subject to indemnification arises
- ✗Believing that an indemnification clause substitutes for requiring civil liability insurance in major commercial tenancy contracts
International Differences
In the UAE, Indemnification clauses are common in commercial complex and office lease contracts, with RERA overseeing their balance. In Turkey, the Turkish Code of Obligations regulates indemnification clauses with explicit restrictions preventing exemption from gross liability. In Egypt, civil law enshrines the indemnification principle but limits blanket exemption clauses. In the UK, indemnification is subject to the Unfair Contract Terms Act (UCTA) with a reasonableness test. In the US, indemnification rules differ among states with some having Anti-Indemnity statutes for construction contracts.