Recovering the Cost of Code Upgrades

A substantial body of law has emerged supporting the position that a plaintiff is entitled to recover the cost of conforming to updated building codes in repairing property damaged by a defendant's negligence. Florida, Illinois, Missouri, Massachusetts, Minnesota, and Wisconsin all have authority affirming the recovery of code upgrade costs. The costs of code-compliance are recoverable because:

(1) including such costs allows property owners to be placed in the position they occupied before the loss, by restoring the building to a condition in which it can be re-occupied;

(2) the upgrade expenses would not have been incurred but for the defendant’s negligence; and

(3) any other outcome would penalize property owners for the tortfeasor's negligence.

A minority of jurisdictions refuses to include expenditures for code upgrades in the cost of repairs. (West Virginia, Mississippi and Colorado) As such, recovery of such costs as repair damages would unduly and unjustifiably enrich the plaintiff and require the defendant to pay a sum greater than that resulting proximately from his negligence.

In jurisdictions that have not yet addressed the issue, a strong argument can be made for following the path taken by the majority. That argument proceeds as follows. Either the defendant or plaintiff must bear the cost of code upgrades. That is, either a defendant will be forced to pay for more damage than it actually caused, or a plaintiff will not receive compensation that fully restores the use of its property. As such, one party will be treated somewhat inequitably. It seems more appropriate, however, for the defendant to bear that cost. The 'but for' rationale is critical in this regard. If not for the defendant's negligence, the plaintiff's code upgrade costs would not have been incurred. As such, equity seems to favor the party necessitating the costs bearing those costs. A plaintiff should not be penalized, by having to bear the code upgrade costs, for a defendant's negligence.

Including code upgrade costs in a plaintiff's damage award is generally consistent with the underlying purpose of assigning an award sufficient to compensate the plaintiff. If the cost of code upgrades is not included in a plaintiff's damage award, the plaintiff is not made whole without additional expenditure of its own funds. That is, the plaintiff is unable to return its property to its pre-injury use without the code upgrades. If the plaintiff is denied the code upgrade expenses, the plaintiff is denied completely-restored use of its property, and it has not been fully compensated for its injury.

In response, a defendant seemingly would argue allowing recovery of the cost of code upgrades provides the plaintiff with a windfall. Were a plaintiff to attempt to prove its damages, including the cost of code upgrades, using the repair measure, the defendant's most effective response would be to use the difference in fair market value measure to demonstrate the plaintiff's damages were actually of a lesser amount. Additionally, if including code upgrades drives the cost of repairs above the property's pre-injury market value, a defendant could assert a plaintiff's recovery may not exceed the value of its property prior to the injury. A defendant making these arguments, supported by the Colorado, Mississippi, and West Virginia decisions, would argue the policy of fashioning equitable damage awards requires the defendant pay for no more than the damages directly caused by its negligence.

As such, in jurisdictions where the issue has not yet been addressed, arguments can be made both for and against allowing a plaintiff to recover the cost of code upgrades in its damages. A majority of the jurisdictions to have addressed the issue allow recovery of such costs. Additionally, allowing recovery of code upgrade costs is consistent with the general principles underlying damages jurisprudence. Accordingly, the argument that such recovery should be permitted seems one worth making.