The Measure of Tort Damages for a Building

April 1, 2022

The Measure of Tort Damages for a Building

THE MEASURE OF TORT DAMAGES FOR THE LOSS OF A BUILDING

Alex L. Eged and Peter Cross

July 2005 (updated April 2022)

I.       INTRODUCTION

An insurer that indemnifies its insured for damage to the insured’s building is often faced with the issue of the extent it can recover its financial outlay from the third party that caused the damage. Since insurers usually have to “replace” old or worn damaged building components with new ones, the insured’s position is often, in a sense, improved by the repairs. However, damage awards in tort are based on the principle of compensation or putting the injured party in the place it would have been had the wrong not occurred, so tortfeasors often argue that the insured’s (or insurer’s) right to recovery is limited to the value of the old or depreciated building components instead of the cost of new replacement components.

This paper will assist insurers in determining what they can recover from tortfeasors to cover indemnity paid to repair or replace their insured’s building. It reviews the broad principles of recovery in tort claims pertaining to buildings, and addresses Canadian jurisprudence on how to calculate damages in the context of residential and commercial buildings, recreational property, and buildings that have essentially reached the end of their useful lives. It also discusses the recoverability of insurers’ outlays for required building code upgrades, which can significantly increase the cost of rebuilding.

Ultimately, the measure of tort damages for the loss of a building will be driven by a several factors, including the purpose for which the property is used, its uniqueness and age, the owner’s pre-loss plans for the property, and whether the owner has rebuilt or could reasonably have rebuilt on the property. Building code upgrade costs are generally recoverable, subject to the overriding condition that the award as a whole must be reasonable.

II.      GENERAL PRINCIPLES

The law of damages in tort has long held that an innocent party should be placed in as good a position as it would have been had the wrongful act or omission not occurred. This principle is often referred to as restitutio in integrum. The principle, in the context of damages for buildings, is subject to a caveat – the compensation awarded must be reasonable to both the plaintiff and defendant.

A property owner’s right to restitutio in integrum is tempered by the reasonableness of his or her desire for reinstatement of the property. Though it may be reasonable to award a plaintiff the entire cost of reinstating a new building destroyed by fire, it may not be reasonable to make the same award in the context of a building that the plaintiff had at the time of the fire already slated for imminent demolition. The extent of damages awarded is variable and that every case will turn on its own particular facts.

III.     THE SCOPE OF RECOVERY

1.      RESIDENTIAL PROPERTY

a.      Nan v. Black Pine

The general principles of restitutio in integrum and reasonableness are underscored in the leading Canadian case of Nan v. Black Pine Manufacturing Ltd.. Nan was concerned with the amount of recovery available subsequent to a fire. The fire, negligently started by the defendant, destroyed the Nan’s thirteen year old home. The cost of rebuilding the home was $69,809. The defendant argued that this figure should be reduced to reflect the element of “betterment” inherent in replacing a the old home with a new one. The defendant relied on the fact that Nan had paid only $4,000 for the home, including land, and that the appraised value of the building, at the time of the fire, was $37,500. The defendant argued that any award in excess of that number would result in the plaintiff being in a better position than he would have been had the tort not occurred.

Prior to Nan, courts generally awarded damages for damage to buildings based on the actual value of the property damaged. This was often referred to as the “depreciated” value of the building. In Nan however, the court reaffirmed the general principle of restitution and awarded the plaintiff the full cost of replacing his home. In discussing the application of the previously accepted level of recovery the court stated:

“To begin with the notion that damages for the reinstatement of property destroyed by negligence should automatically be reduced, either by pre-loss depreciation or post-reinstatement betterment, was discarded as long ago as 1844.”

Regarding the specific issue of betterment, the court drew on the English Court of Appeal case known as Harbutt’s Plasticine in stating:

“The same approach was taken by the Court of Appeal 125 years later in the Harbutt’s “Plasticine” Ltd. case. There the plaintiff’s factory was completely destroyed by fire as a consequence of the defendant’s negligence. The trial judge awarded as damages the full cost of reinstatement. On the issue of betterment the majority (Lord Denning, M.R. and Widgery, L.J.) held that where the injured party had no option but to replace the destroyed property, and had acted reasonably in doing so, the wrongdoer was not entitled to any deduction on account of the fact that the successful plaintiff got new for old.”

The Court further addressed the topic of betterment by referencing with approval the words of the Australian Court in Evans v. Balog:

“The question is whether it was reasonable for the plaintiffs to desire to reinstate their property. In my opinion, there is only one answer. It undoubtedly was. They had, in effect, lost their family home. That is the nature of their damage and not some diminution in the value of their land. Fair compensation requires that they be given back what they had before; and the only way in which that purpose can be achieved is to award them the sum reasonably necessary to restore their property to the condition in which it was before the defendants effectively destroyed it. This the learned judge did; and, in my opinion, he was right. It is not to the point that the diminution in value basis might on one view produce no damages, while the reinstatement basis produces a substantial sum. The disproportion in question in cases of this kind are not always to be revealed by arithmetical comparison. The cost to a defendant of competing measures is a significant factor. But it is but one ingredient in the calculation of whether the plaintiffs’ claim is reasonable or not. There are cases, and this, in my opinion, is one, where the nature of the plaintiffs’ loss is such that there is only one mode of fairly repairing it. If that turns out to be more expensive than another, the wrongdoer has no one but himself to blame.”

The Court then concluded:

“As to the situation presented by the facts of this case, I can do no better than to apply the words of Samuels, J.A. [above quote], to this case. In my view the learned judge below was right when she held that it was appropriate to award the respondent the full amount of the cost of replacing his home, without deduction for either pre-loss depreciation or post-reinstatement betterment.”

The result in Nan was an award for the cost of reinstating or “replacing” the plaintiff’s home without deduction for betterment or depreciation. The refusal to deduct betterment or depreciation from the award resulted from the court’s view that the plaintiff’s desire to reinstate his home was reasonable and that the advantages of reinstatement outweighed the extra cost being borne by the defendant for replacement cost as compared to the depreciated value of the home.

In determining the reasonableness of the cost to reinstate property, courts consider a number of factors:

a)   the uniqueness of the plaintiff’s property;
b)   the difference between the cost of restoration and diminution in value;
c)   the nature of the plaintiff’s interest in the property; and
d)   the genuineness of the plaintiff’s desire to reinstate the property to its pre-tort condition

b.      Carrel v. Randy Laur Burner Services

The law as set forth in Nan has been accepted across Canada. In Carrel, the elderly plaintiff’s 50-year-old home was damaged by a fuel oil spill in her basement. The spill did not result in a total loss of her home but required extensive remediation, including the removal of the entire concrete floor at a cost of approximately $75,000. The defendant argued that reinstatement costs should be reduced as the old home was significantly “upgraded” by the new concrete basement floor.

In spite of the defendant’s protestations, the court awarded the plaintiff the full cost of reinstating her basement. Implicitly, the court held that reinstatement was reasonable because:

a)      the plaintiff had little choice but to repair, given her long occupancy of the property; and

b)      the plaintiff should not be burdened with financing costs for any difference between depreciated value and           reinstatement costs.

c.      The Owners, Strata Plan NW 3341 v. Canlan Ice Sports Corp.

The British Columbia Supreme Court addressed the issue of betterment in the context of residential property repairs in the “leaky building” case, Owners, Strata Plan NW 3341 v. Canlan Ice Sports Corp.

Canlan involved a claim for recovery of costs paid to remediate the plaintiff’s leaky building. The defendant Corporation of Delta argued that the installation of door canopies and a “rain screen” building envelope in place of the previous “face seal” envelope constituted betterment or an improvement on the original design, and that it should not be required to pay the associated costs. The defendant also noted in its argument that no by-law or other legal imperative required the installation of a rain screen envelope.

In addressing the defendant’s argument regarding betterment, the Court stated:

“The installation of canopies over certain doors was a necessary remedial measure, which speaks more to making those exposed doors useful than an enhancement of the suites involved. The last item, the upgrade in the wall assembly would not be apparent to anyone viewing the building. The stucco repair was not an enhancement, but simply introduced the air space necessary to make the application functional.”

In refuting the defendant’s arguments on betterment, the Court distinguished enhancement from functionality and determined that the alleged betterment essentially made good sense in avoiding further loss.

Based on Canlan, it is likely that “functional betterment” of residential premises is recoverable.

d.      Fors v. Overacker & Mallon

The value of any betterment must be quantified if a defendant alleges that a plaintiff has received a betterment to their residential property.

In Fors, the plaintiff brought an action for damages for breach of contract and misrepresentation arising out of the plaintiff’s purchase of the defendants’ house. The plaintiff claimed his costs for remediating significant water problems and septic tank leaks. The defendants argued that the plaintiff would receive considerable betterment if they recovered the cost of a newly designed roof and a new septic system, as their existing systems only had a few years of functional life remaining. The court concluded that it would be inequitable to reduce damages based on speculation. Furthermore, the defendants provided no evidence that the value of the house was enhanced with the remediated septic system or that had the plaintiff would have paid more for the house if the remediation work had been carried out prior to their purchase.

Fors highlights the importance of evidence to prove an allegation of betterment. Specifically, a defendant must prove that the betterment goes above what is necessary to simply remediate the defects or damages, and that the plaintiff has experienced an increase in the value of the property.

e.      Summary

In most cases, insurers will be allowed to recover the replacement or reinstatement costs they incur in rectifying damage done by tortfeasors to insureds’ homes. Pre-loss depreciation or post-reinstatement betterment will be considered, but the unique nature and use of the building and the reasonableness of restoring one’s home will almost invariably outweigh the additional cost a wrongdoer must bear to replace old with new.

2.      Commercial Property

a.      James Street Hardware v. Spizziri

In James Street, the Ontario Court of Appeal applied the aforementioned general principles of restitutio and reasonableness, but arrived at a different conclusion with respect to compensating the plaintiff for the loss of its commercial retail building.

James Street involved a fire in the plaintiff’s 25-year-old retail sales building, which had to be rebuilt as a different and larger structure partly because the applicable Building Code prohibited restoring the building to its pre-fire condition. At trial, the plaintiff sought the $340,000 cost of restoring the building to its pre-fire state, as well as $49,394 for complying with Building Code upgrades. The defendants argued that the cost of rebuilding was $282,000 and that damages should be reduced by $95,000 for the pre-loss depreciation of the plaintiff’s building.

The Court of Appeal found that the plaintiff’s reconstruction of its building was reasonable in the circumstances, but it did not award the plaintiff the full cost of reinstatement. The Court took note of the treatment of the betterment and depreciation issues in a leading text (Waddams, The Law of Damages (1983)) which stated:

“It commonly occurs that a plaintiff, in making good damage to property, will not be able to restore himself to his pre-loss position without improving it. If the plaintiff’s ten-year-old roof is damaged, he will not be able to purchase a replacement ten-year-old roof. The only reasonable course will be to replace with a new roof. If roofs have a life of twenty years, and the defendant is compelled to pay the full cost of the replacement, the plaintiff will be in a better position after satisfaction of the judgment than if the damage had not occurred in the first place. it would seem, therefore, that the damages should be reduced by the value of the wrong that has caused the need for replacement, and that the plaintiff should not be compelled against his will to invest his money in a replacement he might not have chosen to make. These arguments, however, do not appear to be conclusive. The fact that the defendant is a wrongdoer is not sufficient reason for over-compensation. The argument that the plaintiff is forced to make an unwanted investment can be met by conceding the point and increasing the damages by any loss suffered by the plaintiff’s making such an investment.”

The Court went on to state:

“In cases where there is a serious issue of betterment, the approach outlined in Waddams offers a useful guide to accommodating the interests of the defendant who wishes to avoid paying for a windfall and of a plaintiff who wishes to avoid being forced to spend money that he or she may or may not have. We add the reservation that, where the plaintiff alleges a loss with respect to being required to make an unexpected expenditure, the onus of proof with respect to it should lie on him or her.”

The Court concluded that there was not enough evidence regarding life expectancy of the building or any increase in value after the fire to arrive at a firm conclusion on betterment versus depreciation. The Court did however “set-off” any betterment received by the plaintiff by not awarding the cost of Building Code upgrades.

b.      Prince George v. Rahn Bros.

Prince George dealt with the damages available to the defendant on its counter-claim for negligent issuance of a building permit.

In 1985 and 1993, the plaintiff city issued building permits to the defendant for the construction of a building and facilities to support the defendant’s logging operations. In 2000 the city realized it had made a zoning error in issuing the building permits and obtained an injunction preventing the defendant from operating on its lands. The defendant counter-claimed and was awarded damages for the city’s negligent issuance of the building permits.

At trial, the defendant testified that had the city not been negligent it would have built on other lands properly zoned for its purposes. The defendant sought damages for the estimated cost to replace its building and facilities, but the trial judge found that unreasonable because the defendant failed to prove it would actually rebuild, given the 1997 downturn in the logging industry. The trial judge awarded damages for the original cost of construction, adjusted for inflation and reduced by the useful life of the building and facility already expended. The award, in essence, was for the depreciated value of the building and facility adjusted for increased construction costs.

On appeal, the court found that the trial judge failed to give effect to the restitutio in integrum principle by requiring the defendant to prove it would rebuild, rather than assessing the chances that it would do so. Nonetheless, the Court did not award the cost of rebuilding, specifically distinguished the case from Nan because the property in issue was commercial, not residential:

“As noted earlier, the trial judge made a deduction from the capital cost figures he had arrived at to take into account a reduction in the useful life of the facilities had they been built on other lands (see paras. 54 to 57 of his reasons quoted in paragraph 62 of these reasons). If a deduction is made from the estimated replacement costs to take into account a portion of their useful life expended, the result would be an award of about $530,000. In my opinion, such a deduction must be made in this case or the result would be that the appellant is placed in a better position than it would have been in had the misrepresentations not been made at all. This was a special use building designed for the appellant’s purposes but there is no reason to assume that had it been built on other lands it would not have suffered from deterioration and some obsolescence over a span of years.

I am also of the view that some discounting is required to take into account the possibility that the economy in the logging industry may not improve for some time or at all and for the possibility that, even if the economy does improve, the principal of the appellant will decide not to replace the building and facilities or will replace them on a smaller scale.[…]

After making a reduction in the estimated cost of replacement of the building and facilities to take into account their useful life expended and applying a discount to take into account the contingencies noted, I consider that an award of $475,000.00 would be reasonable in the circumstances.”

Prince George demonstrates how a Court will assess depreciation and business contingencies in determining a reasonable basis for restitutio in integrum for commercial properties.

c.      Trans North Turbo v. North 60 Petro

In Trans North, the Court awarded damages well in excess of the depreciated value of the plaintiff’s building, with only a marginal reduction for betterment, in light of the particular circumstances of the plaintiff’s business.

In Trans North, the plaintiff had leased a 50-year-old airport hangar from the federal government at the Whitehorse airport for 29 years, when the hangar was destroyed by fire in 1999. The hangar was valued at $810,000 as of the date of loss. The plaintiff had only been using less than half of the hangar for its helicopter business, but had been renting the remainder to other businesses. The lease for the site was set to expire in 2016 and could not be renewed, so reconstruction was not economically feasible. Instead, the plaintiff purchased 15 acres of land near the airport and renovating its buildings to suit its purposes. The cost of land and renovations was $2,874,849 (including $893,000 was for land). The plaintiff claimed the cost of land and renovations, reduced by $380,946 in betterment (i.e., improvements in the new property over the old).

At trial, the defendant sought reductions in any award for betterment based on an increase in plaintiff’s share value, its ownership interest in 15 acres of land, the new buildings, and the availability of higher tax deductions. Balanced against these “advantages” was a reduction in the plaintiff’s operating area from 20,000 to 15,000 square feet in the new facility and the lack of direct access to airport runways. In addressing the major issue of land ownership, the trial judge held in favour of the plaintiff, stating:

“The major concern is whether TNTA has benefited unreasonably from the fact that it has ownership of 15 acres, as opposed to a lease that expired in 2016. Inevitably, comparisons between the two positions vary considerably, depending upon discount rates assumed. However, in my view, a new location was required as a result of the fire and it was fortunate that a suitable site was arranged within two years of the fire. It is highly speculative to consider whether TNTA will be “better” as a result of its new location. But it has put TNTA into as close a position as possible to its pre-fire position without being unreasonable to the defendants. The final cost to TNTA is well within the potential range of costs, and I have concluded that the amount of $2,788,100 is a reasonable replacement cost in the commercial context of Whitehorse.”

The Court of Appeal upheld the trial judge’s decision noting that the award of $2,493,903 was not only more than one million dollars below the reinstatement cost of the 50 year old hangar it was $380,946 below the plaintiff’s actual cost of land and facilities.

d.      Scaffidi-Argentina v. Tega Homes Developments Inc.

Tega Homes considered a claim for damages where the plaintiff had not rebuilt their property. The court looked at the two competing approaches to measure damages with respect to torts affecting land, as set out above in James Street. In the circumstances of the case, it awarded damages based on the diminished value of the land rather than for the cost of rebuilding the property.

The plaintiff’s property was rendered uninhabitable by the neighbouring defendant’s construction activities. However, six years later, the plaintiffs had only taken a few steps to rebuild on the property, commissioning preliminary design drawings for a six-unit residential rental property. The court concluded it would cost approximately $1.9 million to rebuild the property. The plaintiffs also claimed lost rent of $258,000 from the date the property became uninhabitable to December 2016 (it was unclear why this end date was selected).

Following James Street and other decisions, the court concluded that it would not be reasonable for the plaintiffs to rebuild the property, given that:

a)   the plaintiffs had the onus of proving their intention to rebuild, and their vagueness and varying estimates        undermined their reliability;

b)   the plaintiff’s property was an investment property, not unique in Ottawa, and held no special significance to        the plaintiffs other than its ability to generate income;

c)   other replacement properties were readily available to purchase;

d)   the plaintiffs had not rebuilt after five years, suggesting they had no intention of doing so; and

e)   the cost of rebuilding the property exceeded the value of a new building by approximately 50%, resulting in a        possible windfall to the plaintiffs.

The court concluded that the proper measure of the plaintiffs’ loss was the diminution of the value of the property. The defendant’s expert determined the market value of the property was $945,000; the lot was worth $360,000 and the building worth $585,000. The court included demolition costs and costs to install helical piles to permit any future building, for an adjusted value of $847,000. The court also awarded $236,000 for loss of rental income.

The plaintiffs’ evidence to support the cost of rebuilding their property was imprecise and vague, based only on preliminary drawings. Their failure to proceed with any rebuilding, and the fact the property was an investment property that could be replaced elsewhere resulted in the court awarding damages for diminished value.

e.      Upper Lakes Shipping v. St. Lawrence Cement

As previously discussed, James Street adopts Waddams’ suggestion for addressing betterment issues through compensation for “premature” financing costs. In Upper Lakes Shipping, the Ontario Court of Appeal provides the methodology for calculating such costs:

In our opinion, the proper approach in assessing this head of damages is to award to the plaintiff for damages for loss of interest, an amount, the present value of which, when invested and amortized over the period from October, 1981 to October, 1993, will produce annually the sum of $5,323.35 representing interest at the rate of 11.5% per annum on $46,290. The fund would be exhausted at the end of that period. It would, however, have produced for the plaintiff the interest to which he would have been entitled on the premature expenditure of his funds.

When assessing damages in commercial property loss cases involving betterment, plaintiffs are usually entitled to a lump sum payment that, when invested and amortized over the remaining life of the building, equals the financing cost that the plaintiff must bear due to the premature demise of its property.

f.      Summary

Though replacement cost awards can be granted in respect of commercial buildings, courts will more likely reduce damage awards for betterment than they would in respect of residential buildings. Courts will, however, also award damages on account of plaintiffs’ increased financing costs to repair or replace their property, in addition to the depreciated value of the building.

3.      Recreational Property

a.      Taylor v. King

Recreational properties may be residential, commercial, or otherwise in nature, presenting a challenge when assessing damages. In Taylor, the defendant negligently burnt down one of two cottages on the plaintiff’s Hornby Island vacation property. The destroyed cottage had been used by the plaintiff’s guests, or rented out to visitors. The main cottage on the property was used solely by the plaintiff and was not damaged by the fire. As of the date of loss, the guest cottage had been insured for $8,500 with an assessed value of $11,500; its replacement cost was estimated at $38,000. Shortly before trial (two years post-loss) the estimated replacement cost had risen to $50,667. The trial judge awarded the plaintiff the estimated replacement cost, as of the trial date.

The Court of Appeal reversed, holding that diminution value was the appropriate measure of damages since, unlike Nan, the guest cottage was neither the plaintiff’s main residence nor main vacation residence, and the plaintiff had not actually rebuilt or replaced the guest cottage.

It was likely significant to the Court of Appeal that most of the property’s value was in the land and remaining building, not in the destroyed building, producing a large discrepancy between the assessed value of the cottage and its replacement cost. The matter was referred back to the trial judge to fix damages on the basis of the property’s market value without the guest cottage, as of the date of loss.

b.      Summary

Failing to promptly reinstate non-residential buildings will preclude the recovery of estimated reinstatement costs. Reinstatement costs will not be awarded when the value of the building is minor as compared to the value of land, and the building is used only intermittently by a plaintiff. Diminution in market value will likely be the measure of damages for lost vacation property.

4.      Property with Minimal Life Expectancy

a.      Lamont Health Care v. Delnor Construction

Real property losses can occur with respect to structures previously slated for demolition or already abandoned.

Lamont involved a 1995 fire at a hospital, forcing the demolition of two of its wings. After obtaining necessary government approval, reconstruction of the wings began in 1998. The new, larger, code-compliant project was completed in 1999, at a cost of over $4.7 million. However, a 1992 report had recommended the two wings – built in 1928 and 1948 – be demolished. The hospital had not accepted the recommendation, and the wings were “fully operational” at the time of the fire, but the court concluded that the government would have approved a new facility by 2000, with construction being completed in 2002.

The plaintiff sought its full reinstatement costs, including building code upgrades, less betterment for a larger building. The court held that it was reasonable for the plaintiff to re-build as it did, but refused to award the damages sought because the wings would have been demolished shortly in any event; the new facilities were far better than the old; and the old would have had no value as of their deemed demolition date in 2001.

Instead, the Court considered three alternative methods for calculating damages:

(i)      market value of the destroyed buildings ($192,000);

(ii)     replacement cost of the wings apportioned over their remaining useful lives ($442,000); and

(iii)    financing costs for the replacement ($240,000).

In the end the Court awarded the cost of early financing to the plaintiff as being the true measure of the plaintiff’s loss. It rejected the market value assessment because the unique nature of the property made appraisal difficult. The apportionment of replacement cost measure was rejected because the facilities had no salvage value at the time of fire, their life spans having effectively been over by 1992, and because it did not take into account the cost of repairs the plaintiff would have incurred on the old wings from the time of fire to the determined demolition year of 2002.

b.      Summary

Though the Court in Lamont did not refer to either James Street Hardware or Upper Lakes Shipping, the result was consistent with both those decisions insofar as the award was based on early financing costs faced by the plaintiff. Where a destroyed building would have very shortly been demolished anyway, or was at the time of loss abandoned, not suitable for occupancy, and had no salvage value, a court might not award any damages at all.

IV.     RECOVERY FOR BUILDING CODE UPGRADES

Repairing older buildings often costs more because the building must be brought up to current codes and standards. In James Street Hardware, the court concluded that such costs should be awarded if the plaintiff had to incur them to rebuild, but not if the plaintiff fails to rebuild at all:

“If it had rebuilt according to its pre-fire design and, in so doing, had necessarily incorporated the changes required by the new law, we think it would have been entitled to recover these additional costs subject, if relevant, to the application of the principles respecting betterment which we have earlier discussed. If the appellant had not rebuilt at all, we are inclined to think that this additional “cost” would not have been recoverable. Indeed, in these circumstances, the appropriate measure of damages might simply be the diminution in value of the property rather than cost of replacement.”

Based on the foregoing the Court in James Street would have awarded the plaintiff the cost of additional outlays incurred as a result of having to conform with current code requirements if it had rebuilt according to the pre-fire design. This is the same view taken by the Court in Lamont in the context of determining the total replacement cost of rebuilding the damaged hospital. Awards for this outlay are of course subject to the overriding principle of reasonableness to all parties.

In A.L. Sott Financial (FIR) Inc. v. PDF Training Inc., the court awarded the plaintiff damages for the full estimated cost of restoring its property following the defendant’s trespass and partial demolition of the building. Accepting that the plaintiff would likely rebuild, the court awarded restoration costs including costs for seismic upgrades, handicap access, fire and safety measures, permits, and professional fees. The court held that the upgrades did not constitute a windfall, since it might not have had to incur such costs upon the next tenancy in the building, or might have imposed such costs on the next tenant. In determining the final award for code upgrades the Court granted an amount it deemed reasonable based on the potential future use of the building and other contingencies.

In summary, in the context of commercial buildings, plaintiffs will likely be granted the cost of conforming with current building code requirements only if they in fact rebuild. In our view, recovery of upgrades for residential reconstruction is also highly likely. Costs of building code upgrades for vacation properties or properties slated for demolition will likely not be awarded.

V.      SUMMARY

In Nan the Court discussed two long-established principles applicable to damages in tort actions: damages awarded should, as far as possible, put the plaintiff in the same position it would have been had the tort not occurred, and such awards must be reasonable to all of the parties. Factors that Courts will consider in granting awards in the context of real property losses include:

(i)      the cost of restoring the property;

(ii)     the use and usefulness of the property;

(iii)    the property’s uniqueness, age and condition;

(iv)    the market value of the property;

(v)     the diminution in value of the property;

(vi)     the cost of financing the restoration of the property; and

(vii)    whether the restoration has occurred, and if not, the likelihood that the property will be restored.

Canadian courts will employ many different methods of analysis and scrutinize many types of evidence in assessing reasonable compensation for damage to buildings. Full reinstatement costs, including the cost of building code upgrades, will usually be granted for damaged residential buildings. Courts may award full reinstatement costs for commercial buildings, but will more likely award the actual or depreciated value of the building, plus the plaintiff’s cost of early financing. Finally, damages for recreational, abandoned, or extremely old buildings will more likely be awarded based on diminished value.

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