I am currently looking at the building contract for a new home and land package. The builder stated $20/day in liquidated damages. My solicitor has asked them to increase it to $1000/day. They've come back to us and have increased it to $50/day in liquidated damages.
Build cost is about $250,000.
I would like to get some advice on how much is a reasonable amount per day for liquidated damages?
Thanks
No one party to a contract can impose a condition on another without agreement.
You pay a solicitor for a reason, follow their legal advice, otherwise whats the point.
Fairly sure you can only claim realistic damages, it would be hard to justify $1,000/day in actual damages, we're not like America where you can go to town on people for mental/emotional damages (unless a psychological assessment can confirm this).
The last thing you want is for them to walk away and you end up wasting your time all because you want $1000 a day
@Drakesy: One can claim whatever is agreed to as per the contract.
$1,000/day is very high but $20/day is equally if not more ridiculous.
If a builder tried to sneak the penalty at $20/day, I'd actually just walk away. That's $7k a year to use the building site as storage. They are better off not completing the job.
@[Deactivated]: Yeah - this is why its illegal to provide legal services without the proper certification.
A liquidated damages clause that bears no resemblance to actual losses will breach the doctrine of penalties.
Ask your builder if he would like to go unliquidated damages?
In reality - what $$ would you actually have to expend, per day, if the build is delayed?
Also - it's concerning that you are already considering the LD's of a contract. Why ?
it's concerning that you are already considering the LD's of a contract. Why ?
When else would you be considering the terms of the contract? Everyone needs to agree to the terms before the build starts. I can't imagine the builder agreeing to LD terms months after the build has commenced when it's obvious they're not going to finish on time.
Definitely a good idea to think about how much it would actually cost. Hotel accommodation, storage for your belongings, and extra removalist costs
I'd say a reasonable amount is what you'd be paying in rent/mortage and rates on the house which would be unusable if delayed.
So if you take your rent/mortgage per day and the average daily cost of your rates then thats your liquidated damages.
The other way to look at it is if the liquidated damages are higher than the other houses then yours will be finished first, however the workmanship could be a bit shoddy.
How could you justify 7k/week in damages for delayed moving into a property?
The damages need to be high enough that it puts some pressure on the builder, but needs to be reasonable
I think the lawyer is still being more reasonable than the builder.
Yeah, definitely a low ball 20 bucks hoping no one questions it in the contract.
Something in the 1k/week kind of realm seems realistic, but the op also needs to be able to document any delays and prove none are weather or due to them or other things outside the builders control
Yeah, there is cost involved in pursuing damages as well.
I was told to use the following strategy to get builders to not argue about the delay penalties. Ask them how long the build will take. Ask them if their confident in their own estimate. Give them extra time on top of that estimate and then offer them harsh terms for delays.
If the builder accepts the terms, you're covered. If they walk away, you know they're full of shit.
@[Deactivated]: Precisely this. If the builder won’t agree to LDs then you’ve got the writing on the wall that they won’t honour their agreed completion date. They’ll have incentives to do other people’s work first.
Liquidated damages should at least reflect your rent and all outgoings of the project ie. Rates, interest, insurance and storage.
Even then, you're at a lost because a delayed project = opportunity cost. It is practically impossible to sell a half completed building or use it as a security for a loan.
$20/day is insulting and for that, I'd be following your lawyers advice even more closely. You obviously have a builder who thinks you a fool. If you agree to their terms, they are spot on.
In our build, we had agreed to $100 a day. Based it on rent we are paying and extra costs like interest that we would still have to pay on mortgage, but can't live in the house.
Surely you would need more. What if you need to live in a hotel and store your belongings while you're waiting?
Each person's circumstances are different. We own our current place and actually pay no rent. We took it as opportunity cost of losing rent for the period we were not able to move into the new place.
If someone is renting and would be leaving and needed to stay in a hotel; then they should ask for that as their amount.
Oh yeah that makes sense
The Builder will just extend the build handover date to ensure it's not an issue. Be realistic with damages.
better that than surprise 1yr delay
$80 to $100 p/d to cover the rent for a 2 bedroom unit in Sydney.
Plus the mortgage repayments, insurance and rates for the incomplete house that you still need to pay
Is this a big builder? If so i bet they’ll make sure its ready in time no matter what to avoid them paying one cent
Better still.
Its $20 a day for first week
$50 a day for second week
$100 a day for 3rd week
$500 a day for 4th week etc
In summary - It increases the longer the delay
I wonder how Covid would come into play in terms of days not being counted.
Your solicitor is being ridiculous.. I'd ask for $100/day.
At $250k, the margin for the house is going to be pretty slim so why would a builder agree to $1,000.
Do let us know the end result.
Good luck getting builder to accept anything more than $50/day. I've had clients demand more and we have politely declined to build their home.
guess you were never on time with handover ?
Better to be safe than sorry.
You should use whatever figure is a reasonable pre-estimate of your actual losses caused by any delay - and perhaps a small safety buffer. The key is that it cannot be so high as to bear no resemblance to your actual losses - so a figure that can be justified, but might not be your exact losses should work.
That might include your housing costs and/or your borrowing costs and any reasonable other costs.
Liquidated damages is meant to represent the loss you will suffer if the house isn't built on time. For example, if you expect it to be built by 1 December 2020 and it's not, then what loss have your suffered? For example, you live somewhere else and rent is $500 a week. You will have up extend that lease so best case scenario your loss is $500a week. You may need to enter into a new leader for 6 to 12 months as a consequence of the lateness of the build. So your loss is that amount ( divide by 365 to get the amount per day). If it's $20a day can you rent somewhere for $140 a week? I would also include any other losses you may reasonably incur, for example do you have to extend your broadband plan and then cancel it etc…. Blair above has sound advice too!
What blaircam and Ginag said, good guidance.
Somehow OP you dont have much of a say in this.
If you force something on the builder they might withdraw.
Leave it up to your solicitor to negotiate.
You cannot just pluck a number out of the air.
Nor can anyone here do that for you.
And there are conditions on which they can be claimed.
Look up definition of Liquidated damages.
See here:
https://en.wikipedia.org/wiki/Liquidated_damages
Your solicitor knows Jack about construction Law. LD's have to be a "genuine pre-estimate" of the loss likely to be suffered in the event of a delay. Otherwise it will be viewed as a penalty and the Court will throw it out if ends up there and you get zero! Please advise if you are currently renting, living with parents etc. What will be your cost per day if the builder delays the handover? The builder may as well increase the duration of the build 2 fold to lower their risk profile!
I would seriously consider looking at another builder. They are either out to screw you over with $20 per day, or they have no confidence in their own work. There are plenty of good builders out there - if any baulk at, say, $100 per day (seems light compared to what an hotel would cost), that's strongly indicative of them being a cowboy.
Different industry, but we guarantee our consulting work 100% - if the client is not happy with the outcome, they can pay whatever they think it was worth, and if that is nothing, that's their right. We have never, in more than twenty years, had a client deduct anything from one of our invoices, except one deducted $1 as I knocked a mug off a table, they caught it, I said something like, 'I owe you for that', and he 'charged' me a dollar for a 'spectacular catch'. We are confident that we know what we're doing, and will deliver a great result every single time.
There will be builders out there that know they are good too - reasonable liquidated damages clauses won't worry them.
Alan.
It's standard practice for builders to put a low LD value and then double the duration build. If they can get away with it then why not? It lowers their risk profile…. delays that impact the build include wet weather, shortage of materials, delays in delivery of materials, additional time for custom fabrication eg steel components.
Further more, as noted just above your comment.. it HAS to be a genuine pre estimate…. and can not be higher. That is the law.
What do you do?
follow your solicitors advice.