Opinion
Civil Action No. 01-464-C.
February 4, 2005
MEMORANDUM OPINION AND ORDER
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This action is before the court to determine whether the plaintiff has standing to bring this action and, if so, to determine the appropriate measure of damages that may be awarded by the jury. A hearing was held to discuss these issues on February 2, 2005. As there were some disputes as to the facts of the cases the court cited regarding standing in its prior order entered January 26, 2005 (DE 70), a brief discussion of those cases follows.
Standing
In this case, the plaintiff leased a building to the defendant. The lease between the parties contained covenants to repair the HVAC system, to keep the premises in good condition, and to return the premises in as good a condition as it was given to the lessees, ordinary wear and tear excepted. The plaintiff entered into an agreement to sell the property at some time during the term of the lease after confirming the lessee's desire to vacate. The sale was closed in May 2001, after the lease had expired. The plaintiff brings this action alleging that the defendant breached the above-described covenants, damaging the plaintiff. The defendant asserts that because the plaintiff sold the property prior to instituting this litigation, he has no standing to sue. However, the defendant's position is incorrect.
The lease terms are, "the tenant shall make, at its sole cost and expense, all repairs necessary to maintain any heating,, air conditioning and electrical systems." It further states that the "[t]enant shall deliver up and surrender possession of the Premises in the same condition in which Tenant has agreed to keep the same during the continuance of this Lease and in accordance with the terms hereof, normal wear and tear excepted."
An action for failure to return the leased premises in good condition is not ripe prior to the expiration of the lease. Middendorf v. Fuqua Industries, Inc., 623 F.2d 13, 18 (6th Cir. 1980). A covenant to keep the premises in good repair is breached at any time that reasonable repairs are not made and the lessor may bring an action for that breach at any time thereafter. Id. In Polster, Inc. v. Swing, 164 Cal. App. 3d 427 (Cal.Ct.App. 1985), the lessee left the leased premises in a state of disrepair. The plaintiff, the lessor, had difficulty selling the property after the termination of the lease due to its condition and had to allow the subsequent lessor to occupy the premises rent-free for three months as a concession. The plaintiff sued the defendant for breaching the lease. The defendant claimed that the plaintiff could not recover costs of repairs that were not actually made. The court disagreed and stated, "[T]he fact that the landlord has, by an agreement with an incoming tenant or buyer, relieved himself from expending his own money upon repairs, does not mitigate the lessee's obligation to pay damages for breaching his covenant." Id. at 433, quoting 80 A.L.R. 2d 983, 1028, § 18 and cases cited.
Similarly, in Pomeranc v. Winn-Dixie Stores, Inc., 598 So.2d 103 (Fla.App. 1992), the lessee/defendant left the leased property in a state of disrepair. After the lease expired, the plaintiff/lessor sold the property and sued the defendant for breach of the lease. The court held, "Neither the lessor's cause of action for breach of lease nor the measure, or amount, of damages resulting from that alleged breach was lost, diminished, or destroyed by the conveyance of the leased premises by the lessor to a third party after the breach of the lease occurred." Id. at 104. The court further noted that the lessor was under no obligation to the former lessee to use any money recovered as damages to restore or improve the sold premises. Id. West Ontario Bldg. Corp. v. Palmer Truck Leasing Co., 317 NE2d 740 (Ill.App. 1974), also held that the sale of a leased premises does not automatically bar any action for breach of the covenant to repair and restore the premises. The facts of Palmer are different from those previously discussed because the defendant/lessees in Palmer terminated the lease early after filing for bankruptcy and/or dissolving their corporation and because there was a period of several months before the defendants took possession during which no witness could testify to the condition of the premises. While the plaintiff's claims for damages were ultimately denied because the plaintiffs failed to establish causation, the court stated:
While during the telephonic hearing MACTEC argued that all of these cases ( Middendorf, Polster, Pomeranc, and Palmer) are distinguishable because they involve tenants who terminated the lease prematurely in order to escape paying damages, that is neither accurate nor relevant. The tenants in the first three cases remained on the leased premises until the expiration of the lease, and the subtenants in Palmer vacated prematurely not due to any apparent scheme to escape damages, but after experiencing "financial difficulty" in the form of involuntary dissolution and bankruptcy. See Palmer at 742-43.
[i]f the plaintiffs here had linked the specific damages done by the subtenants with the specific cost of repair and established that the purchaser paid that much less for the building because of the subtenants' breach, or if they could have shown that specific damaged conditions which were caused by the subtenants caused specific reductions in the market value, they could have recovered.Id. at 478-79. The court concurs in the logic and reasoning presented in these cases and accordingly holds that the plaintiff has standing to pursue his claims against his former lessee despite the sale of the leased premises subsequent to the alleged breaches.
Measure of Damages
In general, in cases involving a lessee's breach of a covenant contained in a lease, the lessor is entitled to recover his actual damages, but may not receive a windfall. See, e.g., Cohen v. Reif, 4 S.W.2d 388 (Ky. 1928) (proper damage award included costs of returning premises to same condition in which lessee received the property and no better). Modern cases focusing specifically on the measure of damages that may be awarded in actions for the breach of covenants to repair and return the premises in good condition evoke two appropriate mechanisms relevant to this action: (1) the cost of restoring the premises to the required state; and (2) the diminution in value caused by the lessee's breach. See Polster, 164 Cal. App. 3d at 432. The lessor is entitled to recover for damages he actually suffered. Bowes v. Saks Company, 397 F.2d 113, 116-117 (7th Cir. 1968). Of course, a damages award should not put the lessor in a better position than he would have held had the lessee complied with the terms of the lease. Id. While the general rule is that the measure of damages is "the reasonable cost of making such repairs or of putting the premises in the condition prescribed by the lease[,]" it is not an absolute rule. Id. See Spacemaker, Inc. v. Borochoff Properties, Inc., 145 S.E.2d 740, 742 (Ga.App. 1965) (where action is brought after expiration of lease, damages are "reasonable cost of putting the demised premises into the required state of repair or the condition contemplated by the covenant"). Lost profits on the sale of the premises or diminution in value may also be used where the facts reveal that the cost of repairs is not related to the lessor's actual damage. Id. ( citing Penn Cement Co. v. Bradley, 11 F.2d 687, 688 (2d Cir. 1926)). Courts have also held that where the cost to repair or restore the premises to the condition prescribed by the lease exceeds the diminution in the value of the leased premises, the diminution in value is the appropriate measure of damages. See Bowes v. Saks Co. The plaintiff must link the amount of damages with the defendant's alleged breach[es] of the lease. Accordingly, the plaintiff must be allowed to introduce evidence to show a rational basis for computing the cost of restoration required to repair or replace damage caused by the defendant. See Raybestos-Manhattan, Inc. v. Friedman, 275 S.E.2d 817, 820 (Ga.App. 1981). As the court finds as a matter of law that (1) the plaintiff has standing to bring this action and (2) the appropriate measure of damages is as discussed above,
A third measure noted by the Polster court is specific performance.
All of the cases discussed above relate to breaches of lease covenants similar to those contained in the lease in the present case. In a recent Kentucky case brought for trespass and injury to real estate, Ellison v. RB Contracting, Inc., 32 S.W.3d 66 (Ky. 2000), the same basic principles apply. In Ellison, the defendants deposited concrete, gravel, blacktop, culvert pipe, oil, paint, and dirt onto the plaintiff's property. The court stated that in such cases, there were two possible measures of damage; "(1) if the injury to the property is permanent, the amount by which the fair market value of the property decreased immediately prior to and after the trespass; but (2) if the injury to the property is temporary, the cost to return it to its original state." Id. at 69. The court went on to explain that injuries to land are considered "permanent" where the cost of restoring the land to its original state exceeds the diminution in its market value caused by the injuries. "Temporary" injuries entail those instances where diminution in value exceeds repair costs. While the specific language used in Ellison does not lend itself to the facts of this case, the principles relied upon are the same. This court's assessment of the applicable measure of damages is consistent with logic applied in Ellison.
IT IS ORDERED that parts 1 and 2 of the defendant's motion in limine (DE 71) requesting that the plaintiff be prohibited from introducing evidence relating to diminution in market value and evidence of repair estimates are DENIED, as such evidence is relevant to the jury's determination of the actual damages the plaintiff suffered, if any. Ruling on parts 3 and 4 of the motion regarding exhibits 19 and 14 — 18 is reserved.