Add Safeguards Against Damage and Destruction to Your Lease
Extreme weather not only puts businesses on hold until properties are cleaned up and repaired so they can be reopened, it also can put the onus on tenants to repair damaged space—if their lease’s damage and destruction clause is favorable to the owner. It’s crucial to have a solid damage and destruction clause in your lease that—if written effectively—can protect you if your space or the common areas of the building are damaged by a flood, fire, or some other casualty. Don’t overlook it when negotiating the lease. Many tenants don’t catch terms that can hurt them later.
A damage and destruction clause spells out your and the owner’s rights and obligations if your space or certain critical common areas of the building, such as the entrance or hallway leading to the space, are damaged. By carefully negotiating damage and destruction lease provisions that are typically “boilerplate” and don’t provide adequate protection for tenants, you can shift responsibility for repairs to the owner of your space.
How to tailor a damage and destruction clause to protect its interests will vary from tenant to tenant. But there are some common issues to watch out for when negotiating your provisions:
Partial rent abatement. After a casualty, the clause might not give you the right to abate all of your rent, just your minimum rent.
Slow repairs. The clause probably won’t give you the right to terminate the lease if the owner slowly repairs your damaged space or if the damage occurs near the end of your lease.
High costs. The damage and destruction clause in an owner’s lease form often says that the owner must make certain repairs and restore the space, unless the owner decides the repair costs will be too high. In that case, the owner may terminate the lease—which can be devastating for you and your business.
Your obligations. The clause also sets out your rent obligations while the owner makes the repairs. For instance, you’ll probably be allowed to abate your minimum rent in an amount proportionate to the amount of space you can’t use, but only if your space was actually damaged.
For 10 types of modifications you should make to your damage and destruction clause and model language you can use, see "Tailor 'Damage and Destruction' Clause to Protect Your Interests," available to subscribers here.