Casualty & Condemnation Before Closing in a CRE Purchase
If the building burns or is condemned between signing and closing, the casualty clause — not luck — decides who bears the loss.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Between signing and closing the property can be damaged by fire, storm, or other casualty, or taken by eminent domain (condemnation). The casualty-and-condemnation clause allocates that risk and decides whether the buyer can walk.
Without a clear clause, the default rule varies by state — some follow the common-law doctrine of equitable conversion (risk on the buyer once the contract is signed), others apply the Uniform Vendor and Purchaser Risk Act. The contract should override the uncertainty.
Topics to check
A buyer wants the right to terminate and recover the deposit if damage or a taking is "material" — and wants a sensible definition of material (a dollar threshold, a percentage of value, loss of access or parking, or loss of a major tenant). A seller wants a high threshold so the buyer must still close for anything short of catastrophic damage.
A clause requiring the buyer to close for damage up to 50% of the price, as in many seller forms, can force a buyer to buy a seriously impaired building.
Risk of loss (Cornell LII Wex)If the buyer proceeds despite a casualty, it should receive an assignment of the insurance proceeds plus a credit for the deductible, so it can repair what it is paying for. For a condemnation, the buyer should receive the condemnation award.
Watch for a clause that lets the seller keep the proceeds while still requiring the buyer to close at the full price — the buyer pays for a damaged building and gets nothing toward repair.
For tenanted property, casualty can trigger tenant rent-abatement or termination rights under the leases. Confirm whether the seller’s rent-loss/business-interruption insurance proceeds are assigned to the buyer, and how lost rent during repair is handled.
Coordinate the casualty clause with the lease review so a casualty that lets a major tenant terminate is treated as material.
Key takeaways
- The contract should override the uncertain state-law default on risk of loss.
- Negotiate a sensible “material damage” termination threshold.
- Beware seller forms forcing closing for damage up to a high percentage of price.
- If closing anyway, get the insurance/condemnation proceeds plus the deductible.
- For income property, coordinate with tenant casualty and abatement rights.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- Default risk-of-loss rules (equitable conversion vs. the Uniform Vendor and Purchaser Risk Act) vary by state.
- Coordinate casualty terms with the leases and confirm insurance assignments with counsel and the insurer.
Frequently asked questions
Who bears the risk if the property is damaged before closing?
The contract should say. If it is silent, the default varies by state — some apply equitable conversion (risk on the buyer at signing), others the Uniform Vendor and Purchaser Risk Act. A clear casualty clause is how you avoid relying on the default.
Can I cancel if the building is damaged before closing?
Only if the casualty clause gives you that right, usually when the damage is "material" as defined in the contract. For non-material damage you typically must still close, with an assignment of insurance proceeds and a deductible credit.
What happens to insurance proceeds if I still close?
A buyer-friendly clause assigns the casualty insurance proceeds to the buyer and credits the deductible, so you can repair the damage you are paying for. Confirm the seller cannot keep the proceeds while still collecting the full price.