## Facts

- Richard Rose leased a building from Freeway Aviation, Inc. for five years starting March 1, 1970, to operate an airplane repair business.
- The lease required Freeway to keep the premises in at least as good a condition as at the time the lease was executed.
- In late 1973, a Freeway employee driving a gasoline truck struck the building, severely damaging doors and the door frame.
- Rose repeatedly demanded repairs; Freeway did not repair the damage.
- In September 1974, a windstorm destroyed the building.
- Rose attempted to tender October rent and demanded that Freeway rebuild; Freeway refused, asserting the destruction ended the lease and its obligations.
- Rose sued for breach of the lease covenant and negligence, seeking compensatory and punitive damages.
- The trial court granted Rose summary judgment on liability, including exposure to punitive damages; Freeway appealed.

## Issues

1. Whether a lessor’s general covenant to “maintain” the premises in as good a condition as at lease inception obligates the lessor to restore or rebuild after the structure is destroyed, absent contrary lease language or compelling circumstances.
2. Whether destruction of the leased building by a windstorm terminated the lease and relieved the lessor of further obligations.
3. Whether the record supported imposing punitive damages on the lessor for failure to repair and rebuild.

## Decision

- The court held that Freeway’s unqualified covenant to maintain the premises extended to restoring or rebuilding the structure after its windstorm destruction, absent contrary lease language or special circumstances.
- The court rejected Freeway’s claim that the casualty automatically terminated the lease; the lease remained in force and Freeway remained bound by its maintenance covenant.
- The court modified the judgment to eliminate punitive damages because the record did not support the level of aggravated misconduct required for such relief.
- The summary judgment on liability for breach of the maintenance covenant was otherwise affirmed.

## Legal Principles

- A lessor’s general covenant to repair or maintain leased premises, absent controlling contrary language or proof of circumstances requiring a different result, is construed to include restoration or rebuilding of structures destroyed during the lease term.
- “Maintain” is at least as broad as “repair” and may require providing a usable structure consistent with the condition promised at the lease’s start.
- In the absence of a lease clause providing for termination upon destruction, casualty does not automatically end the lease where the lessor has assumed the duty to maintain the premises.
- Punitive damages are not available for breach of contract or negligence without evidence of aggravated misconduct (such as conscious disregard or an “evil mind”).

## Conclusion

The court construed the lease’s general maintenance covenant as placing the rebuilding obligation on the lessor after a windstorm destroyed the leased building and held that the casualty did not terminate the lease, but it struck punitive damages for lack of proof of aggravated misconduct.


Rose v. Freeway Aviation, Inc., 585 P.2d 907 (Ariz. Ct. App. 1978)