Opinion ID: 1374499
Heading Depth: 1
Heading Rank: 4

Heading: the measure of damages for the lessee's breach of the lease

Text: The trial court found that the diminution in market value of the premises caused by Arden's breach of the lease exceeded the cost of repair and restoration to the condition required by the lease. It then awarded damages based on its assessment of the cost of repair and restoration. Arden contends there is no evidence to support the trial court's finding that the diminution in value of the premises exceeded the cost of repair and restoration, and that the trial court erred in awarding damages based on the latter measure. Because we have reversed portions of the trial court's assessment of the costs of repair and restoration to the condition required by the lease, the trial court will recalculate these costs on remand, and it is unnecessary for us to determine if there was evidence to support the trial court's finding. However, we shall address the questions of law which the parties have raised concerning the appropriate measure of damages for the lessee's breach of a covenant in a lease to return the premises to a prescribed condition. [5] Generally, damages for the lessee's breach of a covenant to return the premises to a prescribed condition are measured by the costs of returning the premises to that condition. However, in some cases, that measure of damages may place the lessor in a better position than if the lessee had performed. In these situations, the diminution in market value of the premises resulting from the breach of the lease is an alternative measure of damages. If the cost of returning the premises to the condition required by the lease exceeds the diminution in market value of the premises due to the lessee's breach of the lease, the lessor's recovery may be limited to the diminution in value. 2 M. Friedman, Leases § 18.1 (2d ed. 1983). See also James S. Black & Co. v. F.W. Woolworth Co., 14 Wn. App. 602, 611, 544 P.2d 112 (1975). The diminution in value is measured by the difference in value of the premises on today's market had the lessee returned them in the condition required by the lease and their value in the condition in which they were returned to the lessor. James S. Black, at 611. Fisher and Arden disagree as to who has the burden of presenting evidence of the two alternative measures of damages. Generally, where a lessor claims damages for a lessee's breach of a covenant to return the premises in a particular condition, it is not the lessor's burden to produce evidence of both the cost of restoration and diminution in value. Rather, once the lessor has presented evidence of one measure of damages, the lessee has the burden of establishing that the other measure of damages is less. Thus, if the lessor introduces evidence of the cost of restoration, that measure of damages will be used unless the lessee produces evidence that the diminution in value of the premises is the smaller amount. 2 M. Freidman, at § 18.1. Accord, Jenkins v. Etlinger, 55 N.Y.2d 35, 39, 432 N.E.2d 589, 447 N.Y.S.2d 696 (1982); Laska v. Steinpreis, 69 Wis.2d 307, 314, 231 N.W.2d 196 (1975). We believe that the above approach is a sensible method for determining the proper measure of damages for a lessee's breach of a covenant to return the premises in a prescribed condition, and, therefore, we adopt it. The trial court is directed to use this approach in deciding the appropriate measure of damages for Arden's breach on remand.