A worked casualty abatement: the untenantable share, the definition of Rent, the end of the abatement period and who carries a long restoration.
Most casualty clauses abate rent in the proportion that the untenantable area bears to the whole premises, from the date of the casualty until the landlord substantially completes its restoration. On an illustrative 24,000 RSF office lease where a fire takes out 9,000 RSF for eight months, the abatement is 37.5 per cent of monthly rent: $312,000 if “Rent” includes operating expenses and taxes, $228,000 if only base rent abates, and $832,000 if the tenant can show the rest of the space cannot be used either.
Worked in full in How to Read a Commercial Lease by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The casualty clause is read once at signing and once after a fire, flood or roof collapse, and the second reading is the one that costs money. Three defined terms decide the number: what counts as “Rent”, how much of the premises is “untenantable”, and when the abatement period ends. Each one is worth tens or hundreds of thousands of dollars on an ordinary office lease.
| Input | Value |
|---|---|
| Premises | 24,000 RSF |
| Base rent | $38.00 per RSF per year |
| Additional rent (operating expenses and taxes) | $14.00 per RSF per year |
| Area rendered untenantable by the fire | 9,000 RSF |
| Landlord's restoration period | 8 months |
| Tenant termination right if restoration estimate exceeds | 9 months |
| Landlord's rent loss insurance | 12 months |
Monthly base rent = 24,000 × 38.00 ÷ 12 = $76,000; additional rent = 24,000 × 14.00 ÷ 12 = $28,000; total $104,000
Untenantable share = 9,000 ÷ 24,000 = 37.5%
The share is measured on the same basis as the rent, rentable square feet, unless the clause says otherwise. A tenant may argue for usable area if the damaged floor carries a smaller load factor than the rest of the premises, since its share of usable area is then larger, but most clauses tie the fraction to the rentable area of the premises.
Abatement = monthly Rent × untenantable share × months until substantial completion
= 104,000 × 37.5% × 8 = 39,000 × 8 = $312,000
Excel: =(BaseRent+AddlRent)/12*DamagedRSF/TotalRSF*Months
During the eight months the tenant still pays $65,000 a month for the 15,000 RSF it occupies, $520,000 in all. Eight months is inside the nine-month threshold in the termination clause, so the tenant cannot walk away; had the landlord's architect estimated ten months, the tenant would hold an option to terminate, which is often worth more than the abatement.
| Reading | Per month | Total |
|---|---|---|
| Base rent only, proportional | 28,500 | 228,000 |
| Base and additional rent, proportional | 39,000 | 312,000 |
| Whole premises unusable | 104,000 | 832,000 |
What abates. If the lease defines “Rent” as base rent plus additional rent and the clause abates “Rent”, operating expenses and taxes abate too: $84,000 more for the tenant here. If it abates “Base Rent” only, the tenant keeps paying its full share of expenses on space it cannot use. On a triple net lease where additional rent is a large part of occupancy cost, the difference is wider.
How much is untenantable. Better tenant drafting abates rent for any part of the premises that is untenantable “or not reasonably usable for the conduct of Tenant's business”. If the fire destroyed the server room or the only reception, the undamaged 15,000 RSF may be useless, and the abatement becomes $832,000, $520,000 more than the proportional reading.
When it ends. Abatement normally runs to substantial completion of the landlord's work. A tenant then needs time to reinstall furniture, cabling and its own improvements. Adding two months for that refit takes the proportional figure to $390,000, an extra $78,000.
| Months | Base rent only | Rent, proportional | Whole premises | Uninsured, proportional | Uninsured, whole |
|---|---|---|---|---|---|
| 4 | 114,000 | 156,000 | 416,000 | 0 | 0 |
| 8 | 228,000 | 312,000 | 832,000 | 0 | 0 |
| 12 | 342,000 | 468,000 | 1,248,000 | 0 | 0 |
| 15 | 427,500 | 585,000 | 1,560,000 | 117,000 | 312,000 |
For the landlord the abatement is normally recovered from rent loss insurance, so the exposure is the period beyond the policy's indemnity period and any gap between the abated amount and what the policy covers. A fifteen-month restoration leaves $117,000 uninsured on the proportional reading and $312,000 if the whole premises abate. That is why landlords resist the “not reasonably usable” language and tie the termination threshold to the insurance period.
Rent abatement after a casualty = monthly Rent × untenantable share × months to substantial completion: $312,000 on this lease, with $228,000 and $832,000 as the low and high readings of the same event. Read the definition of Rent, the “reasonably usable” language, the end date and the termination threshold together, because they move the number more than the fire does. The book reads every clause for what it does to NOI and value, and its rent roll case is in the free workbook for this case. The untenantable share is a share of rentable area, the measure explained in rentable square feet from usable area.
Only if the clause abates Rent and the lease defines Rent to include additional rent. On the illustrative lease, abating base and additional rent for 37.5 per cent of the premises over eight months gives $312,000; abating base rent alone gives $228,000, leaving the tenant paying $84,000 of expenses on space it cannot use.
Usually on substantial completion of the landlord's restoration work. Tenants often negotiate extra time to reinstall their own improvements and furniture. Adding two months of refit to an eight-month restoration takes an illustrative proportional abatement from $312,000 to $390,000.
The landlord gives the abatement and normally recovers it from rent loss insurance, up to the policy's indemnity period. With an illustrative 12-month cover, a 15-month restoration leaves $117,000 uninsured on the proportional reading and $312,000 if the whole premises abate.
This article is one calculation from How to Read a Commercial Lease. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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