Opinion ID: 1826758
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Heading Rank: 6

Heading: damages: repair costs v. diminished value

Text: If a lessee breaches a covenant to repair during the term of a lease, what remedy is available to the lessor? Earl argues that diminution of Miller's reversionary interest, not the cost of repairs to the parking lot, is the only measure of damages for a lessee's breach of a covenant to repair. This court has not previously determined the proper measure of damages for a lessee's breach of covenant to repair leased premises during the term of a lease. In a breach of contract case, the ultimate objective of a damages award is to put the injured party in the same position he or she would have occupied if the contract had been performed, that is, to make the injured party whole. See, Ducheneaux v. Miller, 488 N.W.2d 902 (S.D.1992); Macal v. Stinson, 468 N.W.2d 34 (Iowa 1991). See, also, Wells Fargo Alarm Serv. v. Nox-Crete Chem., 229 Neb. 43, 424 N.W.2d 885 (1988); Stansbery v. Schroeder, 226 Neb. 492, 412 N.W.2d 447 (1987); May v. Marijo Corp., 207 Neb. 422, 299 N.W.2d 433 (1980); Fink v. Denbeck, 206 Neb. 462, 293 N.W.2d 398 (1980); Restatement (Second) of Contracts § 347 (1981). Cf. Birkel v. Hassebrook Farm Serv., 219 Neb. 286, 289, 363 N.W.2d 148, 151 (1985): As a general rule, a party injured by a breach of contract is entitled to recover all damages which are reasonably certain and which are naturally expected to follow the breach. Generally, in a lessor's suit brought before expiration of a lease's term, the measure of damages for a lessee's breach of a covenant to repair the leased premises is the reduction in value of the lessor's reversion, that is, the difference in the value of the premises with and without repairs. Matter of D.H. Overmyer Co., Inc., 12 B.R. 777 (Bankr.S.D.N.Y.1981), aff'd 30 B.R. 823 (Bankr.S.D.N.Y.1983); Middendorf v. Fuqua Industries, Inc., 623 F.2d 13 (6th Cir.1980); Tobin v. Union News Co., 18 A.D.2d 243, 239 N.Y.S.2d 22 (1963), aff'd 13 N.Y.2d 1155, 196 N.E.2d 735, 247 N.Y.S.2d 385 (1964); Corbett v. Derman Shoe Co., 338 Mass. 405, 155 N.E.2d 423 (1959); National Bank v. Voigt Estate, 357 Mich. 647, 99 N.W.2d 504 (1959); Gold Min. & Water Co. v. Swinerton, 23 Cal.2d 19, 142 P.2d 22 (1943); Pennsylvania Cement Co. v. Bradley Contracting Co., 11 F.2d 687 (2d Cir.1926). One rationale for this general rule is that in situations involving long-term leases, awarding the current cost of repairs to the leased premises would give the lessor a windfall because the lessor would receive the current cash value of repairs rather than the present worth or discounted value of repairs at the end of the lease's term. Matter of D.H. Overmyer Co., Inc., supra ; Corbett v. Derman Shoe Co., supra ; Pennsylvania Cement Co. v. Bradley Contracting Co., supra . Another rationale for the general rule is that if repair costs were awarded, there would be no guarantee that the lessor would use the amount awarded to actually make repairs. Matter of D.H. Overmyer Co., Inc., supra ; Middendorf v. Fuqua Industries, Inc., supra ; National Bank v. Voigt Estate, supra ; Gold Min. & Water Co. v. Swinerton, supra; 49 Am.Jur.2d Landlord and Tenant § 957 (1970). However, in a lessor's suit before expiration of a lease's term, when repair costs provide a reasonably accurate measure of damages to a lessor as a result of a lessee's breach of a covenant to repair and do not result in a windfall to the lessor, repair costs may be used as the proper measure of damages. See, Matter of D.H. Overmyer Co., Inc., supra ; Bowes v. Saks & Company, 397 F.2d 113 (7th Cir.1968). Here, the only evidence of the leased premises' diminished value is Robert Miller's uncontroverted testimony that the value of the leased premises was diminished by $50,000 as the result of the damaged and unrepaired parking lot. Thus, damages awarded on the basis of the premises' diminished value would have provided an award significantly greater than an award based on the cost of repair. Moreover, the damaged parking lot was inspected in 1990, approximately 3 years before expiration of the lease's term, and repairs to the lot were estimated to cost between $23,000 and $24,000. Given the cost of repairs at a time shortly before expiration of the lease, Miller would obtain no windfall recovery through an award based on the estimated cost of repairs to the premises. Because the repair costs provided a reasonably accurate measure of damages without a windfall to Miller, the district court did not err in using the repair costs as a basis for the damages awarded to Miller.