A guide to Liquidated Damages in the HIA Contract
Building a new home is an exciting but complex journey, and time delays can add unexpected costs. In Australia, the average cost of these delays is around $4,600 per month, often caused by factors like a late start or material shortages. Knowing how to navigate these delays and manage costs with your builder is crucial.
Here’s a breakdown of liquidated damages (LDs) and strategies for protecting yourself from costly hold-ups.
What are Liquidated Damages in My HIA Contract?
Liquidated damages (LDs) are a compensation mechanism built into the Housing Industry Association (HIA) Building Contract. This clause allows homeowners to claim compensation if their builder does not complete the project within the agreed-upon timeframe.
While LDs might sound like penalties, they’re more accurately a way to outline the consequences of not meeting the project’s timeline. By setting a daily rate for these damages upfront, both you and the builder agree on fair compensation for potential time delays.
How Are Liquidated Damages Calculated?
The HIA contract requires you to specify a daily rate for liquidated damages in the contract's "Particulars" section. This amount should be a genuine estimate of the costs you’ll incur if the project is delayed. Importantly, these damages are only enforceable if they reflect real financial losses to you as the homeowner.
Some of the costs you may want to consider when calculating LDs include:
Loan Interest: Any increased interest payments due to the extended timeframe.
Additional Rent: Extra rent payments if you’re renting while waiting for your home.
Loss of Income: If a delay affects rental income or any income tied to the property.
Fees: Additional fees associated with prolonged construction.
Storage Costs: Extra storage costs if your belongings are stored during the delay.
Rental Costs: Any rent costs due to temporary accommodation while awaiting completion.
If you’re unsure about how to determine the right daily rate, I offer a Liquidated Damages Calculator for clients, which can help you calculate your weekly rate and ensure your LDs reflect actual costs.
Preventing Delays: Simple Strategies to Save Time and Money
While it’s essential to have LDs in place, there are steps you can take to avoid delays altogether:
Set Clear Start Dates: Confirm with your builder when work will begin. Delays in the starting phase can cascade into the entire project timeline.
Confirm Material Availability: With recent supply chain disruptions, it’s a good idea to discuss material lead times. If certain items are unavailable, you may be able to choose alternatives to keep the project on schedule.
Maintain Open Communication: Regular check-ins with your builder can help you stay on top of the schedule and quickly address any emerging issues.
How to avoid delays when Building a New Home
Avoiding costly delays and understanding liquidated damages are just a part of building with confidence. With our Building Contract Health Check, we’ll dive deep into your contract to spot hidden costs, outline protections, and empower you to make informed decisions.
Together, we’ll make sure you’re fully prepared for every step of the build, with clear guidance on navigating timelines, cost protections, and potential roadblocks.
Building Contract reviews for New Home Builds & Renovations
If you're looking for a personalised review of your Building Contract at a reasonable price, you can find out more information about my Building Contract Health Checks here.
I support clients with their HIA and Master Builders Home Building contracts from all states in Australia, including Victoria, ACT, Queensland, New South Wales, Tasmania, WA, and the Northern Territory.
Building Contract reviews with me are for people who want to understand their contract better before they sign.
If you're a person like me who wants to dive into the details, wants education on what makes a good contract, and what to look out for - then you're a great match for a Building Contract Review with me.
Ultimately, I want you to walk away from our session with confidence to proceed with signing your contract.
We go through any of your questions like how to avoid delays, what to watch out for and how to keep costs within your original building quote.
Happy building! 💚
Thanks for reading and catch you on my next post :)
Annelyse
Construction Management | M. Construction Law
