When Disaster Hits, You Want to Know What your Commercial Office Lease Outlines
Disasters do happen. Hurricanes, tornadoes, earthquakes, wildfires, mud slides – every building in every location is subject to one or more potential natural disasters. And then there are the disasters that are the fault of man – a truck can drive into your office front, another tenant can cause a fire due to neglect, or faulty workmanship can result in plumbing pipes bursting or any of several other major disasters.
Major disasters are likely to make your commercial office space uninhabitable for a long or short period of time causing major impacts to your cash flow and the lives of your employees. Even a minor disaster can cause your business to be impacted for days at a time. More importantly, who is responsible for fixing what damage in the event of a disaster not caused by you or your employees’ neglect?
The time to learn the answers to these questions is not after the disaster has occurred. You should discuss and review these areas of the lease and negotiate if needed to obtain lease provisions that will protect your business. You’ll also want talk with your insurance agent and go over policy clauses in view of the impacts of disaster on your business.
A common but tricky provision in commercial property leases is rent abatement. This provision states that in the event the property is damaged the landlord will allow the tenant to suspend paying rent until the property is repaired. Some damages covered may include fire, flood, and common natural disasters such as tornado or earthquake, as well as any forced evacuation due to mandate of the city or county government. The landlord’s business liability insurance may provide coverage that will permit the owner to offer rent abatement. Items inside the business are usually covered by the business owner / leasee’s liability or renter insurance.
This all sounds straightforward but problems can arise when landlords include an addendum to the lease’s abatement provision that says if the tenant or tenant’s employee caused the damage, the abatement is nullified and rent must continue to be paid on-time. With this type of addendum, landlords can double-dip by continuing to get rent from you while still collecting from their insurance company.
This portion of a commercial lease requires sitting down with your tenant representative and possibly your attorney. Be sure the lease does not put undue liability on your business.
Perhaps the least understood points in a commercial lease are the provisions regarding insurance. Often, at least to an extent, the tenant may be self-insured. This fact, when found out the hard way, can be financially bankrupting. The Chairman of the ITRA, Dr. Ronald R. Pollina, explains that corporate tenants should consider these questions when negotiating or reviewing leases:
- What is your risk exposure in the event of liability or injury?
- If your leased space can’t be used because of injury, loss of utilities, or casualty, are you still obligated to pay rent?
- Are you or the landlord responsible for the cost of relocation in the event of a business interruption?
Keep in mind that most leases are designed to protect the landlord from losses. You can expect to carry property damage insurance, liability to third parties, bodily injury, and business interruption insurance.
There are many more insurance considerations and these should be discussed with your tenant representative and insurance agent. Protect your business in as many ways as practical and affordable so you don’t get stuck having to spend money over something that could have been avoided through wise lease negotiations.
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