When it comes to actions arising out of damage to property by a contractor, especially in the residential real property context, Tennessee courts typically balance the cost to repair versus the diminution in value of the property in determining how to make the property owner whole. Where repair is unfeasible or repair costs are disproportionate to the diminution in value, Tennessee courts will limit damages to the lost value of the property.

The Tennessee Court of Appeals recently revisited this issue in Durkin v. MTown Construction, LLC. In that case, a homeowner hired a roofing contractor to install a new roof. During the installation, a thunderstorm rolled in, and the contractor failed to adequately protect the exposed roof. Water poured into the home and caused substantial damage throughout. Some evidence suggested remediation required complete demolition of the home.

At trial, the homeowner presented substantial testimony regarding the costs required to repair the water-damaged property. In contrast, little evidence was presented by the homeowner or the contractor regarding any diminution in value of the property.

The trial court judge expressed concern that the cost of repair was higher than what she believed the diminution in value of the home should have been, but there was insufficient evidence presented to evaluate the actual loss in value. After some consideration, the judge arrived at an award for the homeowner by deducting the assessed tax value of the property against the value of just the land itself. The contractor appealed and argued that there was no diminution in value based on very limited testimony from the homeowner that he did not believe the assessed value of the property changed after the rain event.

The appellate court rejected the contractor’s argument. The court noted that prior to consideration of awarding damages based on lost value, as opposed to the cost of repair, proof must be offered on both the cost of repair and the diminution in value.

Since diminution in value is an alternative measure of damages, the burden was on the contractor (and not the homeowner) to demonstrate that the cost of repair was unreasonable and the diminution in value was the appropriate measure of damages. Since the contractor did not present sufficient evidence to show the cost of repair to be disproportionate to the diminution in value, the appellate court held that the trial court should have awarded the homeowner the cost of repairs and remanded the case for a further determination of those costs.

At least in Tennessee, parties to construction disputes involving damage to real property should consider the appellate court’s approach to the award of damages when evaluating and litigating disputes. The damaged party in such disputes does not carry the burden to demonstrate that repair costs are reasonable or that the diminution in value is less than the cost to repair. If a party intends to rely on the diminution in value as the measure of damages, that party must be prepared to present evidence that, at a minimum, (1) shows that repairs are unfeasible or repair costs are unreasonable and (2) is sufficient to show the actual loss in value of the real property.