If there is a delay to my build, can I recover damages from the builder?

In the context of building disputes, if you are a home owner and have engaged a builder to build a house, then the contract between you and the builder will likely have a completion date. What happens if the build is not completed by the agreed date?

As the owner of the land, you can make a claim for damages. Typically, the two types of damages you will be entitled to are either unliquidated damages or liquidated damages.

Liquidated damages

Liquidated damages are usually the pre-determined sum the parties agree to as a clause in the building contract prior to signing. For instance, the liquidated damages clause may state that the owner is entitled to $50.00 a day, for each day that the builder is delayed in satisfying the completion date.

Liquidated damages are pre-determined amounts specified in a contract, payable upon a breach such as late completion of a project. These amounts are agreed upon by the parties at the time of contract formation, and are intended to represent a genuine pre-estimate of the loss that the non-breaching party would suffer due to the breach. The enforceability of liquidated damages depends on whether the stipulated sum is a genuine pre-estimate of loss or a penalty. If it is deemed a penalty, it will not be enforceable. Indicators that a sum is a penalty include it being out of proportion to the potential loss or being extravagant and unconscionable. 

It is important to note that the liquidated damages specified by any term of a construction contract must be a genuine pre-estimate of the losses incurred. This is based on the notion that damages are compensation for losses that have been or would be incurred. Purported liquidated damages that are not reflective of a genuine pre-estimate of loss may be considered a penalty, which can be unenforceable. For instance, a sum of ‘NIL’ liquidated damages has been found by the Court to be unenforceable and as such, the home owner is able to recover unliquidated damages from the builder.

Unliquidated damages

Unliquidated damages, on the other hand, are not pre-determined. They are assessed by the Court based on the actual loss suffered by the non-breaching party due to the breach. These damages are calculated according to common law principles, which consider the direct and foreseeable losses resulting from the breach. In building disputes, unliquidated damages might include costs directly resulting from the prolongation of the contract period, financial costs due to the delay and consequential losses (e.g. loss of rent).

The key difference lies in the method of determination: liquidated damages are specified in the contract and agreed upon in advance, while unliquidated damages are assessed by the Court based on the actual loss incurred. Additionally, liquidated damages must be a genuine pre-estimate of loss to be enforceable, whereas unliquidated damages are determined based on the actual impact of the breach.

Has this article raised concerns with you? Has your building project been delayed and you’re incurring costs due to the delay? Contact our experienced Solicitors at Solari and Stock Miranda on 8525 2700, or click here to request an appointment with one of our Commercial Team of Michael Solari, Valentina Abouzeid or Suna Ozcan.

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