When a (Builder) delays achieving practical completion under a (Building Contract), a (Homeowner) may commence legal proceedings against the Builder and recover various losses sustained between:
- the contractual date for practical completion; and,
- the actual date of practical completion.
Such losses typically include:
- rent;
- water and electricity consumption charges;
- loss of amenity (depending on the jurisdiction in which the proceedings are commenced); and,
- rates and taxes.
Basis for recovering added interest
A Homeowner is entitled to recover from their Builder any added interest paid under a loan contract between the contractual date, and the actual date of the practical completion (the Overrun Period).
Typically, the terms of a bank loan for the construction of a dwelling prohibit a Homeowner from paying off any principal of the loan balance until the (Works) have reached practical completion. However, from the time that a loan contract commences until the Works reach practical completion, a Homeowner must make interest only payments to their bank.
During an Overrun Period, a Homeowner suffers a loss and is delayed from “enjoying” the benefit of paying off the principal amount under the loan contract.
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 (Interest Damages).
Possible bar to recovering Interest Damages
In the decision of Chellem v Kulowall Construction Pty Ltd [2022] WASAT 95 (Chellem), the Tribunal ruled against a Homeowner’s bid to claim interest charges from a Builder’s delay in reaching practical completion. At paragraph 119 of Chellem, the Tribunal ruled against the Homeowner’s bid on the following basis:
Interest charges on their bank loan would have continued to be incurred by the owners irrespective of whether the builder had suspended works and is charged for as long as the bank loan remains outstanding.
Why Interest Damages are recoverable
As to the above reasoning in Chellem, it appears the Homeowner sought to recover the total interest paid under a bank loan during an Overrun Period.
We agree that the Tribunal’s analysis is correct, in so far as it relates to a Homeowner’s claim for the total interest paid during an Overrun Period. If a Homeowner claims the total interest paid, this gives rise to an inflated figure and an inaccurate measure of a Homeowner’s loss.
However, the total interest paid during an Overrun Period must be carefully distinguished from the added interest paid.
A Homeowner is entitled to recover the added interest paid during an Overrun Period, provided that a Homeowner seeks to recover this head of damage with:
- the required precision and legal articulation; and,
- independent expert evidence to establish the added interest.
Therefore, the Chellem case should not be taken as authority for the proposition that a Homeowner cannot recover Interest Damages from a Builder. A Homeowner remains entitled to recover added Interest Damages incurred from a Builder’s delay.
Vogt Legal maintains a panel of accountant litigation experts, who it briefs to quantify Interest Damages incurred by Homeowners. Subject to the length of an Overrun Period, Interest Damages are often worth tens of thousands of dollars.
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.
This article/post is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, instructions or all of the relevant facts and/or circumstances. Will Vogt or Vogt Legal accepts no responsibility to any persons who relies on the information provided on this website.
