Hold Owner to Repair Obligations After Storm Damage

Recently, a Louisiana court ruled that the owner of a building damaged by Hurricane Katrina breached its lease with a grocery store tenant by failing to repair the building after the hurricane. The jury awarded the tenant nearly $2.3 million in lost profits after it determined the store reasonably could have opened in April 2007 had the owner complied with its obligation to restore the building in a timely manner following the hurricane. The lease obligated the owner to “begin restoration as soon as reasonably practicable,” and to “thereafter prosecute the restoration diligently to completion.”

The owner was ordered to repair the building (at an estimated cost of $3 million), and to pay the tenant $38,219.50 in future lost profits each month until the store reopens. Further, approximately $2.6 million of insurance proceeds paid to the tenant for damages to the building were awarded to the tenant, despite the owner’s argument that it should be awarded the insurance proceeds to repair the damages to the building [Marketfare St. Claude, L.L.C. v. Melba Margaret Schwegmann Brown, March 2012].

This case highlights the importance of negotiating adequate casualty provisions in commercial leases. For five provisions that you should include in the casualty sections of your lease, check your email in-box or our home page for the upcoming October issue’s feature, “How to Negotiate Adequate Casualty Provisions.”