THE DIFFERENCE BETWEEN LOST PROFIT AND LOSS OF USE DAMAGES

ProfitSharingLost profits are a type of damages that are sometimes thrown around in a litigation.  However, these damages are very difficult to establish and prove and they really require expert testimony.  If the theory to recover lost profits is speculative, or the way the lost profits is measured is speculative, they will not be recoverable.  (Typically, lost profits require a history of profits to measure against and/or establishing the profitability of another business using a substantially similar business model for comparative purposes).  Lost profit damages have a difficult burden of proof in order to avoid the argument that they are speculative in nature.

 

Loss of use is another type of damages that is often confused with lost profit damages. Loss of use damages is generally the rental value of property / fair market value due to the loss of use of that property. See B&B Tree Service, Inc. v. Tampa Crane & Body, Inc., 38 Fla. L. Weekly, D970a (Fla. 2d DCA 2013) citing MD. Cas. Co. v. Fla. Produce Distribs., Inc., 498 So.2d 1383 (Fla. 5th DCA 1986) and Meakin v. Dreier, 209 So.2d 252 (Fla. 2d DCA 1968).  Hypothetically speaking, this type of damage can come into play if an owner is trying to recoup the rental value of units / fair market value of units that are out of service due to a defect, i.e., water intrusion problem.

 

There is a better argument for an owner under Florida caselaw to testify as to loss of use damages than lost profits, although with both types of damages, a qualified expert is preferential. “An owner is qualified to testify to the value of his property based on a presumed familiarity with the characteristics of the property, knowledge or acquaintance with its uses and purposes, and experience dealing with it….An owner must be shown to have knowledge regarding the property and its value sufficient to qualify him.” B&B Tree Service quoting Craig v. Craig, 982 So.2d, 724, 729 (Fla. 1st DCA 1993) (internal quotations omitted). The key is the owner’s familiarity with the property and value to support his opinion testimony regarding loss of use damages.

 

Understanding the differences between lost profit damages and loss of use damages, as well as the ways to prove such damages, is important if these are damages a party is looking to recover. Not understanding the burdens of proof for these types of damages can be fatal to recovery or can lead a party to an unrealistic method of thinking during the course of a case and prevent the party from entertaining reasonable settlement offers.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SUPPORTING CONSTRUCTION DEFECT DAMAGES WITH AN ESTIMATE

33758031One of the issues in construction defect disputes is whether the owner can prove damages with an estimate, which is often the case. Recently, in Kritikos v. John T. Anderson d/b/a Anderson Builders, et al., 38 Fla. L. Weekly D931a (Fla. 4th DCA 2013), the Fourth District Court of Appeals confirmed that an estimate as to the costs to repair construction defects can support a plaintiff’s (owner) damages. In other words, the plaintiff does not actually have to incur the costs to repair in order to be entitled to recover damages to correct a construction defect.

 
In this case, the contractor recorded a construction lien. The owner asserted, as a defense, that it is entitled to set-off the amount of the lien due to construction defects and delay-related damages. (The owner in this case ended up terminating the contractor when the project was substantially over budget and behind schedule.) It was the owner’s position that the defective work was subject to a design change so the measure of damages needed to be based on an estimate of what it would cost to complete the work (i.e., repair the defects) according to the original design / contract. The owner’s argument, as supported by the Fourth District, was based on precedent discussing an owner’s measure of damages when there is a construction defect, particularly the Florida Supreme Court decision of Grossman Holding Limited v. Hourihan, 414 So.2d 1037 (Fla. 1982) and the Second District Court of Appeals’ decision of Temple Beth Shalom & Jewish Center, Inc. v. Thyne Construction Corp., 399 So.2d 525 (Fla. 2d DCA 1981).  Both the cases of Grossman and Temple Beth Shalom maintain that the measure of damages when dealing with construction defects / unfinished construction contract is the reasonable cost to complete / repair per the original design / contract provided this does not result in economic waste. Kritikos, supra.

 
The key is that whether using an estimate or actual costs to support damages from a construction defect, the measure of damages is the reasonable cost to complete per the original design / contract (versus a subsequent and better design to repair the defects) provided that the repair costs do not amount to economic waste.

 
Interestingly, this case also discussed the owner’s set-off for delay damages. It is uncertain in this case whether the owner utilized any expert to establish delay damages, which is often and properly the case, or how the owner specifically presented the delay damages (as there is no discussion that there was a liquidated damages provision in the contract). The Fourth District simply stated: “Delay damages were properly presented to the jury. By their very nature, delay damages may not be subject to exact calculation, making the owner’s opinion of the value of his loss of use of his property admissible and relevant.” Kritikos, supra. Based on this limited statement, it would seem that these damages are not referring to liquidated damages or delays to the critical path of a construction schedule, but rather an owner (without any expert testimony) testifying as to “loss of use damages,” i.e., an owner testifying that due to the circumstances of the case, he/she was damaged by being not being able to utilize his residence. But, it is uncertain what the owner did to support these damages.

 

 

For more information on loss of use damages, please see: http://www.floridaconstructionlegalupdates.com/the-difference-between-lost-profit-and-loss-of-use-damages/

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.