Notice of liquidated damages, Linden Row townhouses, Kestrel Ridge Developments
Liquidated damages letter for late practical completion
A liquidated damages letter applies the contract's agreed daily rate to the days a project finished late and says how the amount will be recovered. This one page letter from a developer works out 21 days late on a six townhouse project after two extensions of time, and deducts $25,200 from the next progress payment.
The document, page by page
Every page as it renders and as it prints, with nothing summarised. Read the wording before you reuse it.
Section by section
What each section is for, so you can keep the ones you need and drop the rest.
- Masthead letterhead
- The developer's name, address and projects email.
- Addressee and subject
- The builder's director and the project.
- Opening
- The date practical completion was certified and that it was late.
- Calculation table
- Contract date, two extensions, adjusted date, actual completion, rate and total.
- Recovery and dispute
- Deduction from progress claim 14 and the right to dispute under the contract.
- Signature block
- The development manager's name and title.
The penalty rule, briefly
Common law courts will not enforce a clause that punishes a contracting party rather than compensating the other. For a century the test was whether the amount was a genuine pre-estimate of loss. In 2015 the UK Supreme Court in Cavendish Square Holding v Makdessi reframed it: a clause is a penalty only if it imposes a detriment out of all proportion to any legitimate interest of the innocent party. The High Court of Australia's decision in Paciocco v ANZ in 2016 is consistent with that approach. For a construction principal, the practical lesson is to set the daily rate from real holding costs such as finance, rent forgone and supervision, and to keep the workings.
Getting the calculation right
Most disputes about liquidated damages are about the dates, not the rate. Confirm the date for completion in the contract, then every extension of time actually granted in writing, then the date practical completion was certified rather than the date the builder said it finished. Check whether extensions are counted in calendar or working days and use the same unit throughout. Check for a cap on liquidated damages, often a percentage of the contract sum. Here $25,200 is about 1 percent of a typical six townhouse contract, well inside any usual cap.
How to adapt this document
Replace the dates, extensions, rate and schedule item with your own from the contract and the superintendent's certificates. Recalculate the total and check the weekdays. If an extension claim is still open, say so and either wait or limit the deduction to undisputed days. If your contract requires a notice before deduction, send this letter in time and cite that clause. Where security of payment legislation applies, make sure the deduction also appears, with reasons, in the payment schedule for the claim it is taken from.
What makes this document work
Extensions are applied before damages
The table starts from the contract date of 24 July 2026 and adds the two approved extensions of 7 and 14 days before counting lateness. Showing that the builder's time claims were granted makes the remaining 21 days hard to dispute.
The rate is tied to the contract
$1,200 a day is quoted from schedule item 22 rather than stated as a figure the developer chose. 21 days at that rate is $25,200, shown as the emphasised total, so the arithmetic and its source sit together in one table.
Recovery and dispute are both stated
The letter says the amount comes off progress claim 14 and that the builder may dispute the dates or the calculation under the contract. Naming the method and the right to challenge keeps the deduction within the contract's process.
Questions people ask
What are liquidated damages in a construction contract?
They are a fixed daily or weekly amount, agreed when the contract is signed, that the contractor pays the principal for each day the work finishes after the date for completion as extended. They replace the need to prove actual loss, such as lost rent or holding costs, which saves both parties a dispute about what the delay really cost.
Can liquidated damages be challenged as a penalty?
Yes, but the test is now demanding. In Cavendish Square v Makdessi the UK Supreme Court asked whether the clause protects a legitimate interest and is not out of all proportion to it; the High Court of Australia took a similar line in Paciocco v ANZ. A rate based on a genuine estimate of holding costs, like this one, is rarely struck down.
How are liquidated damages calculated?
Start from the contractual date for completion, add every approved extension of time to reach the adjusted date, count the days from that date to the date practical completion was certified, and multiply by the rate in the contract schedule. Check whether the rate is per calendar day or working day, and whether there is a cap.
Can liquidated damages be deducted from a progress payment?
Usually, if the contract allows the principal to deduct amounts it is owed from money otherwise payable, which most standard forms do. Some security of payment laws limit what can be withheld from a payment claim, so the principal should follow the payment schedule process exactly and give reasons, or risk paying in full and recovering later.
What happens if extensions of time are still being assessed?
Wait, or deduct only for days that are clearly the contractor's responsibility. Deducting liquidated damages while a valid extension claim is open invites a dispute and can cost the principal interest and goodwill. This letter notes that no further extension claim is open on the developer's records before deducting.
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