Written by The recent NSW Supreme Court decision 167 Prospect Highway Pty Ltd v Polyaire Pty Ltd [2025] NSWSC 1144 highlights the exposure commercial tenants may face when their use of the premises contributes to substantial property damage.
This case involved a fire that was caused by the way the tenant had stored goods between two warehouse units. The tenant had placed plastic-wrapped pallets containing layers of cardboard in direct sunlight. These materials eventually ignited, and the resulting fire destroyed both warehouses
Even though a tenant’s general obligation to keep premises in good repair does not usually extend to rebuilding a destroyed structure, here the lease contained two critical clauses that fundamentally affected the tenant’s liability:
- The lease included a reinstatement obligation clause which expressly required the tenant to reinstate the warehouse back to its original form at the end of the lease. The Court held that the word “reinstatement” went “beyond” ordinary repair obligations and extended to the full reconstruction of the warehouse.
- The lease contained a broad indemnity clause, making the tenant liable for any loss, damage or expense suffered by the landlord where the tenant’s acts or omissions “caused or contributed” to the damage. Since the tenant’s storage method materially caused the fire, the tenant was liable for the cost of reinstating both warehouses and other associated losses.
This decision underscores the importance of understanding the scope and nature of reinstatement and indemnity clauses in commercial leases.