## Facts

- Carl M. Freeman Associates and related entities (Freeman) participated in the construction of the Edgewater House condominium building at Sea Colony East in 1975.
- The Council of Unit Owners of Sea Colony East (Council), representing the unit owners and the condominium’s common elements, later claimed the building suffered from multiple construction defects.
- The Council sued Freeman in 1989 for defective construction and sought damages tied to correcting the alleged defects through repair and replacement work.
- Before trial, the parties asked the Superior Court to decide the proper measure of damages to be used at trial.
- The Council argued that the appropriate measure is the reasonable cost to repair or replace defective work so the owners receive the performance promised by the construction contract.
- Freeman argued that the repair-or-replace approach would require a “virtual demolition” of the structure and that damages should instead be limited to (a) the diminution in the building’s value attributable to the defects and/or (b) a “useful life” approach that would reduce repair costs to account for the age of building components and the value of “betterments” created by new materials.

## Issues

1. In a condominium construction-defect case, is the proper measure of damages the reasonable cost to repair or replace defective work, or may damages be limited to the diminution in value of the property?
2. May a defendant reduce otherwise reasonable repair-cost damages by applying a “useful life” or depreciation theory to account for the age of components and alleged betterment from replacement?
3. On the pretrial record, should the court permit or exclude diminution-in-value and useful-life theories as alternative measures of damages?

## Decision

- The court ruled that, as a general matter, the proper measure of damages for defective construction is the reasonable cost of repair or replacement necessary to provide the owner with the building as contracted.
- The court declined to adopt diminution in value as the default measure of damages and treated it as a limitation only in circumstances where repair would cause economic waste.
- The court rejected Freeman’s “useful life” theory as an independent method for reducing damages, concluding that it did not replace the traditional cost-of-repair measure and risked undercompensating the owners.
- The court indicated that diminution-in-value evidence is relevant only if Freeman could show that repair would constitute economic waste—i.e., that the cost of repair is grossly disproportionate to the benefit gained—rather than merely expensive or disruptive.
- Accordingly, the court limited Freeman’s ability to present diminution-in-value and useful-life approaches at trial absent a sufficient showing that the economic-waste limitation applied.

## Legal Principles

- The basic aim of contract damages is to place the injured party in the position it would have been in had the contract been performed as promised, without creating a windfall.
- In defective construction cases, the ordinary measure of damages is the reasonable cost to remedy the defects (repair or replacement) so the owner receives the bargained-for performance.
- Diminution in market value is not the default measure for construction defects; it operates as a cap on repair costs only when the defendant proves economic waste—typically where the repair cost is grossly disproportionate to the value gained or would require unreasonable destruction of work.
- The party seeking to avoid the cost-of-repair measure bears the burden to show economic waste and to justify substituting or limiting damages by a different valuation method.
- A generalized “useful life” or depreciation reduction is not a stand-alone damages measure for defective construction where it would systematically discount the owner’s right to defect-free work and is not tied to a recognized economic-waste showing.

## Conclusion

In Council of Unit Owners of Sea Colony East v. Carl M. Freeman Associates, the court addressed damages before trial and held that the proper measure for the alleged defects in the Edgewater House condominium is the reasonable cost to repair or replace the defective work to deliver the building promised by contract; diminution in value could limit that recovery only upon proof of economic waste, and the court declined to adopt a separate “useful life” approach to reduce repair-cost damages.


Council of Unit Owners of Sea Colony East v. Carl M. Freeman Associates, 564 A.2d 357 (1989)