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Commercial Leases Should Hold Building Owners Accountable for Storm Damage Repairs

New Yorkers are known for our resilience.

As we and the rest of the Northeast Coast work to recover from Hurricane Sandy, our New York City restaurant lawyers know many restaurants and retailers were hit hard.

Those that may end up bouncing back more quickly include businesses that have negotiated disaster provisions in their commercial leases. Some business owners may not have realized until now that such a clause is important. But even if you don’t have such protections already spelled out, our New York City commercial lease attorneys are skilled at renegotiations.

We understand that while you can’t control the weather, protecting your livelihood from unpredictability is critically important.

Just look at the recent case out of Louisiana:

A state court there has sided with a grocery store tenant, after finding the building’s owner had breached the terms of the lease by failing to repair the structure in a reasonable amount of time after Hurricane Katrina hit. The tenant, a grocery store, reportedly lost out on millions in profits.

After a civil trial, a jury awarded the grocery store tenant approximately $2.3 million in damages, after finding that the store could have otherwise re-opened by April 2007, had the repairs been conducted in a timely manner.

That lease contained a clause that mandated in the event of a natural disaster that that the owner begin restoring the structure in a timely manner, which is defined as soon as reasonably practical, and that he or she must work “diligently thereafter” in order to complete the repairs.

The cost to repair the building in that case was estimated to be roughly $3 million, which the store owner must now pay to have finished in addition to the damages. Plus, the owner must pay another $38,000 monthly in future lost profits for every month the store is not re-opened. What’s more, another $2.6 million in insurance damage proceeds will go now to the tenant, rather than the landlord.

This is just one example of how important it is to negotiate adequate casualty provisions in your commercial lease.

This was likely lost on many New Yorkers because, unlike in Florida or Louisiana, we don’t expect an annual occurrence of hurricanes. But if we are to learn anything from New York’s recent history, it’s to be prepared for anything.

So what should you consider the most vital casualty provisions in a commercial lease? Some of that is going to depend on your particular business model and what elements are critical to your operation.

Generally speaking, however, you want to make sure there is an obligation to restore and the option of termination rights. The obligation to restore is simply the landlord’s responsibility to address the disaster damages within a reasonable time frame. Termination rights extended to the tenant allow that if the building is not restored within a reasonable amount of time, tenant has the option of terminating the lease to locate his or her business elsewhere.

A good business lawyer may also be able to negotiate terms that would require landlords to cover insurance deductible costs. Another possibility is the provision for rent abatement for a specified term following the disaster.

If you have questions about your rights as either a tenant or landlord in the wake of Hurricane Sandy, please call us today for more information.

The Wright Law Firm is a business law firm located in Midtown Manhattan. Call (212) 619-1500 for a confidential consultation.

Additional Resources:

Hold Owner to Repair Obligations After Storm, Sept. 14, 2012, Staff Report, Commercial Tenant Lease Insider

More Blog Entries:

NYC Restaurant Leases, Franchise Agreements and Mall Real Estate Issues, Oct. 8, 2012, New York City Commercial Lease Attorneys Blog

 

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