Negotiating Commercial Lease Casualty Provisions: Insurance, Termination Rights, Tenant Improvements

Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Real Property - Transactions
- event Date
Thursday, August 15, 2024
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE webinar will advise leasing counsel on structuring casualty provisions in commercial leases. The panel will discuss how insurance may affect a casualty event, rent abatements available to tenants, how casualty provisions may affect landlords' and tenants' termination rights, and how to best preserve tenant improvements. The panel will address best practices in negotiating these provisions to protect their stakeholders.
Faculty

Mr. Lang is a member of the firm’s Real Estate Practice. On the leasing side, he represents landlords, tenants, sublandlords, and subtenants in connection to office leases and subleases, as well as retail leases for national retailers. With respect to acquisitions and dispositions, he represents buyers and sellers of commercial properties across all asset classes. On the lending side, he represents lenders and borrowers in connection to complex real estate financings (including both mortgage and mezzanine loans) related to the acquisition, construction or refinancing of commercial properties throughout the U.S. Mr. Lang has also represented various financial institutions in connection with restructurings of distressed assets including workouts, forbearance agreements, notes sales, deed-in-lieu of foreclosure agreements, and litigation related to foreclosures of real property.

Of Counsel in the firm’s Real Estate Department, Mr. Heller advises clients on all aspects of commercial real estate transactions. He is also a member of the firm’s Hospitality Practice Group, representing hospitality clients on a broad range of projects. Mr. Heller is also a Principal at Pineapple Hospitality Consulting Group LLC. He previously served as Senior Vice President and General Counsel to a regional restaurant group for 17 years.

Ms. Kilgore focuses in the real estate realm with larger real estate clients, clients and prospects with complex real estate exposures (for example, historic tax credits, affordable housing, coastal exposures, real estate development) as well as municipalities. She has a depth of knowledge in historical and ground up builders’ risk, creation of alternative risk financing options for property insurance, and implementation of the services provided by our Brokerage Firm. She serves on the Advisory Board of Affiliated FM Insurance Company and has obtained several prestigious insurance designations including Chartered Property Casualty Underwriter(CPCU), Certified Risk Manager (CRM), Certified Insurance Counselor (CIC) and Accredited Advisor of Insurance (AAI).
Description
Commercial leases will typically include a casualty provision. This provision may provide for a rent abatement for the tenant, identify the circumstances that obligate a landlord and/or tenant to restore the leased premises following a casualty, and set forth how and when the parties can terminate the lease.
The effect of insurance is a significant consideration in assessing a casualty event. Since most, but not all, casualty events are covered by property insurance, the landlord's insurance on the real estate and the tenant's insurance on the personal property located on the premises will both bear on resolving the event.
But, it is essential to consider situations that appear to be a casualty event, such as damages to utilities but not the actual leased premises, which most insurers have interpreted as not being covered under their policies. As such, landlords and tenants should review how casualties are defined in their agreements and what their insurance policies include as exceptions when negotiating a lease.
While termination rights arise most often when the premises are destroyed, a landlord may have a right to terminate based on how long damage may take to repair or the percentage of the property rendered untenantable, or in the event the landlord's property insurance does not cover the damage.
Tenants who seek to limit the landlord's right of termination want to restrict these non-total loss provisions. Tenants concerned with the impacts of potential casualty events and enjoying the flexibility of relocating their business should consider including additional termination rights in the lease.
Many tenants renovate and improve properties at substantial cost and time. Tenants may therefore incur significant losses if the landlord has broad termination rights arising out of casualty events and property damage, including the right to terminate a lease in case of a casualty with minor uninsured damage to the premises. Tenants should consider including a threshold restoration cost for the landlord to have the right to forgo restoration of the premises and terminate the lease.
Listen as our expert panel discusses casualty provisions, the interplay of insurance, and how landlords and tenants should approach termination rights in commercial leases.
Outline
- Casualty provisions in commercial leases
- Insurance interplay
- Termination rights
- Tenant considerations
- Improvements
- Landlord considerations
- Tenant considerations
- Best practices
Benefits
The panel will address these and other key topics:
- How does the lease define casualty, and does this match what insurance policies cover?
- What remedies should be available to the tenant and does the type of casualty matter?
- What limitations on landlord termination rights in a casualty event should tenants consider?
- How can tenants protect investment in improvements during a casualty event?
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