Priority Business Lawyers has had an influx in residential building matters where developers or builders are in breach of the contract period.

Generally, if a residential building project is delayed and delay mechanisms entitling extension of time are not followed, the contractor or builder will be subject to liquidated damages. This article is written to assist parties understand liquidated damages clauses generally and hopefully alleviate concerns when negotiating construction contracts as a win for both sides. As it stands case law is on the side of the builder although there are circumstances that may assist residential owners.

Liquidated damages arise when a party is in default of the specified period under the building contract. The amount of liquidated damages is viewed at law as a genuine pre-estimate of loss that one party is likely to suffer. When entering construction contracts parties should consider potential expenses that could be incurred if your building project runs over the contract period, which happens regularly.

There are cases that consider liquidated damages with $nil, zero or N/A. Australian cases confirm that clear wording is required to show the parties intentions of liquidated damages not applying. Wording such as $nil, zero or N/A may still entitle an owner to recover common law damages considering an owners actual loss. Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137.

Under the standard residential building contract, liquidated damages are usually placed as $1 by builders. This can entitle a builder safety of being subject to $1 per day of liquidated damages in most instances. As an example, in the matter of Knott v Beechwood Homes (Home Building) [2012] NSWCTTT 393, the statutory warranty under section 18B applied however did not entitle any further right for damages suffered by an Owner as the liquidated damages clause clearly excluded common law rights to damages. Owners should consider amending this amount to enable compliance by builders in meeting contract due dates.

For owners, be aware of building contracts that you are entering and propose appropriate amendments, considering your circumstances.

For builders, its best to have a reasonable amount stipulated within the liquidated damages clause to also appropriately assess your project feasibility and risks.