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Damages for delays can include property price drops

A ruling by the Court of Appeal means that losses resulting from a breach of contract by consultants can include a drop in property values.

The case focused on a firm of engineers hired by a farmer to design a road and drainage on land he was preparing as a housing development site, requiring the firm to obtain section 38 permission from the local authority.

While an original completion date of March 2007 was agreed, the work was not completed until 15 months later, when another firm was called in – during which time there was a significant drop in the property market.

The farmer refused to pay the outstanding fees to the original engineers, and counterclaimed for both the fees already paid and the losses incurred due to the significant delay. While parties are responsible for losses that can be “reasonably foreseen” in most commercial contracts, the firm argued that this did not include the property market dip.

However, the High Court judge disagreed, concluding that “losses arising from the movement in the property market were reasonably foreseeable at the time of contract as a consequence of delay”, and the firm both knew “the property market could go up or down” and what the farmer “intended to do by way of development and when”.

These views were upheld in the ensuing Court of Appeal case, despite the £400,000 damages resulting from the drop in property value being “disproportionate” to the engineer’s £20,000 fee.

“A few days or even a few weeks delay is unlikely to give rise to a demonstrable loss on the property market. It was the [engineers’] delay of 15 months, in the judge’s words an egregious delay, which in the present case gave rise to a quantifiable loss.”

Consequently, the liability included in consultants’ contracts will need to be carefully checked to ensure the other party cannot recover such losses.