Measure of Damages for Waste: Cost of Repair or Diminution in Value?
Mike W. Bartolacci1 |
Manoo Mofidi2 |
Commercial property leases commonly include provisions requiring the lessee to maintain the premises in good repair during the lease term. Not surprisingly, when the lease terminates, disputes often arise between lessor and lessee over whether the property has been adequately maintained. Lessees are frequently dismayed when a matter they thought would involve a relatively straightforward negotiation over repair costs suddenly takes an ugly and potentially imposing turn in the form of demand for treble damages under Missouri’s waste statutes. Their discomfort only increases when they try to reconcile the various Missouri decisions regarding waste claims. Despite case law defining “waste” as that which does “lasting damage” to property, or as “material and permanent injury … over and above ordinary wear and tear,”3 courts have nevertheless found waste and awarded damages based on slight, temporary injuries, which, by definition, can be repaired. This article examines significant Missouri cases involving damages to real estate in an effort to determine what, if any, guidance can be drawn from those precedents for the litigant seeking to assert or defend a waste claim.
I. Missouri Statutes Relating to Waste
Sections 537.420 to 537.510, RSMo, govern waste. These statutory provisions were last amended in 1939. Section 537.420 addresses liability for waste committed by a tenant for life or years. By its terms, it would not apply to any claim arising out of a month-to-month or other periodic tenancy. The statute mandates the trebling of damages if waste is found.4 Section 537.490, which applies to other types of relationships, also permits treble damages, but the waste must be found to have been committed wantonly.5 Because they authorize treble damages, these two statutes will be the focus of our discussion.
II. Defining Waste
What is “waste?” The statutes mention the term but do not define it. Case law has defined waste as “the failure of a tenant to exercise ordinary care in the use of the leased premises or property that causes material and permanent injury thereto over and above ordinary wear and tear.”6 This definition is based on language found in a 1970 case.7 It begs the question: What is ordinary wear and tear? The Supreme Court of Missouri has defined the phrase as “any usual deterioration from use of the premises during the lease period” or “normal depreciation.”8
No bright-line rule emerges from Missouri waste cases as to what constitutes ordinary wear and tear. For this reason, waste claims do not easily lend themselves to summary disposition. Rather, the question of whether the damage involved in any particular case exceeds ordinary wear and tear almost always will present a factual dispute, which can only be resolved by the trier-of-fact. But one would think that a lessee ought to be able to obtain summary judgment on a waste claim (and avoid the threat of treble damages) where the damage can clearly be repaired. Not necessarily.
“Material and permanent injury . . . above ordinary wear and tear[;]”9 “lasting damage;” “permanent loss:” these would all seem to be straightforward concepts. A careful examination of case law, however, reveals an incongruity between what the courts have said about waste and what they have actually done in the specific case before them. Most glaringly, courts have awarded damages for waste based on a slight, temporary injury. These decisions contradict the very definition of waste in the first place: How can a slight, temporary injury be a material and permanent loss or constitute lasting damage? In short, how can it be waste at all? Missouri cases do not answer this question. It just is.
III. Measure of Damages – Diminution in Value or Cost of Repair?
These unsettled questions mean that determining the appropriate measure of damages often becomes the critical battlefront in any waste case. When deciding to award damages for waste, a court must select one of two different measures of damage: diminished value or repair costs. Normally, the plaintiff should recover the difference between the reasonable value of the property before the waste and the value afterward. But, in cases involving temporary harm where repair costs are insignificant in comparison to the value of the property, plaintiffs have been permitted to recover as waste the reasonable cost of repairing the harm done.
There are few reported waste cases, but decisions regarding damage to property generally provide some guidance. One early example is Graves v. K.C., Pittsburgh & Gulf R.R. Co.,10 which concerned damages sought for flooding land and destroying fences. The decision approved both methods of measuring the damages depending on whether the harm was to the land itself or improvements thereon:
For injury to the land itself, that is, the washing of the soil, the measure of damage is the difference in the value of the land before and after the flood by reason of this particular injury. As to the houses and fences their actual value is the measure of damages. Such value is measured by the sum which would, properly expended, restore the premises to their former condition.11
Wiggins v. St. Louis, M. & S.E. Ry. Co.12 similarly dealt with injuries to fences and a permanent meadow. The court rejected a reasonable value damage instruction for the permanent injury to the meadow, but upheld cost of repair as the appropriate measure for the fence. The court held that “the actual value of the fence was the measure of the recovery therefor, and such value may be ascertained by the time and money properly expended to restore the fence to its former condition.”13
In Adam v. Chicago, B. & Q. Ry. Co.,14 the court of appeals shed some light on how to factually distinguish between a permanent and a temporary injury. In Adam, damages were sought for both temporary and permanent damages to acres of alfalfa planted by the plaintiff. After observing that Missouri decisions were not harmonious on the issue, the court held:
Where the destruction of the thing includes but a temporary injury to the land, and the thing may be replaced in a comparatively brief period, the true measure of damages is the cost of replacing it and the rental value of the land until it is replaced; but where the destruction of the thing inflicts more than a temporary injury to the land, or the replacement would be impossible or tedious and uncertain both in cost and result, the criterion is the damage inflicted on the market value of the land.15
Applying these principles, the court found that alfalfa was a “perennial [crop], and, if totally destroyed, may be replaced without permanent injury to the soil.”16 The court further found that its “replacement [was] a matter of a comparatively short period and [could] be accomplished with reasonable definiteness and certainty as to cost and result.”17 The court held, therefore, that replacement cost was the proper measure of damages.18
The same principle was followed in South Side Realty Co. v. St. Louis & S.F.R. Co.,19 where the court dealt with short-term flood injuries to houses and fences. The court held that “[s]uch value is measured by the sum which would be properly expended to restore the premises to their former condition.”20
South Side Realty was followed by Desalme v. Union Elec. Light & Power Co.21 In that case, the plaintiffs sought damages for the defendant’s alleged wrongful discontinuance of their electric service, which allegedly damaged the plaintiffs’ ability to rent their property. The court distinguished between injuries to property that are temporary and can be repaired, and those that are permanent and irreparable. Characterizing the nature of the alleged injury as “temporary and remediable,” the court held that the trial court erred when it instructed the jury that the depreciation in the rental value of the plaintiffs’ property should be the measure of their actual damages.22
Some years later, a Missouri court of appeals summarized the rule in these early cases:
The measure of damages for injury to real property is not invariable, the amount to be awarded being such sum as will compensate the injured owner for the detriment proximately caused thereby. Ordinarily, the difference between the fair value of the property immediately before and immediately after the injury will be taken as the measure, at least where the injury is permanent, or where the damage cannot be well expressed in specific items of injury, although it affects in a substantial degree the value of the entire property as a unit. * * * Where the injury to real property is merely temporary, or where the property can be restored to its original condition, the measure of damages may be, or should include, the cost of restoration, as where the injury is susceptible of remedy at a moderate expense and the cost of restoration may be shown with reasonable certainty, or where the cost of restoration is less than the diminution in the value of the property.23
In Dimick, the “[d]efendants contracted to bring [the] plaintiffs’ land to certain specified levels and to fill in the depressions existing on the east boundary in order to bring them up to grade.”24 The plaintiffs alleged that the defendants failed to do so.25 The court found that “[p]roof of the cost of bringing the property to grade and of filling in the depressions was certain and definite.”26 The court held, therefore, that the “plaintiffs were entitled to either the reasonable cost of bringing the property to grade and of filling in the depressions, or to the difference between the fair market value of the land at the produced final elevations and the fair market value of the land at the contract specified elevations, whichever was lower.”27
The rule on measure of damages for damage to real property began to crystallize in later years. In DeLong v. Broadston,28 a breach of contract action, the court remanded for a new trial on the issue of damages because the plaintiffs had failed to offer evidence in support of their claim that the defendants improperly installed a gas burner in their apartment house’s steam boiler. The plaintiffs sought damages when the heating system failed, “causing damage to the paper, paint, plaster, and floors” of the apartment units.29 At trial, the plaintiffs introduced evidence concerning cost of repairs, but no evidence was offered regarding the value of the property.30 The court explained
the measure of damages in cases involving real property is the difference in value of the property immediately before and immediately after the damages were inflicted . . . [But] “[w]here the amount of damage is insignificant, as compared to the value of the property as a whole and involves only a small part thereof, there is an exception to the above general rule”; but . . . before [the] plaintiff could rely solely on evidence of costs of repair, there should be a showing of the comparative insignificance of the damage to bring the case within the exception to the rule.31
Applying this guidance, the court held that, since “no evidence [was] offered or received regarding. . .the market value of the building, either before or after the damage was incurred, . . . [i]t was improper to submit on the theory of the cost of repairs because it was not shown that the damage was comparatively insignificant, considering the total value of the building.”32
While these early cases discussed the proper measure of damages for injury to property, they did not describe those claims as amounting to waste, and none awarded treble damages.
An early application of the principles developed by Missouri courts to a waste action appeared in Helton v. City of St. Joseph.33 In that case, the plaintiff landlords obtained judgment against the defendant tenant for $800 to repair damaged doors, windows, floors, walls, closets, and plaster, and replace the plumbing in the premises.34 At trial, and unlike the plaintiffs in DeLong, the Helton plaintiffs introduced evidence that established the value of the whole property at the time of the lease to be somewhere between $3,000 to $3,500.35 The jury found that the cost of restoring the property to a pre-lease condition was $800 (roughly between 22 percent to 26 percent of the property value).36 Repair cost evidence was introduced without objection, and there was no evidence of the before-and-after values.37 The court affirmed, holding that the repair cost evidence did, in effect, establish “the difference between the value of the property before and after the damage was suffered.”38 The court added:
While the general rule is that the measure of damages in a case of this kind is the difference between the market value of the realty immediately prior to being damaged and immediately thereafter yet, where the damage is small in comparison to the total value of the property and is readily ascertainable and where the verdict is not excessive, the amount of such damage may be arrived at by determining the cost necessary to restore the property to its former condition.39
The comment on the possible excessiveness of the verdict is noteworthy, as it does not appear from the opinion that treble damages were awarded. Had the $800 cost of repairs been trebled to $2,400, plaintiff would have recovered a sum equal to 70-80 percent of the total value of the property.
A discussion of what might constitute “permanent” damages appeared in DeArmon v. City of St. Louis.40 In that case, a wrecking contractor was sued for damage that occurred to the plaintiff’s property during the demolition of an adjacent building.41 The evidence showed that during the demolition the defendant “knocked a hole in the east wall of the plaintiff’s building. The hole extended from the foundation, either almost to the second floor, or covering both the first and second floors and the bottom of the third floor.”42 The “[p]laintiff’s expert fixed the reasonable market value of [the] plaintiff’s building before the accident between $8,000 and $10,000.”43 The expert testified that “after the damage had occurred, . . .the building had no value.”44 The defendant’s expert, on the other hand, “testified that [the] plaintiff’s building had no value either before or after the accident because ‘there [were] no sales of such houses, no loans made.’”45 The trial “court refused to allow [the defendant] to elicit testimony concerning the cost to repair the damage to the building because . . .‘the damages were so extensive that the only question involved was the value of the property before and after the damage.’”46 On appeal the defendant argued “that the cost of repairs [was] the proper rule to be followed – because the damage was easily reparable, and that 11 . . . of the 13 rooms were intact.”47
The court of appeals first explained the general rule on measure of damages for injury to real property as being:
the difference in value immediately before and immediately after the event causing the injury (diminution-in-value test) . . . [But] where damage to land or a building thereon can be restored to its former condition at a cost less than the diminution in value, cost of restoration becomes the measure . . . [T]he cost-of-repair test is an exception to be used only where the amount of damage is insignificant as compared to the value of the property as a whole and involves only a small part thereof . . . “[C]ourts tend to use the diminution test without hesitation in circumstances that suggest a very high restoration cost.” . . . [T]he restoration rule (cost-of-repairs) is applicable only to cases where the cost of restoration is less than the difference in value of the land before and after injury and can never be applied in any case where the cost of restoration is greater than the value of the building.48
Applying these principles to the significant damages at issue, the court explained that for the defendant “to show that the cost of repair rule was the one to be followed he had [(but failed)] to show that the damage to the building not only was insignificant compared to the value of the property as a whole, but also involved only a small part” of that value.49 Relying on the extensiveness and permanent nature of the damages, the court affirmed the trial court’s use of the diminution of value rule. It does not appear from the opinion that the plaintiff was awarded treble damages.
The court of appeals applied the same rationale in Smith v. Norman,50 but the facts compelled a different outcome. In that case, the plaintiff landlord sued her former tenant to recover damages for injuries done to her leased premises, an eight-room apartment in the landlord’s six-unit building.51 The landlord’s evidence “showed that when [the tenant] vacated the apartment it was in disarray and plaintiff was compelled to furnish materials to have it renovated by several repairmen at a cost of $4,800.”52 As in Helton, “[t]here was no evidence of overall before-and-after value,” and the repair costs evidence came in without objection.53 The tenant contended that without before-and-after value evidence, the landlord failed to make a submissible case.54 Characterizing the injuries to the landlord’s apartment as “temporary and . . . readily . . . repair[able],” and “[c]onsidering that and the fact defendant’s apartment was but one of the six units in the building,” the court held that “it would be unrealistic to require plaintiff to introduce further evidence of the before-and-after value of plaintiff’s six-unit building.”55 The opinion is silent on whether damages were trebled.
Lipton Realty, Inc. v. St. Louis Housing Authority56 offers additional guidance on what constitutes “extensive and permanent” damage for purposes of ascertaining “the proper measure of damages” for statutory waste. It also introduces a less mechanistic and more flexible approach to determining the proper measure of damages.
The Lipton defendant leased a 22-unit apartment complex from the plaintiff.57 “After the term of the lease expired,” the plaintiff brought suit for damages against the defendant.58 “The following items of damages were discovered [in the complex]: holes in the walls; broken windows; missing electrical fixtures; raised hardwood flooring; missing floor and wall tiles; deteriorating wall plaster; rubbish-blocked stairways; inoperative plumbing; missing door and window hardware; damaged exterior doors; and graffiti on the walls.”59 The plaintiff did not “restore the property upon termination of the lease but rather sold [it] ‘as is.’”60 The petition “sought $397,481 in damages for the cost of repairs which [the defendant] was required but failed to make under the lease agreement”; it also sought “‘in the alternative’ $152,100 which represented the diminution of the fair market value of the property caused by [the defendant’s] failure to make [the alleged] repairs.”61 The plaintiff’s cost of repairs claim was dismissed before trial and, at trial, the jury found for the defendant on the plaintiff’s claim for diminution of fair market value.62 The plaintiff appealed the dismissal as well as the unfavorable judgment, arguing that “cost of repair [was] the proper measure of damages for breach of an express covenant to repair and maintain.”63
Rejecting that argument, the court of appeals observed that the cost of repair sought in plaintiff’s petition “was substantially more than the diminution in fair market value.”64 Observing that “[r]ecovery based upon cost of repairs is subject to an absolute ceiling of diminution in value,” the court held that the plaintiff’s petition, on its face, compelled the use of diminution in fair market value to measure damages.65 The court characterized the claim as being “essentially one for waste,” even though the plaintiff had not pled a waste claim and thus would not have received treble damages. Echoing DeArmon and its predecessors, the court explained the measure of damages as follows:
In an action for waste the measure of damages is generally the difference between the market value of the realty prior to being damaged and the value immediately thereafter . . . Damages based upon diminution of value are used where the damage to the realty is permanent, or where the damage is not expressed well in specific items of injury, but is so extensive that it substantially affects the value of the property in its entirety . . . In contrast, when the damage is small in comparison to the total value of the property and is readily ascertainable, the amount of such damage is determined by the cost necessary to restore the property to its former condition.66
Applying these principles, the court found the “damage to the individual apartments and to the apartment building as a whole extensive and permanent,” and thus held that a cost of repair recovery for the plaintiff would have been improper.67
Should it have mattered that the plaintiff’s “action was not one for waste but one for breach of contract” based on the defendant’s “continual breach of its covenant to repair or maintain”? No, said the court, explaining that “[t]he purpose of damages in a contract action is to restore a plaintiff to the position he would have been in had the contract not been breached, rather than to place him in a better position.”68 The court determined that “damages based upon diminution in value accomplished this end, because [the plaintiff] did not attempt to restore the property upon termination of the lease but rather sold the real estate pursuant to an ‘as is’ sales contract.”69
What of the trial court’s refusal to admit evidence of cost of repairs? That was not error, because “[e]vidence both as to cost of repairs and as to diminution in value of the property is essential only to establish which measure of damages results in a smaller recovery, for plaintiff is awarded only the lower amount.”70 And “[t]he particular facts of each case determine which measure of damages is to be used.”71
Repair costs in Helton, which were roughly 22 percent to 26 percent of the property value, were found to be “small in comparison to the total value of the property,” thus warranting the use of restoration costs as the measure of damages.72 By contrast, Brown v. Midwest Petroleum Co.73 found a lower percentage to be “significant” in relation to the value of the property at issue, thus precluding the use of repair costs as the measure of damages. Brown is also the first reported decision discussed here in which the trial court appears to have actually awarded treble damages for waste.
In Brown the defendant appealed from a judgment in favor of the plaintiffs for $75,000 (the $25,000 jury award was trebled by the trial court under § 535.420).74 “[I]n January of 1984, [the] defendant signed a lease to rent a commercial property from the plaintiffs for use as a gas station, convenience store and video game room. [The] [d]efendant operated the property from January of 1984 until May of 1987[,] . . . [and] . . . continued to pay rent . . . until the end of the lease in January of 1989.”75 “After retaking possession, [the] plaintiffs found the property damaged and unfit for commercial use” and filed suit, “claiming [that the] defendant damaged the property by failing to maintain it as required by the lease.”76 Although the opinion did not explain the nature of the alleged damages, the owner of the building had testified that he believed the property had decreased in value by “$50,000 due strictly to [the] defendant’s actions.”77 He conceded, however, that this figure merely reflected his estimate of the cost to restore the premises.
Since the owner’s basis for determining the $50,000 decrease in market value was the cost of repairing the damage to the building, and since “the cost of repairs was significant in relationship to the cost of the building,” the trial court ruled that cost of repairs was not the proper measure of damages and “gave a withdrawal instruction to the jury to disregard all evidence of damage based on the cost of repairs.”78
The defendant argued on appeal that there was “no evidence presented from which the jury could [have] ascertain[ed] damages” based on “diminution in fair market value attributable to waste committed by [the] defendant’s breach of the lease.”79 Agreeing with the defendant and reversing the judgment, the court observed that, since the jury could not consider the owner’s testimony on repair costs as a measure of damages, all it was left with to assess damages was evidence presented through the building owner’s “testimony of the diminution in value of the property between January of 1984 and January of 1989.”80 And that diminution in value, according to the court, “could have been caused by several factors including . . . a general decline in the value of real estate, a decline in vehicular traffic in the area, increased regulation affecting the operation of the property, normal deterioration, and/or waste.”81
Brown is instructive for two reasons. The cost of repairs was estimated to be $50,000, which the court found “significant” relative to the total value of the property at the end of the lease. Because the cost of repair test may be used only when that cost is small relative to the property as a whole, the court found that the cost of repair test was not the proper measure of damages. Based on the landlord’s testimony that the property was worth $260,000, the cost of repairs in this case was approximately 19 percent of the total value of the property. Brown also suggests that in a waste case it is incumbent upon the plaintiff to plead and submit evidence to establish which measure of damages is appropriate – diminution in value or cost of repair.
McLane v. Wal-Mart Stores, Inc.82 attempted to harmonize some of the general principles discussed above, but arguably further muddied the water. Although it was not a waste case, McLane nevertheless endorsed Lipton’s more flexible approach to determining the measure of damages for waste.
The property at issue in McLane was a new 50,000-square-foot shopping center.83 At the end of the lease, “the premises were not in good repair or tenantable condition.”84 The “[l]essee made some repairs but did not repair damage to the tile floor and the HVAC system.”85 Other damages included “missing ballasts, light tubes, and ceiling [tiles].”86 The lessor brought suit for breach of the lease covenants to recover the cost of repairs for the damaged floor and the HVAC system, and the cost of replacing the missing items.87 The landlord did not assert a claim for waste (and thus treble damages was not an issue). “At trial, the [l]essor [introduced] evidence of the nature and cost of repairs. [The] [l]essee did not object but, cross-examined on that evidence.”88 The lessee, however, did object “to any evidence of damage other than cost of repairs” and offered “no evidence [about] the property’s diminution in value.”89
The trial court found that [the] lessee [had] failed to maintain the HVAC system as specifically required by the lease and that [the] lessor’s cost to put the system in good working order was $13,774.07. The court also found that [the] lessee failed to return the premises in an appropriate condition, excepting ordinary wear and depreciation, and incurred $27,644.65 in repair costs to restore the property to an appropriate condition. The trial court awarded [the] lessor damages in the amount of $41,418.72 for the cost of repairs, plus prejudgment interest.90
On appeal the lessee argued that the damage award was not supported by the evidence because the lessor failed to present evidence of the before and after fair market value of the premises, and that, therefore, the court did not have before it the evidence necessary to determine that the cost of repairs was the proper measure of damages instead of the diminution in value.91 The appellate court first reviewed general principles regarding a lessor’s recovery for breach of a covenant to repair. It said that:
the lessor’s recovery for breach of a covenant to repair or for failure to surrender possession of the premises in a prescribed condition is usually the cost of making the repairs to restore the property to the required condition . . . However, a landlord is not to be put into a better position than if the tenant had performed the lease . . . Cost of restoration is but one method of making landlord whole. There are situations where this method places landlord in a better position than if tenant had performed, thus providing him with a windfall. When this is likely, the measure of damages used is one designed to ensure that the landlord will neither lose nor benefit from tenant’s breach. If the cost of restoration exceeds the diminution of market value of the property, recovery will be limited to diminution of value.92
This is why, the court explained, that cost of repairs recovery is sometimes limited to a ceiling equal to the diminished value of the premises.93 The rationale for the general rule in favor of cost of repairs recovery, the court further explained, is based on the purpose of damages in a contract action, which is to restore a plaintiff to the position it would have been in if the contract had not been breached, rather than to place plaintiff in a better position.94 “[T]he goal ‘is to award a sum that will put the non-breaching party in as good a position as he would have been had the contract been performed.’”95 And, “an award of the cost of repairs [ordinarily] put[s] the lessor in the position it would have been in had the lessee performed the covenants to repair in the lease, without creating any type of windfall.”96
Although the lessor had pled “a claim based on breach of lease covenants[,]” the “[l]essee argue[d] that the action [was] actually one for waste.”97 Determining that “an understanding of the measure of damages in waste cases [was] helpful in addressing the issue on this appeal because many of the same considerations arise and, to some extent, overlap[,]”98 the court proceeded to discuss measure of damages in waste cases. Since McLane was not a waste case, the following discussion is dicta, but, given the dearth of reported waste cases, it will likely prove influential in future cases.
After giving the standard definition of “waste” and explaining the general rule for measure of damages, the court explained that “[w]hile the standard used in waste and tortious injury to property cases is similar to the one used in breach of lease covenant cases, the standard is usually applied differently in that ‘cost of repairs’ is favored in contract cases and ‘diminution of value’ is favored in cases involving waste or tortious damage to property.”99 The court traced this “difference in the manner of application” to the difference in the purpose of compensation in contract and tort cases:
‘Generally, compensation for tort damages attempts to restore the injured party to the position he would be in if the [tort] had not been committed. In the case of a breach of contract, the goal of compensation is not the mere restoration to a former position, as in tort, but the awarding of a sum which is the equivalent of performance of the bargain – the attempt to place the [injured party] in the position he would be in if the contract had been fulfilled.’ . . . .
Having laid out these general rules, [the court, echoing Lipton, said] that, despite the preferences for one measure or another, the particular facts of each case determine which measure of damages is to be used. . . . Thus, the diminution in value can be a proper standard in a breach of lease case where damage is extensive and permanent and where the cost of repairs would greatly exceed the before and after value of the real estate. And, repair costs can be appropriate in a waste case where the damage is temporary and readily capable of repair.100
Given this background, the court rejected the
lessee’s contention that [the] plaintiff was required to [introduce] evidence of the before and after market value of the premises [in order] to show that diminution in value was not less than the cost of repairs. The determination of which measure to use in either breach of lease or waste cases does not involve a mechanistic comparison of the cost of repairs against the diminution in the before and after market value followed by a choice of the lesser amount. Rather, the nature of the damage and feasibility of repair alone can indicate which measure is appropriate because the two measures are not inconsistent, . . . and do not conflict. ‘[T]he only reason for a choice between the two measures is to prevent windfalls and economic waste, and if there is no evidence of either, then a recovery should be permitted under either measure for which there is evidence.’. . . [W]here there is slight injury, the cost of repair logically reflects the amount the property was reduced in value. . . . The ceiling of diminution in value for cost of repairs recovery is to prevent plaintiff from obtaining a windfall . . . .101
Based on these principles, the court enunciated the following general rule on measure of recovery in waste and injury to property cases: “Where evidence of the cost of repairs has been offered without objection and the defendant offers no evidence of the diminution in the market value of the property, the defendant may not complain on appeal that damages based on cost of repair were improperly awarded.”102
The court found that:
the evidence [in the case] showed that the cost of repairs was the appropriate measure of damages. The repairs were specifically identified, the cost was easily ascertained, and it was obvious that the damaged and missing items were insignificant in value in comparison to the value of the entire property. The missing and damaged items did not represent irreparable or permanent injury to the premises and there was no evidence that the cost of repairs [which amounted to $41,418.72] was disproportionate to the value of the property.103
Although the opinion is silent on the total value of the property, we can make some educated guesses based on the information provided. We know, for instance, that the property was “a new 50,000 square foot shopping center.”104 We also know that retail tends to obtain the highest per-square-foot rental rate. A very conservative estimate of $25/square foot for rental rates in the mid-1970s would put the value of the property at more than $1 million dollars at the time. Assuming, again rather conservatively, that by 1994, when the lease terminated, the rental rate for the property had increased to $95/square foot, the property’s value then would have been well more than $4 million. Under the former scenario, repair costs would have constituted roughly three percent of the value of the property. Under the latter scenario, repair costs would have amounted to less than one percent of the total value.
McLane also found it important that, “in using the cost of repair measure to award damages, the trial judge prevented the lessor from obtaining a windfall, or a more valuable property, by specifically excluding from the judgment the costs of any repairs that corrected ordinary wear or otherwise improved the property beyond the condition required by the lease.”105 The court held, therefore, that “[t]he trial court did not err in awarding lessor damages based on the cost of repair without requiring evidence of the before and after market value of the entire structure.”106
Post-McLane cases have, for the most part, offered only limited guidance on waste. Brizendine v. Conrad107 is an exception. In that case, the plaintiff “brought suit for treble damages under”§ 537.420 against “his former tenant under a [12-month] written lease-purchase agreement” involving “a low-income apartment-office-storage complex building.”108 Evidence showed that “at the end of the lease term [the defendant] advised [the plaintiff] that she had decided not to purchase the property.”109 The plaintiff informed the defendant that “the property was not in acceptable condition under the Agreement because it had extensive damage, not merely normal wear and tear[:] . . . damage to the floors, walls, . . . ceilings, . . . heating units, plumbing, and common ways,” and roach infestation in many units.110 “At the time the parties entered into the Agreement, the purchase price agreed to was $140,000. When the property was tendered back to [the plaintiff], the cost to repair the damage done to [the property] was $30,335.”111 The plaintiff, “rather than investing this sum of money to repair the property, and then trying to sell it again, took an offer of $90,000 for the property from a new buyer, and then filed suit against [the defendant] under a variety of theories of damage. Ultimately, he dismissed all claims except the one for statutory waste.”112 Following trial, judgment was entered in favor of the plaintiff in the amount of $33,760.35 (the $11,235.45 damage award for waste based on the cost of repair was trebled pursuant to the statute). The court of appeals affirmed.
Juxtaposing Brizendine and those (mostly older) Missouri cases that adopted a rigid, mechanized view of the measure of damages is instructive. Although the damages in Brizendine could have been repaired for a mere $11,000, the court nevertheless found that they amounted to “waste.” Assuming $90,000 was the market value of the property immediately after the waste, the cost of repair was roughly 12 percent of the value of the property. That cost of repairs was used as a measure of damages even though the court found material and permanent injury is contrary to the rule enunciated in the older Missouri opinions. Those cases required the use of diminution of value as the measure of damages where, as in Brizendine, the damage to the realty is “permanent.” The court did not comment on this issue because it was not raised on appeal.
White v. Marshall113 continues the trend in Missouri of using the flexible approach to the measure of damages for waste. White was a waste action brought by a landlord against the tenant for alleged damage to the landlord’s apartment unit.114 The evidence of the alleged waste showed that the tenant “had repainted several walls with white, black, and gold designs[;] . . . trash was strewn about every room[;]” “the carpet in the apartment, which emitted an unpleasant odor, was stained and littered with sand and dirt[;]”115 and “there were numerous holes in the walls throughout the apartment. As a result of the condition of the apartment when the tenant moved out, the [landlord] had to repair and repaint the walls, remove the trash and other debris from the premises, . . . replace all of the carpet and linoleum throughout[,]” replace all of the window blinds, and make miscellaneous repairs.116 The landlord sought to recover the cost of the repairs for the apartment.117 Following a bench trial, the court entered judgment in favor of the landlord, awarding it $2,900 in damages, which constituted a portion of the cost of repairs that the landlord sought to recover.118 Since the tenancy was month-to-month, and there was no indication of wanton waste, the damages were not trebled.
On appeal, the tenant argued “that before the trial court could award damages based on the cost of repairs, it was required to first find that the cost of repairs was less than the diminution in value of the apartment.”119 The tenant further argued “that no such finding was or could have been made by the [trial] court [because] there was no evidence in the record as to the fair market value of the apartment, before or after the damage.”120
Applying McLane’s flexible, case-specific approach to measure of damages, the court held that since the tenant did not object at trial to the landlord’s “evidence of cost of repairs and offered no evidence of the diminution in value of the property, the [tenant could not] be heard to complain on appeal that the trial court’s award of damages to the [landlord] based on cost of repairs was in error because there was no evidence of diminution of value.”121
IV. Evidentiary Implications
While the trend in Missouri case law is towards a more flexible application of the measure of damages, courts still impose certain evidentiary requirements; failure of proof can easily upend a plaintiff’s case.
Hill v. Boyer122 is illustrative. “[T]he parties entered into an agreement . . . providing that Defendants would rent the Plaintiffs’ mobile home for $300 monthly[,] . . . all rent paid would be applied to Plaintiffs’ loan on the mobile home, and Defendants would have an option to purchase the mobile home for the remaining loan balance.”123 After evicting the defendants for failure to pay rent, the plaintiffs inspected the property and found it damaged (the court did not explain the nature of the alleged damages). The “[p]laintiffs then brought [an] action . . .seeking treble damages for ‘wanton waste.’”124 The plaintiffs’ evidence at trial showed “that repairs to the mobile home cost $6,259, excluding any repairs for ordinary wear and tear.”125 “[T]he trial court found that Defendants damaged the premises, and that Plaintiffs proved the cost of repairs amounted to $6,259. However, the trial court . . . found that Plaintiffs failed to offer any evidence showing the difference between the fair market value of the mobile home before and after Defendants’ occupancy, i.e., the diminution of value test.”126 For this failure, “[t]he trial court eventually found in favor of Defendants on Plaintiffs’ claim.”127
The appellate court upheld the trial court’s refusal “to award damages in the absence of diminution of value evidence.”128 Recalling DeLong, the court held that the measure of damage evidence was insufficient because plaintiffs failed to show by cost of repairs “that the damage was comparatively insignificant, considering the total value of the [premises.]”129
V. Conclusion
Missouri courts have defined “waste” variously as that which does lasting damage to property, or as “material and permanent injury . . . over and above ordinary wear and tear.”130 Lasting damage or “material and permanent injury,”131 however, have remained undefined. This means that the only way to understand waste is to examine individual fact patterns. It is still difficult, however, to draw much guidance from the cases. The decisions appear to be result-oriented and may have limited application outside the peculiar facts and equities of the individual cases. For these reasons, it will typically be difficult for a defendant in these cases to obtain summary judgment short of trial.
As for measure of damages for waste, there are two tests: diminution of value test and the cost of repairs test (also known as the restoration rule). Under the former (typically used for a permanent injury), the measure of damages is the difference between the fair market value of the realty at the end of the lease, had no waste occurred, and the fair market value of the property in its damaged condition. The cost of repairs test (typically used for a slight, temporary injury) is used only when two conditions are met: 1) the cost of repair is small in comparison to the property as a whole; and 2) the amount of the repair is easily ascertained.
The way Missouri case law has developed means that a defendant is unlikely to obtain a ruling as a matter of law even on this limited issue, as the particular facts of each case determine which measure of damages is to be used. Evidence both as to costs of repairs and to diminution of value may be necessary to establish which measure of damages results in a smaller recovery, for the plaintiff is awarded only the lower amount. If, for instance, the cost of restoration exceeds the diminution of market value of the property, recovery will be limited to diminution of value. This is why cost of repairs recovery is limited to a ceiling equal to the diminished value of the premises. Also, if no evidence of diminution of value is presented, to recover cost of repairs the law requires at least some evidence this cost was substantially less than the diminution of value, which, in turn, requires some evidence of value.
While earlier cases would suggest that the plaintiff should present evidence as to both measures of recovery, defendants would be ill-advised to sit back and sandbag on this issue. If a defendant believes there is a lesser measure of damages available, it should make sure that issue is raised in its own pleadings and that evidence is presented on that question. This would be consistent with McLane’s suggestion that the plaintiff’s burden of proof is satisfied by presenting evidence of either measure of damages. If McLane’s dicta is followed, then the burden of establishing that another measure is more appropriate will effectively be the defendant’s. If the plaintiff introduces evidence of the cost of repairs, despite the holding in Brown, that measure could be used unless the defendant affirmatively shows that diminution of value is less.
The astute reader will have observed from the foregoing discussion that there are, in fact, very few reported decisions in which treble damages were actually awarded and affirmed for waste. Furthermore, none of those handful of treble damage awards involve particularly large sums of money. This is hardly surprising. Since these claims are difficult to dispose of on summary judgment, and because our courts have defined as waste even temporary, insignificant damages which are easily capable of repair, the assertion of a claim for treble damages typically gives the lessor significant leverage in negotiating a settlement. Any landlord who believes its tenant has breached the lease by failing to maintain the property should, therefore, consider asserting a waste count.
Footnotes
1 Mike Bartolacci is a partner at Thompson Coburn LLP.
2 Manoo Mofidi is an associate at Thompson Coburn LLP.
3 Brown v. Midwest Petroleum Co., 828 S.W.2d 686, 687 (Mo. App. E.D. 1992).
4 See Greeson v. Ace Pipe Cleaning, Inc., 830 S.W.2d 444, 448-49 (Mo. App. W.D. 1992)
5 Id. at 448.
6 Brown v. Midwest Petroleum Co., 828 S.W.2d 686, 687 (Mo. App. E.D. 1992) (citing Lustig v. U. M.C. Indus., Inc., 637 S.W.2d 55, 59 (Mo. App. E.D. 1982)).
7 See Durbin-Durco, Inc. v. Blades Mfg. Corp., 455 S.W.2d 449, 452 (Mo. 1970).
8 Brizendine v. Conrad, 71 S.W.3d 587, 592 n.4 (Mo. banc. 2002) (quoting 49 Am. Jur. 2d Landlord and Tenant § 893).
9 828 S.W.2d at 687.
10 69 Mo. App. 574 (1897).
11 Id. at 579-80.
12 95 S.W. 311 (Mo. App. E.D. 1906).
13 Id. at 311.
14 122 S.W. 1136 (Mo. App. W.D. 1909).
15 Id. at 1136-37.
16 Id. at 1137.
17 Id.
18 Id.
19 134 S.W. 1034 (Mo. App. S.D. 1911).
20 Id. at 1040.
21 102 S.W.2d 779 (Mo. App. E.D. 1937).
22 Id. at 782-83.
23 Dimick v. Noonan, 242 S.W.2d 599, 603 (Mo. App. W.D. 1951).
24 Id. at 603.
25 Id.
26 Id.
27 Id.
28 272 S.W.2d 493 (Mo. App. W.D. 1954).
29 Id. at 496.
30 Id. at 497.
31 Id. at 497. Quoting Gulf, M. & O. R. Co. v. Smith-Brennan Pile Co., 223 S.W.2d 100, 103-4 (Mo. App. W.D. 1949).
32 Id.
33 340 S.W.2d 198 (Mo. App. W.D. 1960).
34 Id.
35 Id.
36 Id. at 199.
37 Id.
38 Id.
39 Id. at 199 (emphasis added) (citing Finley v. Austin, 132 S.W.2d 1109, 1115 (Mo. App. E.D. 1939)).
40 525 S.W.2d 795 (Mo. App. E.D. 1975).
41 Id. at 798.
42 Id.
43 Id.
44 Id.
45 Id.
46 Id. at 800.
47 Id. at 801.
48 Id. at 800-01 (emphasis added).
49 Id. at 801.
50 586 S.W.2d 84 (Mo. App. E.D. 1979).
51 Id. at 85.
52 Id.
53 Id.
54 Id.
55 Id. at 87.
56 705 S.W.2d 565, 569 (Mo. App. E.D. 1986).
57 Id. at 568.
58 Id.
59 Id. at 569.
60 Id.
61 Id. at 568.
62 Id.
63 Id.
64 Id.
65 Id. at 568-69.
66 Id. at 569.
67 Id.
68 Id.
69 Id.
70 Id.
71 Id.
72 340 S.W.2d at 199.
73 828 S.W.2d 686 (Mo. App. E.D. 1992).
74 Id. at 687, 689.
75 Id. at 687.
76 Id.
77 Id. at 688.
78 Id.
79 Id. at 687.
80 Id. at 688.
81 Id.
82 10 S.W.3d 602 (Mo. App. E.D. 2000). 83 Id. at 604.
84 Id.
85 Id.
86 Id.
87 Id.
88 Id.
89 Id.
90 Id.
91 Id.
92 Id. at 604-05 (citing 1 Milton R. Friedman, Friedman on Leases § 10.602a (4th ed. 1997); 49 Am. Jur. 2d Landlord & Tenant § 873 (1995); 3 Dan B. Dobbs, Law of Remedies § 12.15(3) (1993); 2 Milton R. Friedman, Friedman on Leases § 18.1 (4th ed. 1997)).
93 McLane, 10 S.W.3d at 605.
94 Id.
95 Id.
96 Id.
97 Id.
98 Id.
99 Id.
100 Id. at 605-06.
101 Id. at 606.
102 Id. at 606-07 (citing Helton, 340 S.W.2d at 199).
103 Id. at 607.
104 Id. at 604.
105 Id. at 607.
106 Id.
107 71 S.W.3d 587 (Mo. banc 2002).
108 Id. at 588.
109 Id. at 589.
110 Id.
111 Id.
112 Id. at 590.
113 83 S.W.3d 57 (Mo. App. W.D. 2002).
114 Id. at 59.
115 Id. at 59-60.
116 Id. at 60-61.
117 Id. at 60.
118 Id.
119 Id.
120 Id.
121 Id. at 62-63.
122 72 S.W.3d 284 (Mo. App. S.D. 2002).
123 Id. at 285.
124 Id. at 285.
125 Id.
126 Id.
127 Id.
128 Id. at 286.
129 Id.
130 828 S.W.2d at 687.
131 72 S.W.3d at 285.