A flood can cause significant damage to your business. In addition to physical damage to the premises, there’s also the added stress of trying to operate your business and managing the repairs. But what happens if you are leasing? Who pays for these repairs? We look at who pays for flood repairs in both retail and commercial leases as well as what steps you can take to ensure that you protect yourself in the unfortunate event that you are subject to flooding.
You should first check your insurance policy if your business has flooded. The lessor’s building insurance or the tenant’s content insurance should cover flooding by a natural cause (such as a storm). If you are leasing your premises, you should also check you lease to see who pays for repairs. Whether you have a retail or a commercial lease will determine what you have to pay. Although there are some key differences between a retail and commercial lease, you can start by asking yourself the following questions:
- Do you run a shop which sells goods or services?
- Are you part of a shopping centre?
- Did you receive a disclosure statement when you signed the lease?
If you answered yes to all of these questions, it is likely that you will be a tenant of a retail lease.
Under a retail lease, a tenant should check the ‘maintenance and repair’ clause as well as the ‘indemnity and release’ provision to see who is responsible for flood repairs. In most circumstances, flooding which causes structural damages will be the landlord’s responsibility. However, state legislation governs retail leasing and there may be slight differences depending on where you live.
You also have additional rights under your state’s retail lease legislation. For example, under the Retail Leases Act 2004 (NSW), you can terminate the lease if the landlord does not repair the damage within a reasonable amount of time. If you cannot resolve your dispute with the landlord, parties can engage in mediation. Where mediation fails, you can lodge a claim in your relevant tribunal. You may include lawyers in the tribunal process, but often that will require permission from the relevant tribunal.
If you are a tenant in a commercial lease, you should check the ‘maintenance and repairs’ clause in your lease as well as the ‘indemnity and release’ provisions. These clauses will state what you pay for regarding flooding. It is important to note that where the contract is silent on this, it will not always be the lessor’s responsibility to pay for the flood repairs.
If you do not have this clause in your lease, you will be responsible for making small repairs but depending on what is stated in the clauses mentioned above, you could also be liable for structural repairs.
This clause can cause disputes between tenants and landlords in commercial leases, and you should ensure you understand what damages you must pay before you sign the contract.
- Ensure that you have insurance for your premises to cover things that can cause major damage like flooding;
- Know whether you have a retail or commercial lease; and
- Have a lawyer review your lease to find out whether you are responsible for repairs and when your landlord is responsible.
If you have any questions or need assistance with a claim for flood repairs, get in touch with our team of leasing lawyers on 1300 544 755.