Damage and Destruction Clauses and Force Majeure Clauses in Commercial Leases

In the wake of the destruction wrought by Helene in western North Carolina, a number of landlords and tenants will be looking to their written leases to navigate what comes next in the coming days, weeks, and months for their business locations and property. Damage and destruction clauses of commercial leases govern the obligations of the landlord and tenant in the event of a casualty affecting the premises. The lease may allow either/both tenant and/or landlord the ability to unilaterally terminate the lease, without penalty, within a prescribed time period after a casualty occurs if the premises are so materially damaged that the premises will require a substantial restoration. Additionally, if the premises are going to be rendered substantially untenantable by the casualty for an extended period of time, tenant may be able to unilaterally terminate the lease without penalty. Some leases also allow either party to terminate the lease if the premises are materially damaged within near end term of the lease (within the last 6-18 months before a lease is set to expire). Materiality is usually defined in the lease, sometimes as a percentage of the premises (or, if the premises is located within a broader development, a percentage of the broader development), but may also be defined as a certain dollar value for costs of repairs.

               Landlords and tenants should also closely review their rights regarding rent abatement during periods of untenantability. Some, but not all, leases will allow tenants to abate rent if they are unable to possess and operate their business from the premises for a period of time. If only a portion of the premises is untenantable, and tenant can continue to operate its business from the remaining portion of the premises, rent may abate in proportion to the amount of the premises rendered untenantable. If the tenant or landlord was in the middle of any work associated with the premises when the casualty occurred, such obligations may be paused in accordance with the force majeure (“Act of God”) provisions of the lease. Sometimes, payment of rent may be paused in accordance with such provisions, as well, however, many force majeure clauses specifically do not relieve the tenant from payment of rent upon the occurrence of a force majeure event.

               Landlords and tenants should both be reaching out to their attorney to review their rights and responsibilities under their leases, as soon as possible, while also contacting their insurance company to make a claim under their policies. The attorneys at Allen Stahl + Kilbourne are experienced in navigating these issues in commercial leases and can be reached at 828.254.4778.