In Short
- Check Insurance and Lease Terms: Review your insurance policy and lease terms to understand who is liable for flood repairs.
- Retail Lease Protections: Retail leases often include added protections, like rent suspension if flood damage makes the premises unusable.
- Commercial Lease Clauses: Ensure commercial leases have a damage clause to suspend payments if structural damage prevents occupancy.
Tips for Businesses
Flood repairs can lead to disputes with landlords. Protect your business by thoroughly reviewing insurance and lease terms before a flood occurs. For retail leases, state laws may provide extra support, while commercial tenants should look for clear repair and damage clauses. Consulting a leasing lawyer can clarify your obligations.
Table of Contents
Flooding can cause serious damage to your business. In addition to the physical impact on the premises, it can disrupt your operations and add the burden of managing repairs. But who is responsible for these repairs if you are leasing the premises? This article outlines the obligations for flood repairs under both retail and commercial leases and highlights steps to protect your interests should you experience flood damage
First Steps
If your business has experienced flood damage, your first step should be to check your insurance policy. Flooding from natural events (such as storms) is generally covered by either the landlord’s building insurance or the tenant’s contents insurance. The responsible party may be liable for a claim if adequate insurance has not been secured. Review the lease terms for leased premises to determine who is responsible for repairs. Your obligations will depend on whether you have a retail or commercial lease. Begin by answering these questions:
- does your business sell goods or services;
- is your business located in a shopping centre; and
- did you receive a disclosure statement when you signed the lease?
If you answered yes to all of these questions, you will likely be a tenant of a retail lease.
Retail Leases
To understand repair responsibilities, retail lease tenants should examine both the ‘maintenance and repair’ and ‘indemnity and release’ clauses. In many cases, the specific cause of flooding will dictate which party bears the repair costs. For instance, flooding that leads to structural damage is often the landlord’s responsibility. However, state legislation governs retail leases, so obligations may vary depending on your location.
Retail tenants also benefit from additional protections under state-specific legislation. For example, the Retail Leases Act 2004 (NSW) states that if flood damage renders the premises unusable, rent, outgoings, and any other amounts payable to the landlord will be suspended until the damage is repaired. If the landlord does not complete repairs within a reasonable timeframe, tenants may also have the right to terminate the lease.
If a dispute arises with the landlord, mediation may assist in resolving the matter. Should mediation fail, a claim can be filed with the relevant tribunal, where legal representation may be permitted with tribunal approval.
Continue reading this article below the formCommercial Leases
Under a commercial lease, tenants should also review the ‘maintenance and repairs’ and ‘indemnity and release’ provisions in the lease. These clauses should specify the tenant’s responsibilities for flood-related repairs. Some leases require landlords to maintain premises in a watertight condition, which can clarify who is responsible for repairs. However, if the lease is silent on the matter, responsibility for flood repairs may not automatically fall to the landlord.
In the absence of clear obligations, tenants may be required to handle minor repairs and, depending on the lease terms, could also be liable for structural repairs.
A critical safeguard is including a damage and destruction clause in the lease. This clause protects tenants by suspending all financial obligations—including rent, outgoings, and other payments to the landlord—if substantial structural damage prevents occupancy. The clause should also allow the tenant to terminate the lease if the landlord fails to complete necessary repairs.
Flooding can often lead to disputes in commercial leases. It is, therefore, essential to be aware of potential repair obligations before signing any lease.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
Key Takeaways
Flooding can severely disrupt your business, so review your insurance for coverage and check your lease terms to clarify repair responsibilities. Retail leases may offer added protection under state law, such as temporary rent relief if flooding renders the premises unusable. In commercial leases, consult the ‘maintenance and repairs’ and ‘indemnity and release’ clauses for liability details, and ensure a damage clause is included to suspend financial obligations if structural damage prevents use.
If you require further assistance understanding this, our experienced leasing lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
If the landlord does not repair the flood damage within a reasonable time, tenants may have the right to terminate the lease under some state laws, such as the Retail Leases Act 2004 (NSW).
Yes, mediation can assist in resolving disputes with the landlord. If mediation fails, tenants can file a claim with a relevant tribunal, potentially with legal representation if approved.
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