Opinion ID: 173965
Heading Depth: 2
Heading Rank: 1

Heading: The Roof

Text: Rexam first challenges the district court's conclusion that its lease with Bolger required it to replace the roof. Rexam argues here, as it did at trial, that it was only responsible for general maintenance and upkeep of the property and not for major repairs of the warehouse's structural components. It argues that the district court misconstrued the language of the lease and erroneously concluded that responsibilities not directly assigned to the landlord automatically fell to the lessee. Rexam also asserts that the district court incorrectly read pertinent clauses of the lease in isolation rather than as part and parcel of the document as a whole. Bolger counters that Rexam's obligation to replace the roof was plainly discoverable in the lease, that the parties intended for Rexam to bear the cost of such structural changes, and that the ordinary wear and tear clause does not absolve Rexam of its responsibility to replace the roof. The district court's interpretation of contract language is a question of law that we review de novo. See Int'l Prod. Specialists, Inc. v. Schwing Am., Inc., 580 F.3d 587, 594 (7th Cir.2009). We review its interpretation of state law the same way. Salve Regina Coll. v. Russell, 499 U.S. 225, 239, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991); Estate of Moreland v. Dieter, 576 F.3d 691, 695 (7th Cir.2009). Under Illinois law, which the lease by its terms renders controlling and which is applicable in this diversity action, see Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), leases are treated no differently than other written contracts, Williams v. Nagel 162 Ill.2d 542, 205 Ill.Dec. 525, 643 N.E.2d 816, 822 (1994), so we begin with an analysis of the terms of the lease, see Kallman v. Radioshack Corp., 315 F.3d 731, 735 (7th Cir.2002) (applying Illinois law). Though the parties' dispute centers on a single paragraph of a twenty-four page lease, we must ultimately construe the provision as part of the whole lease, viewing it in light of the others; we cannot ascertain the intent of the parties from a single provision in isolation. Gallagher v. Lenart, 226 Ill.2d 208, 314 Ill.Dec. 133, 874 N.E.2d 43, 58 (2007). However, if the language is unambiguous, that is, not susceptible to more than one meaning, we confine our analysis to the language of the lease, see id., and we read that language according to its ordinary meaning, Kallman, 315 F.3d at 736 (applying Illinois law). With these principles in mind, we look first to the provision at issue. Article 5(c) of the lease states, in its entirety: Maintenance and Alteration. Lessor shall have no obligation with respect to the maintenance and repair of the Premises or any buildings or improvements which may be erected or made thereon. Lessee shall be solely responsible for the maintenance of such buildings and Premises and for keeping all of the same in good condition, order and repair, including all structural and extraordinary changes that may be required, reasonable use and ordinary wear and tear excepted, and Lessee will repair, during the term, all injury or damage done by the installation or removal of equipment or property. Lessee may make structural and other alterations or additions to the Premises and to any buildings or improvements which may be erected or made thereon, provided the general character thereof is not materially changed and the value of the Premises as a whole is not reduced thereby. Rexam argues that Article 5(c) obligates it to maintain the continuing operational state of the warehouse but not to replace substantial portions of the premises that wear out notwithstanding ordinary maintenance. It further contends that Article 5(c), when read as a whole and in conjunction with Article 11(a) (Future Improvements), contemplate[s] that if in the future there is a structural or extraordinary change to the building, Rexam is responsible for the maintenance of that to the same extent as the rest of the Rockford Warehouse, `reasonable use and ordinary wear and tear excepted.' Appellant's Br. 23. We do not read Article 5(c) like Rexam does. According to its plain, albeit structurally convoluted language, Article 5(c) places upon Rexam the responsibility for keeping the entirety of the premises and its structures in good condition, order and repair, including all structural and extraordinary changes that may be required. As the rules of normal English grammar dictate, we read the phrase including all structural and extraordinary changes that may be required to modify the phrase preceding it, not, as Rexam would have it, modified by the ordinary wear and tear excepted language following it. Similarly, we read the ordinary wear and tear excepted language to modify the introductory clause of the sentence, Lessee shall be solely responsible for the maintenance of such buildings and Premises and for keeping all of the same in good condition, order and repair. Pursuant to the plain terms of Article 5(c), read in accordance with common grammar rules, Rexam was responsible for keeping the premises in goodnot perfectrepair, and was responsible for any necessary structural changes as well. The first sentence of Article 5(c), which expressly exempts Bolger from any obligation to repair or maintain anything on the premises, further supports this conclusion. Article 5(c) is more than a mere general covenant to repair, which would bind Rexam only to make the ordinary repairs reasonably required to keep the premises in proper condition; it [would] not require [Rexam] to make repairs involving structural changes. Kaufman v. Shoe Corp. of Am., 24 Ill.App.2d 431, 164 N.E.2d 617, 620 (1960). This is because the language of Article 5(c) renders Rexam's responsibility for structural changes, such as the replacement of the roof, plainly discoverable. Id. Although the term roof does not appear explicitly within Article 5(c), see Sandelman v. Buckeye Realty, Inc., 216 Ill.App.3d 226, 160 Ill.Dec. 84, 576 N.E.2d 1038, 1040 (1991), the unambiguous phrases including all structural and extraordinary changes that may be required and Lessor shall have no obligation with respect to the maintenance and repair of the Premises, do, see Kallman, 315 F.3d at 737-38. Phrases such as these are conspicuously absent from the leases in Quincy Mall, Inc. v. Kerasotes Showplace Theatres, LLC, 388 Ill.App.3d 820, 328 Ill.Dec. 227, 903 N.E.2d 887, 891 (2009), and Sandelman, 160 Ill.Dec. 84, 576 N.E.2d at 1039-40, both of which were found to lack plainly discoverable language shifting the burden of roof replacement to the tenant. Placing Article 5(c) in the context of the lease as a whole strengthens our interpretation of it. The phrase including all structural and extraordinary changes that may be required is not an anomaly localized solely within Article 5(c). Virtually identical language appears in Article 5(a) of the lease, which requires Rexam to comply at its own expense with all laws, ordinances, rules, regulations, and requirements. . . including the making of all structural and extraordinary changes that may be required. Even looking beyond Article 5 to Article 11(a), as Rexam suggests, does not alter our construction of the terms in Article 5(c). Article 11(a), which contemplates the erection and financing of new structuresnot the replacement of components of existing structuresin no way requires that Article 5(c) be read as a mere general covenant to repair. Article 11(a) permits Rexam to construct, at Bolger's expense, new improvements to vacant areas of the premises, and provides that after any such buildings are constructed, that Bolger and Rexam would be required to negotiate in good faith regarding the erection and financing of such improvements. It says nothing about fixing or replacing existing improvements, nor does it mention or reference repair or ordinary wear and tear. The fact that replacing the roof of a commercial building is a large and costly project is of no moment. In Illinois, [i]t is well established that where a lease contains a clause making the lessee generally responsible for repairs, the expense of repairing subsequently discovered deficiencies falls upon the lessee, unless the deficiency is so substantial and unforeseen as to be termed `structural.' Koenigshofer v. Shumate, 68 Ill.App.2d 474, 216 N.E.2d 195, 196 (1966). Thus even under a more limited general covenant to repair, a lessee could be responsible for substantial yet foreseeable repairs. The Illinois Supreme Court determined that the replacement of a building's heating system due to a utility's discontinuation of steam heat was structural in the unforeseeable sense, Kaufman, 164 N.E.2d at 620, and opined in dictum that the collapse of a building resulting from a latent defect would be similarly structural, Koenigshofer, 216 N.E.2d at 196. But the problems with the roof here were not structural in the unforeseeable sense; the commercial lease at issue here had the potential to last nearly fifty years, and Rexam could not close its eyes to the near certainty that the roof would not equal the lease in staying power. Cf. Sandelman, 160 Ill.Dec. 84, 576 N.E.2d at 1040 (concluding that it would be unfair to require lessee to replace a roof where he could not have foreseen the need to do so when the lease term began). Rexam finally argues that we should construe the lease against Bolger, a sophisticated businessman and lessor who drafted the lease. See Sears, Roebuck, & Co. v. Charwil Assocs. Ltd. P'ship, 371 Ill.App.3d 1071, 309 Ill.Dec. 628, 864 N.E.2d 869, 874 (2007). This argument is unsuccessful because we only apply rules of construction when a genuine ambiguity exists in the language, not merely when the parties disagree as to how the language should be interpreted. See Curia v. Nelson, 587 F.3d 824, 829 (7th Cir.2009) (applying Illinois law). Moreover, Rexam is not unsophisticated; nor was its predecessor in interest that signed the lease. For the foregoing reasons, we affirm the district court's conclusion that Rexam was contractually bound to replace the roof of the Loves Park warehouse.
The district court awarded Bolger $405,470 in damages for Rexam's failure to replace the roof. This amount was the estimated cost of replacing the roof, which the district court concluded was equivalent to any diminution in the fair market value of the property. Rexam argues that the district court erred in determining the award, because in its view Bolger offered no evidence of loss or diminution in the market value of the property resulting from the faulty roof. The amount of recoverable damages is a question of fact, while the measure of damages upon which the factual computation is based is a question of law. We therefore review the district court's damage-computation methodology de novo, but review the amount of the award only for clear error. See Whittington v. Indianapolis Motor Speedway Found., 601 F.3d 728, 732 (7th Cir.2010); see also Sw. Stainless, LP v. Sappington, 582 F.3d 1176, 1183 (10th Cir.2009) (While we review the amount of a damage award for clear error, the methodology a district court uses in calculating a damage award, such as determining the proper elements of the award or the proper scope of recovery, is a question of law we review de novo. (quotation omitted)). When assessing damages for injury to real property under Illinois law, the first question is whether the injury is permanent or temporary. LaSalle Nat'l Bank v. Willis, 378 Ill.App.3d 307, 317 Ill.Dec. 83, 880 N.E.2d 1075, 1093 (2007); Meade v. Kubinski, 277 Ill.App.3d 1014, 214 Ill.Dec. 733, 661 N.E.2d 1178, 1184 (1996). Put another way, the question is whether the property is damaged in such a way as to render repair impracticable. Here, the district court concluded that the warehouse was damaged, but could be restored to good condition with a replacement roof. This conclusion was supported by evidence introduced at trial; Rexam does not dispute it and we do not disturb it. Instead, we move forward to the next inquiry required in Illinois: whether the expense of restoration exceeded the drop in the market value of the property. See Meade, 214 Ill.Dec. 733, 661 N.E.2d at 1184; Ceres Terminals, Inc. v. Chi. City Bank & Trust Co., 259 Ill.App.3d 836, 200 Ill.Dec. 146, 635 N.E.2d 485, 501-03 (1994). If the cost to repair exceeds the drop in market value attributable to the lack of repair, the measure of the award should be the diminution in market value, so as to avoid windfalls (to landlords) and injustice (to tenants). Meade, 214 Ill.Dec. 733, 661 N.E.2d at 1184-85 (collecting cases); Ceres Terminals, 200 Ill.Dec. 146, 635 N.E.2d at 501-02 (quoting Bowes v. Saks & Co., 397 F.2d 113, 116-17 (7th Cir.1968)). Contrary to Rexam's assertions that Bolger offered no evidence on the matter, the record shows that the district court was presented with conflicting evidence regarding the roof's impact on the value of the property as well as the cost to replace the roof. The real estate broker who sold the warehouse testified that he adjusted his estimated market price for the property downward by about $345,000 to reflect its disrepair. He noted that he took into account other items also in disrepair when doing so, such as the rail spur and landscaping, but maintained that the problems with the roof were the most significant factor underlying the adjustment. Other evidence showed the ultimate sales price for the property was $230,000 below the listing price. Bolger's roofing expert testified that it would cost about $405,470 to replace the roof. The court considered these divergent figures and ultimately concluded that the decrease in the property's market value was neither greater than nor less than but instead was equivalent to the cost of repairing the roof: [I]t is possible, in fact likely, that Bolger had to reduce its asking price in light of the seriously damaged condition of the property. Therefore, the asking price cannot be used as a starting point for measuring the decreased value of the property. It is also reasonable to infer that any purchaser would discount its offer in light of the anticipated costs of repairing the damage Bolger seeks to recover for here, particularly the roof, which is a necessity under any conceivable use of the facility. Therefore, it cannot be said that the cost to repair exceeds the decrease in market value of the facility; rather, the estimated cost of repair is the only reasonable proxy the Court has for determining the decreased market value of the property in its damaged condition. In other words, the property was diminished in value by the amount needed to repair it, whether or not it was actually repaired by Bolger. Rexam Beverage Can Co. v. Bolger, No. 06 C 2234, 2008 WL 4087441, at  (N.D.Ill. Aug. 20, 2008). In other words, it assum[ed] that the purchaser reduced the purchase price by the amount it would have to expend to rehabilitate the premises. 349 W. Ontario Bldg. Corp. v. Palmer Truck Leasing Co., 22 Ill.App.3d 467, 317 N.E.2d 740, 748 (1974). This strikes us as a reasonable rather than clearly erroneous conclusion to reach. The general rule in Illinois is that damages due to a breach of contract are limited to actual losses arising from the breach. Id.; see also Ceres Terminals, 200 Ill.Dec. 146, 635 N.E.2d at 501 (The goal is to restore the party to the equivalent of his pre-injury position. (quotation omitted)). By finding that the cost of replacing the roof was the same as the reduction in the property's value stemming from its poor condition, the district court linked Bolger's damages award to the actual loss he suffered from Rexam's breach. Cf. Ceres Terminals, 200 Ill.Dec. 146, 635 N.E.2d at 503 (refusing to award damages for injury to a wooden warehouse where the trial court expressly found that the injury had no effect on the property's fair market value). Rexam's assertion to the contrary is unavailing. The district court appropriately applied Illinois law, and the damages award it calculated does not leave us with the definite and firm conviction that a mistake has been committed. Econ. Folding Box Corp. v. Anchor Frozen Foods Corp., 515 F.3d 718, 720 (7th Cir.2008) (quotation omitted). We therefore affirm the $405,470 award to Bolger.