Tenants pay rent with the expectation that they will be able to occupy and use a space for the term of the lease. But sometimes events occur that interfere with a tenant's ability to use its space. One such event is a utility interruption. Should a tenant get relief from the landlord in such event?
Rent Relief Often a landlord will agree that if utility service to the premises is interrupted, the tenant is entitled to some relief. The usual relief is the right to abate some or all of the rent. Landlords will try to limit rent relief to situations where the tenant is forced to close the entire premises for business. This precludes arguments over what portion of the premises was untenantable due to the loss of utility service and how much rent should be abated.
Tenants will not want to have to close the entire premises if it is not warranted, and will want an abatement for even a partial closure. If the tenant does not need to close the entire premises due to the interruption, the landlord might agree to abate minimum rent and in lieu thereof require a tenant to pay straight percentage rent based on all actual sales made from the premises during the interruption period.
Landlords usually will want to limit relief to a utility interruption caused by the negligence or willful misconduct of the landlord, its agents, or employees. Landlords will take the position that if the utility interruption was not the landlord's fault, but instead was caused by a third party, e.g., the utility company, the landlord should not have to suffer the loss of rent.
Instead, the tenant's business interruption insurance should cover the tenant's loss of use of the premises. Tenants argue that since they are probably already paying a share of the landlord's rent loss insurance in CAM fees, the landlord should cover the tenant's loss through landlord's insurance and permit the rent abatement.
Indeed, sometimes landlords will insist that even if the interruption was caused by the landlord, the tenant should look first to its business interruption insurance to cover the loss, especially if the tenant is required by the lease to carry business interruption insurance. In such instance, rent may be abated only to the extent that the loss of use is not covered by the insurance.
Terms of Abatement Landlords will often require a grace period, commonly anywhere from 24 hours to five business days after the tenant notifies the landlord of the interruption, before the rent abatement may begin. This affords the landlord an opportunity to cure the interruption before it suffers the rent loss.
Another contentious issue is what items of rent the tenant should be permitted to abate. Should the abatement be limited to rent paid for the use of the premises, i.e., minimum rent? Should it include the additional charges, even if, for example, use of the common areas is not interrupted?
Landlords will argue that only the actual occupancy rent should be abated; additional charges are not charges for use of the space, and so should not be abated, especially a charge like real estate taxes, which the landlord must pay to the taxing authority regardless of an interruption in the tenant's use of the premises.
If a landlord agrees to abate regularly payable additional charges like CAM or promotional charges, it should not agree to abate all rent, since this could include non-recurring charges such as late fees, the abatement of which is never justified.
Tenants will want the abatement to last until the interruption ceases. However, if the tenant elects to re-open the premises (or the affected portion of the premises) before the interruption is entirely eliminated, the abatement should cease once the tenant re-opens.
Sometimes, a tenant will also seek the right to terminate the lease if the interruption to its operations extends for an unreasonable length of time, e.g., six months to one year. Since this kind of event usually accompanies a casualty, the casualty provision of the lease would normally control. A separate right to terminate is not usually required for the isolated utility interruption event. A lease provision could make clear that any utility interruption exceeding a certain length would be treated as a casualty.