An earthquake, a red-tagged building and a tenant
With so many structures being damaged in Napa from the recent earthquake, commercial and residential tenants and landlords may find themselves with not only an uninhabitable building, but the loss of a tenant.
According to the City of Napa’s website, city inspectors completed the first round of building inspections. 613 structures in the city have been tagged – 113 are on the red-tag list and about 500 the yellow tag list. A red tag means the structure is uninhabitable due to damage; a yellow tag indicates caution should be used when entering the building.
About 800 calls have come in to the city requesting an inspection, which means there is considerable backlog for the 60 building inspectors on staff. There are bound to be more structures found to be uninhabitable.
What happens to your tenant if you are a commercial landlord and your building is red-tagged? What obligations does your landlord have to you as a tenant in restoring a red-tagged building you lease? These are both good questions with the answers dependent on your lease.
Yesterday a client called me because her building she leases may be red-tagged. She was not sure what to do and asked me to find her a temporary location. I asked her to give the landlord some time to assess the damage and provide her with his plans for restoration before making any decision. I am waiting to hear what happened.
There are many different lease contract forms used. While some contracts may be drafted by an attorney many brokers use “boilerplate” contracts, which are basically standardized forms with blanks to fill-in for the pertinent terms.
As a broker who executes leases, I use two basic forms: CAR (California Association of Realtors) forms and American Industrial Real Estate Association (AIREA) forms. CAR provides simple lease forms for both commercial and residential property while AIREA provides detailed commercial leases for more complex transactions.
The landlord has the right to restore the property to a useable state after an earthquake in the current commercial CAR lease form. The landlord has 90 days to complete the restoration project during which time the tenant is not required to pay rent. If the landlord is unable to restore the property during this time or elects not to then the lease can be terminated by either party.
In the AIREA commercial lease forms, if there is an uninsured loss (no earthquake insurance) the landlord has the choice to terminate the lease or restore the property at his cost. If he chooses to terminate the lease the tenant could request the landlord restore the property with the tenant choosing to pay the cost. In either case the tenant is not obligated to pay rent after the date of loss.
If the loss occurred is an insured loss (landlord has earthquake insurance), then it gets more complicated and an attorney should be consulted. In either case, be sure to consult with your attorney and please do not look to my explanation as legal advice or applicable to your situation.