## Facts

- Atlantic Discount Corporation (landlord) owned a large building and leased a small portion of it to Mangel’s of North Carolina, Inc. (tenant) for retail use.
- The tenant (or tenant’s side) prepared the written lease.
- The lease described the leased space as the “demised premises,” which were only a portion of the overall building.
- The lease included a general maintenance covenant under which the landlord agreed to make repairs and replacements necessary to keep the demised premises safe, dry, tenantable, and in good order and repair.
- The lease allowed the tenant to make alterations and improvements at its own expense, and provided that permanent structural improvements would become the landlord’s property and part of the premises.
- The lease contained a casualty provision stating that if the “improvements then included within the demised premises” were damaged or destroyed by fire (or other casualty), the landlord would promptly restore or rebuild those improvements as nearly as practicable to their prior condition, with specified exceptions (including limits relating to air-conditioning components).
- The casualty provision also provided for proportional rent abatement if the premises became untenantable and permitted termination by either party under specified conditions, including substantial destruction during the last two years of the term (or any extension).
- A fire destroyed the entire building, including the demised premises.
- After the fire, the landlord filed an action for declaratory judgment seeking a ruling that the fire terminated the lease and that the landlord had no duty to rebuild the building for the tenant’s continued occupancy.
- The tenant argued the landlord had to restore the premises, relying primarily on the general covenant to keep the demised premises in good order and repair and on the lease’s “improvements” restoration language.
- The trial court ruled for the landlord, declaring the lease terminated and rejecting any duty to rebuild the entire building; the tenant appealed.

## Issues

1. Whether the landlord’s general covenant to repair and maintain the demised premises required the landlord to rebuild when the entire building (only part of which was leased) was totally destroyed by fire.
2. Whether the lease’s casualty and “improvements” provisions required the landlord to reconstruct the entire building after the fire, even though the tenant leased only a portion of it.

## Decision

- The North Carolina Court of Appeals affirmed the judgment for the landlord.
- The court held the landlord’s general covenant to repair did not require rebuilding of the entire building after total destruction by fire where the tenant leased only part of the building.
- The court held the landlord’s duty to restore or rebuild “improvements then included within the demised premises” could not be read to impose a duty to reconstruct the entire building.

## Legal Principles

- A landlord’s general covenant to repair can, in some settings, extend to restoring or rebuilding structures destroyed by fire, unless other lease language or circumstances show a narrower duty.
- Where a lease covers only part of a building, an agreement to repair or keep the premises (or building) in repair does not, without clear language, impose a duty on the landlord to rebuild the whole building after it is destroyed by fire.
- A covenant to restore or rebuild “improvements” within the demised premises is read as limited to those improvements and does not, without express terms, require reconstruction of the entire building of which the demised premises are only a portion.
- Lease provisions are construed together, giving effect to the agreement as a whole; courts avoid interpretations that produce unreasonable or unequal results not plainly stated in the contract.
- Ambiguities may be read against the party that drafted the lease, especially when that party could have stated any claimed rebuilding duty in direct terms.

## Conclusion

Because the tenant leased only a portion of a larger building and the lease language concerning repair and restoration referred to maintaining the demised premises and rebuilding “improvements” within that space, the court refused to treat those provisions as a promise by the landlord to reconstruct the entire building after a total fire loss; the declaratory judgment for the landlord was affirmed and the lease was treated as terminated by the building’s destruction.


Atlantic Discount Corp. v. Mangel's of North Carolina, Inc., 163 S.E.2d 295 (1968)