When the developer is unable to deliver the property on time, you have the right to seek legal assistance in accordance with the terms in your S&P Agreement. In particular, the COVID-19 movement control order has affected many businesses and industries. During this period, more buyers of newly launched properties will be unable to receive houses on time than ever before. You can read the following FAQs about Liquidated Ascertained Damages(LAD).
In an ideal world, every construction project would start and finish on time. In the real world, some projects are completed on time, some are not. Then a LAD construction would occur. The term “LAD” is an abbreviation for liquidated ascertained damages. LAD refers to the amount of compensation agreed by both parties when signing the contract. The breaching party must pay the other party a certain amount as compensation after a specific breach of contract (such as delayed performance, early termination of the contract). It is the amount of compensation determined or predetermined in accordance with the contract, and any party can claim compensation when the contract is breached. This payment can be found in the Sales and Purchase Agreement. The Liquidated Ascertained Damages (LAD) clause is an important part of the construction contract. It is intended to cover any forecast losses that may occur due to project overruns or delays. LAD is not a financial penalty, nor is it imposed as a penalty for breach of a construction contract.It is actually part of the pre-agreed contract itself between the employer and the contractor. Now, it can be said that construction projects sometimes experience delays.According to the LAD clause, the agreed sum will be delayed by the employer every day after the agreed completion date.
‘Liquidated’ refers to a fixed or determinable amount. The terms in the contract such as “£1,000 per week, work is still not completed” are fixed, even if the total amount actually payable cannot be determined before the delay is calculated.
Start date: there must be a start date from which the delay can be evaluated. The trigger date under the master contract is the date when the project specified in the architect’s unfinished certificate should be completed. The period from this date to the actual completion is the time period for determining the amount of LAD payable. If an architect’s certificate is not issued, there is no specific period for calculating LAD. Therefore, recoverable damages become “impunity”, which means that the employer must prove that they have suffered economic losses and prove the actual amount of loss incurred.
The true loss estimate: the amount representing LAD must be a true estimate of the loss that the employer may suffer if the project is not completed on time. The amount was agreed before the contract was signed. If the amount stated is arbitrary, it may be challenged as a fine.
Benefits to including LADs within contracts
Certainty: if a specified default occurs, both parties know the consequences; that is, the LAD will be applied at the agreed value. This certainty is beneficial to both parties because it enables them to adequately plan for the consequences of delays (or other related breaches), and it also avoids complex, time-consuming and costly disputes trying to determine the actual amount of the injured party’s losses .
Limitation of Liability: LAD sets an upper limit on the contractor’s liability for its own breach of contract. This means that the liability for any particular breach will never exceed the applicable and agreed LAD figure; regardless of the actual losses the employer may suffer.
Save time and expense: by avoiding complex disputes over the amount of general damages, both parties can focus on other issues; such as ensuring the accuracy of construction plans and the length of any guilty delays that apply to specific contractors. In order to allow all parties to focus on liability issues rather than quantitative issues, the LAD encourages them to ensure that records on these issues maintain a high and consistent standard.
The ability to focus on more limited issues helps parties avoid the risk of “drowning in paperwork”; for complex contracts and disputes (especially for smaller contractors) this is usually a very real problem.
The case law also confirms that a party is not obliged to mitigate its actual losses when requesting LAD; therefore, another potential area of dispute is eliminated.
Strong deterrence against breach of contract: carefully implemented LAD clauses can be used as a very powerful deterrent against breach of contract. If a party knows the exact financial consequences of not fulfilling its contractual obligations, this is usually a more effective motive than the generally vague concept of general damages for actually proven losses.
Buyers have two channels to claim liquidated damages (LAD). You can file a claim with the Tribunal for Homebuyer Claims or file a civil lawsuit in the court.
1. Tribunal for Homebuyer Claims
If the total amount of LAD does not exceed RM50,000, the buyer can file a claim in the housing arbitration tribunal. Claims can be filed in person and must be filed within 12 months of the following dates:
The date of CCC issuance for residential or public facilities, or
The expiration date of the defects liability period specified in the SPA, or
The date when either party terminates the SPA, and the termination occurred before the date issued by the CCC.
To begin filing a LAD claim in the Housing Arbitration Tribunal, the buyer must fill out Form 1-Statement of Claim, which is available on the website of the Ministry of Housing and Local Government.
Others such as SPA, Vacant Property Ownership Notice, CCC or any related documents must be attached together with Form 1 during the submission process. LAD claims the application fee is RM10.
If the total amount exceeds RM50,000, the buyer needs to take legal action against the developer in court for violating the SPA, LAD and general losses due to the delayed delivery of the vacant property. Court proceedings must be conducted within 6 years after the breach of contract (that is, the delay in the delivery of the vacant property).
Buyers need to hire a lawyer to represent them in court. Buyers should also bring documents such as SPA, receipt of vacant property notices and CCC when meeting with lawyers, so that the lawyers can defend them.
Usually, it should be based on individual circumstances to file a LAD claim through the court. However, in the event that the developer abandons the residential project, a group of aggrieved buyers may file a representative or class action lawsuit. It is best to consult a lawyer regarding actions in this case, as Malaysia does not have extensive procedures for class actions.
Time at large
The party facing the LAD claim can respond by arguing that the contract time is “at large”. If the delay is the employer’s fault and the contract does not provide sufficient handling clauses, the completion date stipulated in the contract will become invalid and the contractor’s obligation will be changed to a’reasonable time’.
The reason for allowing a reasonable time obligation to replace the contract completion date is that if the contractor is forced to complete it before the original completion date (even if the employer did not postpone it due to his own fault), the employer will (by being able to impose the LAD) Benefit from their own violations (its guilty delay). This is known as the “precautionary principle”, which stipulates that if one party actually prevents the other party from complying with its own actions (such as a guilty delay), neither party can recover from the failure of compliance (such as incomplete) and benefit.