Many things must take place in order for a business to thrive, regardless of the industry. For example, landlords must be able to attract quality tenants when leasing a commercial property. Landlords must ensure the property is in proper working condition before a commercial tenant begins to use the space. Even if they do, issues relating to property damage are likely to crop up at some point during the lease period. One of the most frustrating commercial property damage conditions that can arise is water damage. Having a good understanding of who is responsible for the cost of repairing this type of damage in a leased commercial property can help landlords be better prepared when the unexpected happens, and ensure tenants are well aware of their legal rights under a commercial lease.
Leasing a Commercial Property
Leasing a commercial property can be an exciting time for landlords and tenants alike. While tenants are likely looking forward to providing their services in a new space, landlords are making new connections. However, no matter if the tenant is a retailer or renting out an office space, commercial leases can be complicated to navigate, particularly when dealing with insurance coverage for the space.
Commercial leases are binding legal contracts between a landlord and a business tenant. While very similar to residential leases, there are some very important distinctions between the two. For instance, while both involve a landlord renting space to a tenant in exchange for money, a residential lease cannot be used for business purposes. Commercial leases also typically last much longer in duration and offer greater flexibility to tenants when it comes to negotiating conditions.
As with any sort of property, various types of insurance policies will need to be taken out to protect not only the business operating in the space but also the property itself. This is especially important when unforeseen events damage the leased commercial space. Both the landlord and the commercial tenant will need to have certain specific policies on hand to cover these risks. However, the responsibility for the damage will ultimately be determined by the language contained in the lease agreement.
Water Damage in a Leased Commercial Property
Water damage in particular is among the most frustrating issues for owners of rental commercial real estate – especially in coastal areas like those in Texas. This particular type of damage, no matter whether it was caused by a burst pipe or a damaged roof, can cost a lot of money to fix and can also impair the long-term value of the property. Regardless, leaks and spills are common issues that will likely need to be dealt with at some point during the lifespan of a commercial lease.
Landlord and Tenant Responsibilities for Property Damage
As in a residential lease, commercial property leases should outline the responsibilities required of both the landlord and tenant throughout the lease term. While some responsibilities remain the same regardless of the type of leased property, each lease contains unique language that should be carefully reviewed before a tenant moves in. For example, some commercial leases are known as triple net leases, where the commercial tenant is responsible for most, if not all, repairs.
Commercial leases generally clearly divide the duties of landlord and tenant when it comes to water damage:
In a commercial lease, the tenant is usually responsible for damage to anything that belongs to them in the leased commercial space, for general wear and tear, and for items that break due to the regular use of the property. If the tenant brings in an appliance that leaks and causes damage to the property, the landlord is often not responsible. The tenant, on the other hand, could be charged for repairs to the property and could also be responsible for fixing its appliance.
Essentially, water damage to the property caused by the tenant’s actions will be the tenant’s responsibility to fix. This includes damage caused by the tenant’s neglect of the property or even their failure to notify the landlord of a water issue when it first occurs. Additionally, if the tenant does not take measures to minimize the damage, such as shutting off valves to stop a leak, they may also be responsible for additional damage caused.
Under Texas law, a landlord or property owner has the primary responsibility for ensuring the rental space is safe for a tenant to use. A landlord must repair or remedy certain damages if a tenant is current on rent payments, lets the landlord know about a damage issue promptly, and the tenant did not directly cause the damage. This is true for instances of water damage, as landlords must ensure the essential plumbing in the property is adequate and functioning properly.
Landlords must also regularly inspect the property to make sure the plumbing and drainage are in good working condition. Additionally, the landlord is responsible for the proper care of the plumbing and pipes. If there is a problem, such as a burst pipe resulting from the landlord’s failure to maintain the property, the tenant cannot be held responsible for any resulting damage.
When water damage occurs at a leased commercial property due to a flood or other natural disaster, landlords are also responsible for the damage. Because the landlord is the owner of the property, they are responsible for property damage caused by storms, hurricanes, and other unexpected weather events. The landlord is not, however, responsible for any damage caused to the tenant’s property contained inside the commercial space by these severe weather events.
Commercial Renters’ Rights
While renting provides a relatively inexpensive and convenient way for commercial tenants to run their business operations, it also comes with the added burden of dealing with a tenancy agreement. Business owners renting out a building or storefront should be aware of their legal rights as a tenant, as well as the limitations they may encounter under their commercial lease agreements.
While residential renters have certain consumer protection and privacy rights, these do not extend to commercial tenants. Commercial leases aren’t subject to most of these laws, making it likely that there will be no caps on items like security deposits or rules protecting a tenant’s privacy.
Most commercial leases aren’t based on a standard agreement either, as each is customized based on the needs of each party. Commercial leases aren’t as easy to break as residential agreements either. As with breaking a residential lease, ending a commercial agreement earlier than planned often involves paying back the rent that would be due for the entire term. Depending on the space and agreed rent, this can sometimes amount to hundreds of thousands of dollars the tenant will be required to pay the landlord for ending the lease early.
Water Damage and Commercial Property Insurance
Even though the responsibilities for dealing with property damage are generally outlined in a commercial lease, landlords are responsible for ensuring they have adequate insurance coverage in place to protect their investments. While landlords and rental property owners may feel fully protected by a landlord insurance policy, they will more than likely need to obtain multiple policies to adequately protect against water damage, including but not limited to:
Commercial Property Insurance
Commercial property insurance is incredibly important for landlords to obtain. This insurance covers damage to the premises of the rental property as well as to the items located within it, such as equipment, furniture, supplies, and fixtures. It can also cover the costs associated with the repair or replacement of stolen, damaged, or destroyed property. Commercial property insurance also insures the property against claims of water damage specifically due to leaks or burst pipes.
When a hurricane or other severe storm hits a commercial property, the possibility of water damage through flooding can be a great concern. Landlords need to know that coverage for flood-related damage after a storm is generally not included in standard landlord or commercial property policies and must be purchased separately as an endorsement. This is especially true in Texas and other coastal states with high flooding activity throughout the year. This specific type of coverage can be purchased through the Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program or a private flood insurer.
Commercial Property Insurance Claim Attorneys
Even if the responsibilities between a landlord and tenant are clearly defined and the landlord maintains the necessary insurance to protect the property, they can still be taken advantage of by insurance providers. Insurance companies often utilize bad faith practices after policyholders file valid claims for property damage. If you are a commercial property owner of rental space that has filed a commercial property damage claim only to have it be wrongfully delayed, grossly underpaid, or denied, the insurance attorneys at Raizner Slania can help.