Maintaining the Premises. ARG Enterprises, Inc, operated a Black Angus restaurant on premises leased from SDR Associates. The lease included a provision that required ARG to return the premises in the condition in which it had received them. In return

Question

for ARG's agreeing to maintain the premises, SDR charged lower rent payments than it otherwise would have. About six months before the lease was due to expire, SDR notified ARG of the need to return the premises in good condition if the lease was not renewed. When the lease expired, however, the premises were in disrepair. Extensive repairs were required for the roof as well as for the air-conditioning unit, the exhaust fans, and the parking lot. These problems prevented SDR from renting the premises to anyone else. Before the lease expired, SDR had been negotiating with Toys "R" Us, Inc, about the possibility of demolishing the building and selling just the land; but SDR's preference was to relet the building as a restaurant. At the time of trial, the structure had not been destroyed. SDR sued ARG, alleging that ARG had breached the lease agreement by failing to return the premises to SDR in good condition. Among other things, SDR sought damages in the amount of $200,000 as the cost for restoring the premises to good condition. Given the fact that SDR was contemplating the demolition of the building, should the court require ARG to pay the $200,000 in damages to restore the premises to their earlier condition? Explain.

Answer 1

Maintaining the premises
The trial court ruled in favor of SDR, and ARG appealed. The appellate court affirmed the trial court's decision. ARG was ordered to pay $200,000 in damages to SDR. ARG's main argu-ment on appeal concerned the fact that SDR was contemplating having the building demolished and selling just the land to Toys "R" Us. The court held, however, that the issue in this case did not concern the future use of the property. Rather, the issue centered solely on ARG's breach of its contract with SDR. ARG had a contractual duty to maintain the premises and had been given a discount on the rent payments in consideration of this duty. ARG failed to maintain the premises and therefore was liable for the difference between the value of the property at the time it was originally leased to ARG and its value at the time that SDR took possession of it at the end of the lease term. The fact that SDR might decide to demolish the premises and sell the land to Toys "R" Us was not relevant to the measure of damages to be applied in this situation.