I’d like to ask a theoretical question. Assume a client has a project to build offices/industrial units, etc, and includes Liquidated Damages calculated on the amount of rent lost if the contractor finishes late. The contractor does indeed fall behind, and the client issues a Notice of Non-Completion. Does the client then have to charge LD’s, or can they choose not to? Let’s further suppose that the client doesn’t actually have a tenant lined up to occupy the new office when the original completion date passes. If the client then charges the LD’s, is that permissible, or would it be treated as a penalty clause?
Simon. Good question and the simple answer is that the Client does not have to charge liquidated damages. Its an option available to him as long as he complies with the contract.
It does not matter that there is no actual tenant as the liquidated damages are calculated on the basis that there was one and therefore they represent a genuine pre-estimate of the losses that the Client would suffer if there was a culpable delay on the part of the Contractor. So they would not be a penalty.
Hope that answers your theoretical question.
Just a slight clarification to @Mike_Tiplady’s answer.
The Project Manager has a duty to deduct delay damages if the Contractor is late, however the Client does not have to take them, they could agree to a contract change under clause 12.3 or just waive their right to them. The problem with the latter is that clause 12.3 is effectively a no waiver clause so if a formal agreement (agreed, in writing and signed by the Parties) is not entered into the Client would have the right to change their mind down the line e.g. in the event of a dispute.
Also the law around liquidated damages was transformed back in 2015 as a result of the Parking Eye case so the old genuine pre-estimate test etc no longer apply. See Rob Horne’s excellent work on this from 2016:
Hope this helps.