Insight

Are Your Real Estate Documents Prepared for Hurricane Season?

Are Your Real Estate Documents Prepared for Hurricane Season?

Robert M. Steeg

Robert M. Steeg

May 10, 2019 06:22 PM

Hurricane season begins on June 1. With reminders like Hurricanes Michael and Katrina fresh in our minds, many of us will begin to review steps for hurricane preparedness in our homes and offices.

Have you also considered that you need to do the same for your real estate agreements? Now is the time for people involved in real estate to check and make sure that their documents are completely up-to-date with various measures that anticipate the possible effect of storms like these.

Here is a quick list of some of the more important provisions for purchase and sale agreements and for leases.

Purchase and sale agreements

In purchase and sale agreements, it is very important to decide whether you want to include provisions that allow for an automatic extension of the closing date (or the due diligence deadline, or both) in the event of a storm. A hurricane or other tropical event may make it impossible for the buyer to complete due diligence, or may make it impossible for the buyer to close. If the contract does not cover these possibilities, a buyer can find himself nevertheless facing the possibility of default if he does not close by the scheduled date.

If there will be an automatic extension of time, the parties need to specifically define the event that will trigger the extension. Will it be the declaration of a state of emergency? Will it be the mere presence of a tropical system in the Gulf of Mexico?

A related issue is whether there will be an automatic extension of the closing if the buyer is prevented from obtaining property/casualty insurance because of the presence of a tropical system. The traditional point at which insurance becomes unavailable is when a storm enters the Gulf, but some insurers actually anticipate that event and stop issuing coverage a day or two earlier. The contract needs to state exactly when the buyer is entitled to delay the closing under these circumstances.

Leases

There are several traditional lease provisions that attempt to anticipate the possibility of a storm. First and foremost are the provisions concerning insurance. Make sure that your lease specifies who must procure and maintain the property/casualty insurance; the required limits of the insurance (full replacement value or some lesser amount?); and the specific coverages to be provided.

Next, the lease must carefully describe what happens in the case of damage from a storm. These are the provisions concerning casualty. Under what circumstances is the damage so extensive that a party will have the right to terminate the lease? Will that be defined by the dollar amount required for restoration, or the length of time that the restoration will take? Most importantly, who will have the right to terminate – only the landlord? Only the tenant? Both?

If termination is not exercised or is not available, what are the requirements for the restoration of the leased property? Who will perform the restoration? How quickly must it be completed? Will the rent abate during the period of rebuilding?

Another standard lease provision covers “force majeure” – major disruptive events, like hurricanes, that are beyond the control of either party. Generally, when such events prevent a party from meeting their obligations, such non-performance is excused and will not constitute a lease violation. With respect to these clauses, consider carefully how long this relief will last and whether there are any duties – timely payment for rent, for example – that nevertheless will not be subject to this relief.

Often, in the process of lease review and negotiations, the parties gloss quickly over the insurance/casualty provisions. Harvey and Nate stand as reminders to give these provisions more careful attention.

There are other, less traditional leasing issues that are raised by the possibility of tropical systems. Perhaps the most important of these issues are those relating to access to the leased property. Under what circumstances may the landlord close the building and prevent the tenants from entering it? What special measures may the tenants take to be able to enter their premises?

Tropical systems can affect the utilities available to the leased property. Electricity may be unavailable or severely limited. Water and/or water pressure may be severely compromised. Life safety systems like fire alarms and fire suppression systems may be off-line. The landlord will want to prevent tenants from entering the building under these circumstances, in order to avoid potential liability. Tenants, on the other hand, will want to gain access.

The same considerations apply in cases in which some governmental action prevents or affects access to the building. What if the local jurisdiction issues a mandatory evacuation order? What if, as occurred after Katrina, the local jurisdiction issues an order preventing re-entry into the area? All of this should be carefully spelled out in terms of what measures the landlord may take, and what limited access the tenant might still be able to have.

In one lease recently handled by Steeg Law, the tenant needed access to its premises even during an emergency. The parties worked out detailed procedures allowing the tenant limited access during emergencies, including a release form to be executed by each person entering the building under such conditions.

What happens in the absence of a specific written lease provision?

One subject that is not often discussed, but that should be noted, is the legal result that will occur under Louisiana law in the absence of a specific written lease provision. If the lease doesn’t cover it, what does the underlying law provide?

The answer may surprise you. In the case of total destruction of the leased property, in the absence of a written lease provision, the lease terminates by operation of law, without any election by either party. However, if the leased property is only partially destroyed, the tenant (and not the landlord) is given the exclusive right to elect to terminate the lease.

Of course, there are numerous court cases in Louisiana on this subject, many of them centering around the issue of what constitutes “total” versus “partial” destruction. These cases demonstrate the advisability of negotiating and agreeing upon written lease provisions that provide clear and objective standards. But, in the absence of written lease provisions, the underlying legal rules are as stated above.

Hurricane season is almost upon us. Let us know how we can help you bring your documents up to date.

Related Articles

IN PARTNERSHIP

Factors That Affect the Value of Personal Injury Settlement in Louisiana


by John W. Redmann

Permanent injuries resulting from an accident can cause lasting physical or economic damage. Louisiana lawyer John W. Redmann dives into the settlement process.

Lawyer out of view holds pen over contract

4 Essential Steps for Commercial Real Estate Due Diligence


by Best Lawyers

Due diligence in real estate is essential for all parties. Best Lawyers walks through the key steps of effective due diligence in commercial real estate.

Animated magnify glass in front of building and checklist

The Commercial Conundrum


by Brion J. Kirsch

Even prior to 2020, commercial real estate was experiencing setbacks. Coupled with the challenges of new working environments and less need for commercial spaces, landlords are left with increasingly vacant buildings to fill. Below is a primer on how to move forward.

Pile of old chairs and office equipment with blue backdrop

Under Pressure


by Antonios Roustopoulos and Sara T. Wagner

Capital markets commercial real estate is under pressure, and creativity is needed to make deals in 2023.

Two corporate employees standing near window with cityscape

Big Updates in the Big Apple


by Nina M. Roket and Thomas D. Kearns

A Post-COVID-19 update on the commercial market for landlords, building investors and retail developers in New York.

Abstract skyscrapers and buildings in multi-color

Changing for the Better


by Justin Smulison

Joseph Brophy’s Austin-based boutique firm comprises some of the most talented and experienced civil litigators in Texas.

Betting on Finance, Civil Litigation Success

Sharpening the Sword: What You Need to Know About CASPA


by Eric B. Smith

How the Contractor and Subcontractor Payment Act (CASPA) can radically change the stakes of how you build. Learn what CASPA means for your construction projects and contract disputes.

How CASPA Impacts Commercial Real Estate

Trending Articles

2025 Best Lawyers Awards Announced: Honoring Outstanding Legal Professionals Across the U.S.


by Jennifer Verta

Introducing the 31st edition of The Best Lawyers in America and the fifth edition of Best Lawyers: Ones to Watch in America.

Digital map of the United States illuminated by numerous bright lights

Unveiling the 2025 Best Lawyers Awards Canada: Celebrating Legal Excellence


by Jennifer Verta

Presenting the 19th edition of The Best Lawyers in Canada and the 4th edition of Best Lawyers: Ones to Watch in Canada.

Digital map of Canadathis on illuminated by numerous bright lights

Legal Distinction on Display: 15th Edition of The Best Lawyers in France™


by Best Lawyers

The industry’s best lawyers and firms working in France are revealed in the newly released, comprehensive the 15th Edition of The Best Lawyers in France™.

French flag in front of country's outline

Presenting the 2025 Best Lawyers Editions in Chile, Colombia, Peru and Puerto Rico


by Jennifer Verta

Celebrating top legal professionals in South America and the Caribbean.

Flags of Puerto Rico, Chile, Colombia, and Peru, representing countries featured in the Best Lawyers

Announcing the 13th Edition of Best Lawyers Rankings in the United Kingdom


by Best Lawyers

Best Lawyers is proud to announce the newest edition of legal rankings in the United Kingdom, marking the 13th consecutive edition of awards in the country.

British flag in front of country's outline

Unveiling the 2025 Best Lawyers Editions in Brazil, Mexico, Portugal and South Africa


by Jennifer Verta

Best Lawyers celebrates the finest in law, reaffirming its commitment to the global legal community.

Flags of Brazil, Mexico, Portugal and South Africa, representing Best Lawyers countries

Prop 36 California 2024: California’s Path to Stricter Sentencing and Criminal Justice Reform


by Jennifer Verta

Explore how Prop 36 could shape California's sentencing laws and justice reform.

Illustrated Hands Breaking Chains Against a Bright Red Background

Announcing the 16th Edition of the Best Lawyers in Germany Rankings


by Best Lawyers

Best Lawyers announces the 16th edition of The Best Lawyers in Germany™, featuring a unique set of rankings that highlights Germany's top legal talent.

German flag in front of country's outline

Celebrating Excellence in Law: 11th Edition of Best Lawyers in Italy™


by Best Lawyers

Best Lawyers announces the 11th edition of The Best Lawyers in Italy™, which features an elite list of awards showcasing Italy's current legal talent.

Italian flag in front of country's outline

Tampa Appeals Court ‘Sends Clear Message,” Ensuring School Tax Referendum Stays on Ballot


by Gregory Sirico

Hillsborough County's tax referendum is back on the 2024 ballot, promising $177 million for schools and empowering residents to decide the future of education.

Graduation cap in air surrounded by pencils and money

Find the Best Lawyers for Your Needs


by Jennifer Verta

Discover how Best Lawyers simplifies the attorney search process.

A focused woman with dark hair wearing a green top and beige blazer, working on a tablet in a dimly

Key Developments and Trends in U.S. Commercial Litigation


by Justin Smulison

Whether it's multibillion-dollar water cleanliness verdicts or college athletes vying for the right to compensation, the state of litigation remains strong.

Basketball sits in front of stacks of money

Woman on a Mission


by Rebecca Blackwell

Baker Botts partner and intellectual property chair Christa Brown-Sanford discusses how she juggles work, personal life, being a mentor and leadership duties.

Woman in green dress crossing her arms and posing for headshot

Best Lawyers Celebrates Women in the Law: Ninth Edition


by Alliccia Odeyemi

Released in both print and digital form, Best Lawyers Ninth Edition of Women in the Law features stories of inspiring leadership and timely legal issues.

Lawyer in green dress stands with hands on table and cityscape in background

The Human Cost


by Justin Smulison

2 new EU laws aim to reshape global business by enforcing ethical supply chains, focusing on human rights and sustainability

Worker wearing hat stands in field carrying equipemtn

Beyond the Billables


by Michele M. Jochner

In a recently conducted, comprehensive study, data reveals a plethora of hidden realities that parents working full-time in the legal industry face every day.

Women in business attire pushing stroller takes a phone call