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What happens when a commercial building is damaged.
Understanding damage provisions in your lease is critical in New Zealand, where earthquake and weather events can affect commercial buildings.
Different levels, different outcomes.
How damage or destruction affects your lease depends on the severity and nature of the event.
Automatic Termination
If the building is destroyed or becomes untenantable (unsuitable for occupation), the lease automatically ends from the date of damage.
Landlord Can Terminate
If demolition or reconstruction is required, the landlord may terminate with 20 working days' notice within 3 months of the damage.
Lease Continues
The premises must be restored to a standard "reasonably adequate for the tenant's occupation and business use".
Building Undamaged
What if premises are undamaged but you cannot access them? The 2024 ADLS lease addresses this scenario specifically.
The partial damage process.
Damage Assessed
The extent of damage is evaluated to determine if the premises remain tenantable and what repairs are required.
Rent Reduced
Rent and outgoings are reduced in fair proportion to the impact on your ability to use the premises for your business.
Repairs Undertaken
The landlord arranges repairs to restore the premises to a standard reasonably adequate for your occupation and business use.
Full Rent Resumes
Once repairs are completed and the premises are restored, full rent and outgoings become payable again.
The "no access in emergency" clause.
This scenario became particularly relevant after the Canterbury earthquakes. The 2024 ADLS deed of lease now provides a default 50% reduction in rent and outgoings if you cannot access undamaged premises during an emergency.
Civil defence emergencies
Cordons around damaged buildings
Infrastructure failures
Government-mandated closures
Damage scenarios at a glance
| Scenario | Lease Status | Rent Position |
|---|---|---|
| Total destruction | Automatic termination | Ceases from date of damage |
| Substantial (demolition required) | Landlord can terminate with notice | Reduced proportionally from damage date |
| Partial damage | Continues | Reduced proportionally until repairs complete |
| No access (emergency) | Continues | 50% reduction (default), may be adjusted |
Practical considerations.
Review your specific lease
The standard ADLS lease provides default positions, but your lease may have been modified. Check the damage and destruction clauses and any special conditions.
Understand insurance arrangements
Know what the landlord's insurance covers and whether you have separate business interruption insurance. The landlord's insurance usually covers the building, not your business losses.
Document everything
If damage occurs, document the condition of the premises, the date you were unable to access or use the space, and all communications with the landlord.
Act promptly
The lease contains time limits for notices and decisions. If the landlord must give termination notice within 3 months, ensure you know your position before this deadline.
Key Takeaways
Total destruction automatically ends the lease with no further rent payable
Landlords can terminate within 3 months if demolition or reconstruction is required
Partial damage triggers rent reduction proportional to the impact on your use
The 2024 ADLS lease provides 50% rent reduction for emergency no-access situations
Review your specific lease as terms may differ from standard provisions
Related Guide
Want to understand all aspects of commercial leases? Our guide covers key terms, due diligence, and what to check before signing.
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