A single casualty loss can affect both the tenant’s commercial space and the landlord’s structure. When that happens, a surprise cost can effectively reduce tenant’s insurance proceeds. The landlord may pass along its high deductible payment to the tenant through the Common Area Maintenance charge, even when the repair constitutes a capital improvement.
To avoid this result, tenants should propose lease clauses that adopt one or more of the following concepts:
CAM charges should not include any deductibles for insurance on capital improvement items
CAM charges should include only the amount of the deductible in excess of the standard deductible, stated as a dollar figure, formula amount or amount determined by agreed insurance professionals for the year of the loss
Any deductible amount that is included in CAM charges should be prorated based on the useful life of the new capital improvement
Negotiate the impact of high deductibles on CAM charges before signing a lease, and be sure to confer with your legal counsel and insurance professionals when preparing these clauses.
Today’s real estate tip is brought to you by Rick Smith, a LEED Accredited Professional and member of Bernstein Shur’s Real Estate Practice Group and Green Building Team. Stay tuned for more useful tips for real estate professionals.
For more information on casualty loss, contact Rick at email@example.com or 603 623-8700 ext. 8829 or 207 774-1200.