What Happens When My Commercial Property gets Damaged by Another Tenant?


Steve Freeman: I’m sitting with Steve Katkov of JUX. I have another question. I’ve spoken to a small business owner that had a space, a retail space clothing store. Next door was a restaurant and the grease trap gets clogged and damages her unit. Now it’s not her issue—well I won’t say it’s not her issue, it is her issue—but is it her responsibility to repair that? Is it the restaurant’s responsibility? Or the landlord’s responsibility?

Steve Katkov: So once we move beyond the discussion of who pays what and when, base rent, additional rent—The other elements of the lease agreement, we would encourage tenants to think about in terms of managing their risk and shifting that risk whenever possible. And finally, not accepting risk of another party in the relationship. And in a multi-tenant setting, you’ve done a great job of identifying the fact that actually, it’s more than just the landlord-tenant relationship that is governed by the 4 corners of a written agreement, but also by some law that overlays this, some of its old, some of its modern. But you also have relationships with other tenants with whom you are in no contractual relationship. You operate in what? Space A. Space B is the restaurant. Space C is an electronics store. And Space D is a nail salon. Space B, restaurant’s grease trap/clogs causing grease to seep between the common wall, between your space and the restaurant, damaging several thousand dollars worth of clothing items. The law says that what happens on your property, you are responsible for, as well as the consequences of anything that leaves your property and then ends up causing damage on somebody else’s property. So even though you only have a lease hold interest as a tenant, the law says the tenant’s responsible when the grease left their Sweep B and damaged property in another space. The law will provide that. So the clothing store owner has a claim under common law against the restaurant. But more importantly, the landlord in commercial leasing has an absolute obligation to manage the relationship between co-tenants. So as between the restaurant and the landlord, they have an issue. And our tenant, the clothing store owner and operator, has an issue that’s against both the tenant, restaurant owner, and the landlord. Because at law as well as in the contract, the landlord’s on the hook as to the clothing store owner, as is the tenant because something left their premises that caused damage to another. And sometimes we call that nuisance law or even trespass law.

Steve Freeman: So in this scenario, it’s not covered in the lease necessarily, but it is covered in common law.

Steve Katkov: Absolutely. And in more sophisticated settings or if we’re reviewing a lease, in addition to getting the numbers right and helping set expectations for our client-tenant, what am I going to pay in base rent, and what am I going to pay in all that additional rent? The next level of our analysis is always, how is risk being allocated in between the parties? And of course, I’m representing people. Or people who haven’t done commercial leasing often don’t recognize that there’s another relationship in a multi-tenant setting, other tenants.