Payout of Liquidated Damages at Settlement - Adjustment to Contract Price?

Hello

I have an upcoming settlement for a new house (VIC). Currently in the last phase of construction.

The contract between myself and the developer included a liquidated damages clause for delays to completion beyond a date we've already passed about 6 months ago. In case anyone's wondering, they didn't try to negotiate that due to COVID...basically no communication from them at all - so my conveyancer confirmed that the penalties are certainly applicable.

The clause itself was: Liquidated damages of $X per each week of delay beyond XX/XX/XXXX will be paid to the buyer at settlement.

My conveyancer said that this is normally adjusted from the contract price at settlement. e.g. if $600k contract price and $10k in liquidated damages - they'll adjust the contract price down to $590k at settlement.

Is there a way for that $10k to instead minimise the cash I need to put in at settlement? I'm putting in 10% deposit, paying LMI and so on. I'd much rather that $10k minimise that cash I need to put in.

Just wanting to see if anyone here has explored this before.

Thanks
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Theres only two sources of funds, right. You and the lender. So is that 10k going against your contribution, or the lenders?

 

Correct, only me and the lender.

I want it to be against my own contribution, given the contract is in my name.

But my conveyancer is saying that it's against the overall contract price (at least that's the process they've been following in such instances). But 90% of that value is the bank's contribution

 

Don't count your chickens before they hatch.

Review the entire building contract - is there a timeframe for notification of variations, delays or inclement weather? Barring these notification periods having expired, then they may ascertain LDs coming into play.

 

No there's no timeframe for notification as such. the LDs were included into the contract and agreed upon as Special Conditions.

 

If it's a HIA/MBA/RAIA contract, there are timeframes. LDs are included in the schedules not special conditions

 

I appreciate what you are saying. While I'm far from a contract specialist, my conveyancer has certainly gone through the contract and found no issues.

So my original question assumes the LDs are valid - and I'm just here to find out more about how these things are adjusted at settlement. Not the validity of the LDs.

 

In a settlement your conveyancer directs various parties such as you and your bank who to pay and how much. In this case your bank will say I have $x and usually the conveyencer says ok take this full amount and pay the vendor. And the conveyencer will say, I still need extra $y. And the conveyencer will have authority to direct your bank to draw $y from your account. So essentially if your loan is already approved for $x, $10k less will be drawn from your account without you doing anything.

The alternative is your reduce your loan amount. If you wanted to do this you would have to speak to your bank. It's not what you wanted though you should consider it as going from say 90% LVR to 89% LVR will reduce your LMI cost.

 

The loan amount has already been determined as part of the finance process, so in most cases a settlement adjustment like this just means the purchaser has to contribute less money to the settlement. ie. You put in $10k less, not the bank.

If you want to later make an extra repayment of $10k to the loan, that's up to you.

 

The settlement calculations will adjust the settlement price NOT the contract price. There is no other way. This a normal element of property contracts and settlement. The lender will set the requirements and the minimum you must contribute. Its likely the $10K will mean you can put in $10K less. The bank will normally lend XX% of the valuation / contract price.

 

Thanks for the advice everyone