Delay in Remitting Insurance Money to Landlord Doesn't Make Tenancy a Holdover

What Happened: Winter Storm Uri devastated a commercial building six weeks before the lease was due to expire. The lease required the tenant to carry commercial general liability insurance on the property, name the landlord as an additional insured, and remit the insurance proceeds to the landlord. The tenant submitted a claim for the damages and paid rent through the end of the lease term before vacating the building. But because it hadn’t yet remitted any insurance proceeds, the landlord treated the tenant as a holdover. Without insurance money, we can’t repair the property, the landlord reasoned. Four months later, the tenant received the insurance proceeds and remitted them directly to the landlord. But it refused to pay holdover rent. So, the landlord sued for damages.

Ruling: The Texas court upheld summary judgment—that is, judgment without a trial—in the tenant’s favor.

Reasoning: The key lease language:

Upon the expiration or earlier termination of this Lease (for any reason whatsoever), Tenant shall surrender to Landlord the Premises in a condition substantially similar to that existing on the Commencement Date, reasonable wear and tear and, provided that Tenant has delivered to Landlord all deductibles, self-retention amounts and insurance proceeds, Casualty excepted, broom clean and clear of debris, and in compliance with applicable Legal Requirements triggered by alterations or additions to the Premises made by or on behalf of Tenant after the Effective Date of the Purchase Agreement.

The court rejected the landlord’s interpretation of the clause as meaning that the tenant couldn’t surrender the premises until it delivered all of the insurance proceeds, concluding that the storm damage was a “Casualty.” Moreover, in assigning the tenant responsibility for maintaining insurance and assigning the proceeds, the landlord assumed the risk of not being able to repair the property until the proceeds were delivered.  

• Plano-5301 Legacy Drive Ownder L.P. v. DPS Holdings Inc., 2022 Tex. App. LEXIS 9497, 2022 WL 17986019