An Indemnification agreement is an agreement between two parties providing that if one party is sued for a particular reason, the other party will cover the costs of defending the lawsuit as well as any damages that arise from the suit. It is a useful tool when two parties are intertwined in a larger transaction, and want to divide legal responsibility between them. It protects each party from lawsuits for which the other should be responsible.
Indemnification agreements can be built into a larger contract (like a lease, asset purchase agreement, or employment agreement) or it can be a stand-alone agreement.
Typically, when a business is purchased, the seller will indemnify the buyer for any damages that arose from from actions prior to the closing date, and the buyer will indemnify the seller for actions arising after the the closing date.
In the case of a lease, the tenant will usually indemnify the landlord for suits arising from problems with the interior of the property, while the landlord will indemnify the tenant for problems arising from the exterior. Each party will indemnify the other for actions arising from its own negligence or intentional misconduct.
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