The damage and destruction clause sets out what happens when a casualty damages the premises. It sorts the damage by severity and by whether it is insured, then says who repairs, whether rent is reduced, and when either side can end the lease.
What this clause does
A casualty is a sudden event that damages the building: a fire, an earthquake, a burst sprinkler main, a truck through a tilt-up panel. The damage and destruction clause is the playbook for what happens next. It answers four questions. Who repairs? Who pays? Do you keep paying rent while the building is down? Can either side walk away?
Most standard Southern California industrial lease forms sort damage along two lines. The first is severity: partial damage that is fixable within a set period, often around six months, versus total destruction that cannot. The second is whether the loss is insured, meaning it is the kind of event the required property insurance is supposed to cover. The combination of those two answers drives the outcome.
How the scenarios usually play out
Partial damage from an insured event: the landlord generally must repair, and the lease stays in effect. You restore your own improvements, trade fixtures and anything else the lease makes your responsibility, and you may owe the deductible. Some forms push small repairs below a dollar threshold onto the tenant to manage.
Partial damage from an uninsured event, such as an earthquake when nobody carried earthquake coverage: many leases let the landlord choose between repairing and terminating. Some give the tenant a chance to keep the lease alive by paying for the repair. Without that right, a modest uninsured loss could cost you a building you planned to run for years.
Total destruction: the lease commonly ends unless the landlord elects to rebuild. Your racking, equipment and improvements are your insurance claim, not the landlord's.
Damage late in the term: if a significant casualty hits in the final months, the landlord can often terminate rather than rebuild for a tenant who may be leaving. If you hold a renewal option, you may be able to preserve the lease by exercising it quickly and covering any shortfall in insurance proceeds. The windows to act are short, so learn them before you need them.
One more variable: fault. If you or your people caused the damage, abatement and termination rights may not apply to you, and the landlord's insurer may look to you for reimbursement unless a waiver of subrogation is in place.
Where it goes wrong for industrial occupiers
The repair clock is the first problem. Rebuilding a distribution building means permits, structural engineering, steel, roofing and often a new fire sprinkler design. Current codes may require upgrades the original building never had, which adds time and cost. A restoration period that sounds reasonable in the lease can stretch well past what your customers will tolerate.
The second problem is who decides. If the landlord alone estimates whether repairs fall above or below the cutoff, you want that estimate from a qualified contractor or architect, in writing, within a fixed number of days, so you can plan your next move with facts.
Watch the notice periods as well. Many leases give the landlord a month or more after the casualty just to announce whether it will repair or terminate. During that time your remaining inventory may be exposed, your customers are waiting, and you do not know whether to commit to a temporary building. Shorter notice periods, plus a landlord duty to secure the site promptly, help you make decisions faster.
The third is your own continuity. Rent typically abates in proportion to the use you lose, but abatement does not move your inventory, keep trucks on schedule or hold onto your workforce. That is the job of business interruption insurance and a written contingency plan for where the operation goes.
What to negotiate
Ask for your own right to terminate if restoration will take longer than your operation can survive, measured from the casualty date, and a second right if the landlord misses its own restoration deadline. Ask that rent abate from the date of damage until the space is restored plus a reasonable period to reinstall racking and equipment. Limit the landlord's right to terminate over an uninsured loss unless the uninsured cost exceeds a meaningful threshold. Then have a real estate attorney review how this section works with the insurance and rent abatement provisions.
If you are the tenant
- Require the landlord to deliver a written restoration estimate from a qualified contractor or architect within a short, fixed period after the casualty.
- Negotiate your own right to terminate if repairs will run longer than your operation can tolerate, or if the landlord misses its restoration deadline.
- Make rent abatement run until the space is restored plus a reasonable period to reinstall racking, conveyors and equipment.
- Ask for a dollar threshold below which the landlord cannot terminate over an uninsured loss.
- Carry business interruption coverage and keep a written plan for where your inventory and operation go if the building is down.
If you are the owner
- Confirm your property policy limits reflect current construction costs and code upgrades, not the original build cost.
- Know what your lender requires for earthquake and flood coverage and who controls insurance proceeds after a loss.
- Keep a right to terminate after a major casualty late in the term, while giving a tenant with a renewal option a fair way to preserve the lease.
Go deeper in Justin's books
Both books walk through leases chapter by chapter, from the tenant side and the owner side.
Hail, hurricanes, and heat waves could affect the roof and landscaping.
Common questions
Do I have to pay rent if my warehouse is damaged by fire?
Usually rent is reduced in proportion to the part of the premises you cannot use, as long as you did not cause the damage. Whether operating expenses also abate, and when abatement ends, depends on the damage and rent abatement sections of your lease.
Can my landlord cancel my lease after an earthquake?
Possibly. Many industrial leases let the landlord terminate after total destruction or after a significant uninsured loss, and earthquake damage is often uninsured. Some leases let the tenant keep the lease by funding the uninsured repair. Read this section closely before you sign.
Who pays to replace my racking after a casualty?
You do, through your own property insurance. The landlord's policy covers the building, not your racking, equipment, inventory or the improvements you paid for.
General information about how industrial leases commonly work, not legal advice. Every lease is different: have a California real estate attorney review yours before you sign.