Part 2: Can a Homeowner recover added loan interest payments arising from a Builder’s delay? The answer is still “yes”.

In a previous article, I explained why, in our view, a Homeowner is entitled to recover any added interest paid under a loan contract in respect of a building contract between the contractual date, and the actual date of practical completion of the Works (the Overrun Period).

A Homeowner is entitled to recover from their (Builder) any added interest paid under a loan contract during an Overrun Period, in which, the Homeowner is deprived of the benefit of paying off the principal amount under the loan contract because of a Builder’s delays in achieving practical completion of the Works (Interest Damages).

I also explained why the Tribunal’s ruling in Chellem v Kulowall Construction Pty Ltd [2022] WASAT 95 (Chellem) does not prevent a Homeowner from recovering added Interest Damages, provided that a Homeowner seeks to recover this head of damage with:

1. the required precision and legal articulation; and,
2. independent expert evidence to quantify the added interest.

Recent decision in Deshmukh

On 1 July 2024, in the decision of Deshmukh v Distinctive Building Services Pty Ltd [2024] WASAT 62 (Deshmukh), the Tribunal made a similar finding to that in Chellem.  At paragraphs 29 and 30, Senior Member David Aitken stated:

The Owners are seeking to be compensated for the interest they have paid on the mortgage loan they took out to finance the payment of the contract price, which is the amount of $11,227.12 from the Finish Date to April 2024 and further interest of an unspecified amount from April 2024 until the completion of the dwelling.

I am satisfied that the Owners have paid this interest, however I find that this expenditure is not a loss or damage suffered by the Owners because of the Builder’s breach.  Had the Builder completed the dwelling by the Finish Date the Owners would still have paid this interest and it is not a loss or expenditure sustained by the Owners because of the Builder’s breach (my underlining added for emphasis).

Vogt Legal response to Deshmukh

As to the above reasoning in Deshmukh, it appears that the Homeowner:

1. sought to recover the total interest paid under a bank loan contract during an Overrun Period; however,
2. did not seek to recover the added Interest Damages paid under a bank loan contract during an Overrun Period.

We accept the reasoning of Senior Member David Aitken in Deshmukh, in so far as it relates to a Homeowner’s claim for the total interest paid during an Overrun Period.  Nevertheless, I maintain the position that:

1. the self-represented Homeowner applicant did not make an argument to recover added Interest Damages with the required legal articulation and independence evidence required; meaning that,
2. the Tribunal could not award the applicant Homeowner a monetary sum for added Interest Damages.

One final note.  It is unclear whether the applicant in Deshmukh adduced evidence establishing that the terms of his bank loan specifically prohibited him from paying off any principal amount of the loan balance until the Builder achieved practical completion of the Works.  Unless a Homeowner adduces such evidence regarding the terms of his or her bank loan, a Homeowner cannot successfully recover a monetary sum for Interest Damages.

Making a claim for interest loss and damage against a builder together with all other heads of loss and damage is a complex affair which requires sound legal advice.

Get in touch today for a free initial legal consultation.