It has been over ten years since the last hurricane struck South Florida. Our luck will not last forever. Commercial landlords should prepare for the inevitable hurricane (or similar disaster) when drafting and executing leases with tenants so, when the luck does run out, they are reasonably protected. That requires two things: (i) a carefully thought out lease, and (ii) adequate insurance (which must dovetail with the risk allocations contained in the lease).
When a lease is silent about the landlord’s obligation for repair and maintenance, Section 83.201, Fla. Stat. outlines a tenant’s options. Once given notice that the leased premises are untenable, the landlord has 20 days to effectuate repairs. If repairs are made, the tenant must pay the rent withheld as a result of the repairs. If the repairs are not made, and hurricane damage is likely not something that is repaired within 20 days, then the tenant may abandon the premises, retain any rent not paid, terminate the lease and avoid any liability for future rent or charges under the lease.
The lease should alleviate this concern and allocate risks and set the landlord and tenant’s respective obligations in the event of a hurricane (or other disaster). It should consider –
- What happens if the leased space is damaged?:
- What obligation does the landlord have to repair the leased premises?
- What about the roof, demising walls, windows, HVAC systems, plumbing and electrical systems?
- What obligation does the tenant have to repair?
- What level of insurance must the tenant maintain?
- Does the tenant have to continue to pay rent?
- When is the damage so severe as to allow the tenant to abate all or a portion of the rent?
- When is the damage so severe as to allow the tenant to terminate the lease?
- Does the remaining term of the lease impact any of this? What if there are renewal options?
- What happens if the common areas are damaged?:
- What obligation does the landlord have to repair?
- When must the landlord begin to make repairs?
- When must the repairs be substantially completed?
- What impact (if any) is the inability to use common areas on the tenant’s rent obligation? Does this change if the repairs are not timely effectuated?
- What impact (if any) is the inability to use common areas on the tenant’s CAM obligation? Again, does this change if the repairs are not timely effectuated?
- What is the impact on the parties if off-premise electrical or water service cannot be obtained?
- What is the impact on any co-tenancy requirements?
- When is damage to the landlord’s premises sufficient to allow the landlord to terminate the lease?
Insurance should be obtained to make certain that the risks allocated to the landlord are fully covered. Repair obligations should be covered by appropriate casualty insurance. Likely interruptions in revenue should be covered by appropriate business interruption insurance.