Owner Responsible for Tenant's Water-Damaged Goods

Facts: The owner of a shopping center replaced its roof in February 2006. Soon after, a tenant leased retail space in the center to operate her clothing store, but water began seeping in through leaks in the roof, and by June 2006 the entire store was flooded. As a result, much of the tenant's inventory was damaged.

After a brief and unsuccessful re-opening, the tenant's store closed permanently in November 2006. The tenant sued the owner for breach of its lease obligation to provide a serviceable roof.

The trial court ruled in favor of the tenant, and awarded $298,762.56 in damages—$282,618 for two-thirds of the value of the lost inventory, $11,014.50 for incidental expenses incurred in attempting to mitigate damages, and $5,130.06 as a return of the security deposit. The owner appealed.

Decision: The appeals court upheld the trial court's decision in favor of the tenant.

Reasoning: The appeals court noted that, under the lease terms, maintenance of the roof was in the exclusive control of the owner. Therefore, when it replaced the roof, it bore the sole responsibility to assure that the new one would be in good repair.

The appeals court pointed out that, as the drafter of its lease with the tenant, the owner could have expressed an exemption in the lease if it desired to be absolved from all liability for losses sustained by the tenant. However, based on the actual terms of the lease, the failure to provide a serviceable, leak-free roof constituted a breach. Thus, the owner was liable for damage to the tenant's inventory.

• Landmark HHH, LLC v. GI HWA Park, January 2009

Expert Commentary: Negotiate Insurance and Repair Provisions

Jeremy D. Cohen, an Atlanta real estate attorney, says that with respect to the damage sustained by a tenant in a case such as this one, the best way for an owner to protect itself from this kind of lawsuit and/or loss would be to make sure that the lease is clear in both the Landlord Repair and Insurance sections. These sections could state: “Under no circumstances, will Landlord be responsible to Tenant for loss of its inventory no matter what the cause, specifically including any negligence on Landlord's part.” The lease also should specifically require in the Insurance section that the tenant carry “personal property insurance” and that such insurance would be primary and non-contributory to any insurance carried by the owner. Personal property insurance would typically cover the kind of loss seen in this case, notwithstanding that the loss was caused by the owner's faulty repair of the roof, notes Cohen. By coupling that requirement with a Waiver of Subrogation provision in the lease, the tenant's insurance—not the owner—would be responsible for paying for the loss of inventory sustained by the tenant.

It would also be wise to include a provision in the Landlord Repair section of the lease that provides that the tenant “waives any and all claims that may arise out of any failure by the owner to perform its duties or faulty performance of such duties under the Landlord Repair section,” because then all such claims would be covered by the tenant's insurance.

Cohen points out that the foregoing provisions would not protect a landlord from the costs incurred by the tenant in effectuating self-help to mitigate its damages, nor should it, because a tenant should be entitled to reimbursement in the event it takes actions that try to minimize its damages.

Expert Commentator

Jeremy D. Cohen, Esq.: Partner, Hartman, Simons, Spielman & Wood, LLP, 6400 Powers Ferry Rd., NW, Ste. 400, Atlanta, GA 30339; (770) 951-6788; jcohen@hssw.com.