What is liquidated damages in a construction contract?

Liquidated damages in Ontario construction contracts are pre-agreed financial penalties that contractors pay for each day a project runs past the completion deadline - a crucial protection for Ottawa homeowners dealing with delayed renovations.

In Ottawa's construction market, liquidated damages clauses typically specify a daily rate (often $100-500 per day for residential projects) that the contractor owes if they don't finish on time. This protects you from having to prove actual damages while giving contractors clear financial incentive to meet deadlines.

How Liquidated Damages Work in Ontario

The amount must be a reasonable estimate of your actual losses, not a penalty. For example, if you're paying $200/night for a hotel while your kitchen renovation runs over, a $200/day liquidated damages clause would be reasonable. Courts in Ontario will enforce these clauses if they're genuinely pre-estimated damages, but will strike down amounts that are clearly punitive.

Common scenarios where Ottawa homeowners use liquidated damages clauses include kitchen renovations where you can't cook at home, bathroom projects where you lose access to facilities, or additions where you're paying for temporary accommodations. The daily rate should reflect real costs like hotel stays, restaurant meals, or storage fees.

What to Include in Your Ottawa Contract

Your construction contract should specify the substantial completion date, what constitutes completion, and the daily rate. Make sure it accounts for legitimate delays like permit hold-ups from the City of Ottawa Building Department (613-580-2424) or weather delays for exterior work during Ottawa winters.

The clause should also outline how change orders affect the completion date and liquidated damages. If you request additional work that extends the timeline, the completion date and penalty period should adjust accordingly.

Red Flags and Protection Tips

Be wary of contractors who refuse any completion timeline or penalty clauses - this often signals poor project management. However, also avoid setting unreasonably high daily amounts, as Ontario courts may void the entire clause if it's deemed a penalty rather than genuine pre-estimated damages.

Some contractors may try to include "act of God" or force majeure clauses that excuse all delays. While weather delays are reasonable for exterior work, these clauses shouldn't excuse poor planning or scheduling conflicts.

Enforcement in Ontario

Under Ontario's Construction Act, liquidated damages can be deducted from progress payments or final payment, but you must follow proper notice requirements. If the contractor disputes the deduction, you may need to pursue it through small claims court or construction lien proceedings.

For major projects in Ottawa, consider having a lawyer review contracts with liquidated damages clauses to ensure they're enforceable. The Ontario Consumer Protection Act also provides additional remedies for unreasonable delays in home improvement contracts.

Remember that liquidated damages work both ways - if you cause delays by not making timely decisions or payments, contractors may seek compensation for their extended costs.