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Liquidated Damages in Standard Form Contracts
One of the questions you should ask yourself when looking at a home building contract for a client is: Is there a liquidated damages clause? There should be.
Even if there is a liquidated damages clause, it may be deliberately drafted to be ineffective. For example the latest MBA BC4 contract provides for liquidated damages being payable to the homeowners all right, but it then says that the liquidated damages cannot be deducted until Practical Completion has been achieved.
If the final progress claim is a small one, which it usually is, that means there will be insufficient money to satisfy the Owner's rights to liquidated damages. That effectively deprives the homeowners of the benefits of the liquidated damages clause.
The practical effect of that is to deprive the homeowners of any benefit they could obtain from the liquidated damages which are “liquidated” – that is, given a fixed money value, so that they can be deducted from the contract sum before it is paid.
I recommend a clause something along these lines:
Should the contractor fail to complete the works in the completion period(or by the date for practical completion) as provided for in the contract, the owner shall become entitled to liquidated damages of $[amount] per day or part thereof until the works are completed, which money may be deducted by the owner from progress payments as they fall due and to the extent that such liquidated damages are unpaid, the contract price shall be reduced, and, to the extent that such damages exceed the balance of the contract sum payable, they shall be a debt recoverable by the owner against the contractor.
What do you think?
Regards,
Peter Merity
Even if there is a liquidated damages clause, it may be deliberately drafted to be ineffective. For example the latest MBA BC4 contract provides for liquidated damages being payable to the homeowners all right, but it then says that the liquidated damages cannot be deducted until Practical Completion has been achieved.
If the final progress claim is a small one, which it usually is, that means there will be insufficient money to satisfy the Owner's rights to liquidated damages. That effectively deprives the homeowners of the benefits of the liquidated damages clause.
The practical effect of that is to deprive the homeowners of any benefit they could obtain from the liquidated damages which are “liquidated” – that is, given a fixed money value, so that they can be deducted from the contract sum before it is paid.
I recommend a clause something along these lines:
Should the contractor fail to complete the works in the completion period(or by the date for practical completion) as provided for in the contract, the owner shall become entitled to liquidated damages of $[amount] per day or part thereof until the works are completed, which money may be deducted by the owner from progress payments as they fall due and to the extent that such liquidated damages are unpaid, the contract price shall be reduced, and, to the extent that such damages exceed the balance of the contract sum payable, they shall be a debt recoverable by the owner against the contractor.
What do you think?
Regards,
Peter Merity
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