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Robert Fischer, Esq.
What Does My Lease Say About Severe Storm Damage?
Recently a storm caused extensive damage to a regional shopping center northwest of Denver. The damage prevented the tenants in the center from operating during the holiday shopping season. The most significant three months of the year in retail. As a result of the closures, the employees needed to find new jobs. The customers did their shopping somewhere else. The smart tenants grabbed their lease to review (or sent to their experienced leasing attorney) the insurance and casualty provisions to see what are their rights and landlord’s obligations.
The casualty provision in a lease agreement, sometimes referred to as the “damages and destruction provision” is that section of the lease that describes the process and rights in the event of a disaster. A casualty is defined by the Merriam-Webster dictionary as a serious or fatal accident, a disaster. This a leaky roof after a routine rain storm is considered a maintenance and repair issue, and not a casualty issue. In Colorado, extreme weather events includes the risk of fires caused by lightning, floods resulting from intense thunder storms, and collapsed roofs due to heavy snow. Such events may result in partial or total destruction to the building or premises and expensive repairs and closures. A casualty does not terminate the lease. Generally, the obligations under the lease continue. The losses from a serious storm result from the (i) the inability to operate from your premises and (ii) replacement of alteration, improvements and personal property might be damaged. To make sure tenants survive a casualty, tenants are required to maintain property insurance on the improvements, alterations and additions to the premises to ensure funds are available to rebuild and reopen the tenant’s business. This would include displays, counters, fixtures, inventory and other personal property. Business interruption insurance is available to mitigate against the risk of the continuing obligation to pay rent while the building or premises are being repaired as a result of a casualty. Such a policies help pay rent for a period of time while repairs are completed. The casualty provision may give the parties the right to terminate the lease in certain situations, such as (i) the destruction of a certain percentage of the building or premises or (ii) inability to complete repairs to the premises or building within certain time limits.
Subrogation: Subrogation in a lease refers to the transfer of the right to pursue an insurance claim. Most leases include a provision that waives subrogation. Each party waives the right to pursue a claim for any damage to the premises against the other party resulting from any insurable event.
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