What Is a Casualty Event in Commercial Real Estate?

What Is a Casualty Event in Commercial Real Estate?

In commercial real estate, a casualty event refers to physical damage to a property that disrupts its normal use or operations—not to injury or loss of life. It is a technical lease concept focused entirely on the building and the tenant’s ability to function within it.

What May Constitute a Casualty Event?

A casualty event is defined not by the headline or cause, but by whether physical damage materially affects a tenant’s ability to occupy or operate in the space. Common examples include:

• Fire or smoke damage
  

• Wind, hail, or severe storm damage
  

• Flooding or water intrusion
  

• Structural failure or partial collapse
  

• Explosion or impact damage
  

• Major mechanical, electrical, or HVAC system failure
  

• Government-mandated closures tied directly to property damage
  

How a Casualty Event Is Handled

• What happens after a casualty is already spelled out in the lease
  

• The lease explains who fixes what, whether rent is reduced, and for how long
  

• Once damage occurs, those rules automatically go into effect

Summary: When a casualty happens, the lease sets the rules so there’s no guesswork in the middle of a disruption.

Damage Assessment and Repair Responsibility

• Ownership determines whether the space is partially usable, unusable, or significantly damaged
  

• That determination drives repair timelines and next steps
  

• Landlords typically repair the building structure and common areas
  

• Tenants are generally responsible for their interiors, equipment, and contents

Summary: The extent of the damage determines how long recovery takes and what options are available to both parties.

Rent Abatement and the Reality of Business Disruption

• If a tenant cannot operate, rent is typically reduced or paused during the downtime
  

• Rent abatement applies only while the space cannot be used
  

• Reduced rent does not offset lost revenue or operational disruption

Summary: Rent abatement helps with occupancy costs, but it does not protect the business itself.

Why Tenant Representation Matters—Before a Casualty Ever Occurs

• Business disruption can cost hundreds of thousands of dollars in lost revenue, downtime, relocation, and inefficiency
  

• Standard lease language often favors the landlord and limits tenant flexibility
  

• A tenant-representation broker negotiates casualty terms that reflect real business risk
  

• These protections must be secured before the lease is signed—after a casualty, leverage is gone

Summary: Casualty risk is not avoided—it is allocated, and strong tenant representation is what protects the business when disruption occurs.

Disclaimer
This article is for informational purposes only. It does not provide legal, financial, or investment advice. 

Written by the Keyser Editorial Team

Frequently Asked Questions 

Q: What is considered a casualty event in commercial real estate?

A: A casualty event in commercial real estate is physical damage to a building that disrupts a tenant’s ability to occupy or operate in the space. Common examples include fire, storm damage, flooding, structural failure, or major mechanical system breakdowns.

Q: Does rent abatement fully protect a tenant during a casualty event?

A: No. Rent abatement typically reduces or pauses rent while the space is unusable, but it does not cover lost revenue, employee downtime, customer disruption, or relocation costs. For many businesses, the financial impact of disruption far exceeds rent savings.

Q: Why is a tenant-representation broker important in casualty situations?

A: A tenant-rep broker negotiates casualty provisions before a lease is signed, ensuring timelines, rent relief, and termination rights align with real business risk. Once a casualty occurs, the lease controls the outcome—making upfront negotiation critical to protecting the tenant.