What do I do if my Commercial Premises are damaged?

Most businesses that operate from a premises will enter into a lease to occupy and use the premises with the landlord. The business will be paying rent, usually monthly, calculated in accordance with the lease. What happens though, when there is structural damage to the premises that makes it difficult for you to continue operating a business?

Depending on where your premises is located (for example, in a shopping centre) and the type of business you operate, your lease may be categorised as a Retail Lease and the parties are bound by the provisions of the Retail Leases Act. If this is the case, the Act states that if the shop or the building of which the shop forms part is damaged, the lessee is not liable to pay rent, or outgoings or other charges, that is attributable to any period during which the shop cannot be used under the lease or is inaccessible due to that damage.

If the shop is still usable under the lease but its usability is diminished due to the damage, the lessee’s liability for rent and any amount in respect of outgoings attributable to any period during which usability is diminished is reduced in proportion to the reduction in usability caused by the damage.

If you are not covered by the Retail Leases Act it is common for a similar clause to be in the Lease. Prime Lawyers can assist you in perusing the lease to determine if your lease has a similar clause.

What should I do when there is damage to the Premises?

If the premises you are leasing are damaged (for example if the ceiling is leaking water and you cannot store stock), you should firstly notify the landlord of this in writing.

You should also seek legal advice at an early stage as to other steps that should be taken so as not to compromise the damages you may be entitled to for proportion of abatement of rent. Recent cases have applied, in the absence of expert evidence or other forms of assistance, a strict method in calculating the abatement of rent in proportion to the damage that caused the usability of the premises to be demised.

In Lovecek v JV Idola Pty Ltd and ors [2011] NSWADT 18 , the lessee’s case was that the leaking ceiling was causing a musty smell which affected parts of the premises other than the physically damaged ceiling. The shop owner was unable to continue the business of a bridal shop. However without any substantive evidence the Tribunal awarded abatement of rent in the proportion equivalent to the actual area directly affected by dampness or mould. Although the lessee’s claim was a total rent abatement they were only awarded 25%.

In the case of Christofi v Mohammady (RLD) [2013] NSWADTAP 10 the landlord and tenant disagreed on the extent of the direct area affected by a leak in the ceiling. The only evidence available were photographs of the ceiling and the testimony of the landlords and the tenant. Although the tenant claimed the direct area affected was 15% of the premises and was initially awarded this cost, it was later overturned in appeal that, due to a lack of evidence, the proportion should be 6.6% (which was the landlord’s argument).

The above two examples illustrate the importance of tenants obtaining the appropriate evidence to satisfy the Court of the extent of damage to the premises. Please contact us if you have a rent abatement issue or dispute.

We have business lawyers located at Sydney, Parramatta, Chatswood, Sutherland and Wollongong.