The Supreme Court rules that VAT and other expenses incurred must be included in the damages for construction defects.

In this case, a community of property owners brought a claim for damages for construction defects in the common items of the building and its dwellings.

The claim brought by the community included damages covering several different areas. Compensation was requested in the first instance to cover the value of all repairs required to render the building in a good condition, including all those pertaining to items required to carry out such repairs, such as permits, VAT, projects, architect and technical architect management, etc. Secondly, compensation was requested for the repairs in all homes of all defects, including the cost of rental of alternative residence during the time such repairs are being carried out. Thirdly, compensation was requested for default and legal interest.

The defendants, comprising the developer, the real estate agency and the insurance companies, presented their objection to the claim, requesting the general dismissal of the claim and the absolution of the defendants.

The court of first instance admitted the claim in full, convicting  the defendant, jointly and severally, to pay the full damages to the plaintiff, including the amounts required to carry out the repairs, as well as the amounts used for home rental during performance of such repairs.

The defendant, disagreeing with the ruling in the court of first instance, appealed, and the Provincial Court ruled by admitting the appeal in part, therefore excluding part of the amount to be paid by way of damages, stating that part of the amount granted to random or hypothetical expenses such as VAT, industrial profit, permits, etc. cannot be included in the damages.

In accordance with the above, the community of property owners lodged an appeal for annulment with the Supreme Court, on the grounds of contradictory doctrine.

The Supreme Court admitted the appeal for annulment, citing that the issue to be resolved was whether damages may include amounts pertaining to VAT, industrial profit, permits and general expenses, required to carry out the repairs.

Having analyzed the grounds of the matter, the Supreme Court admitted the appeal and dismissed the ruling appealed, therefore confirming the ruling of the Court of First Instance, justifying the ruling on the fact that given it involves the repair of building defects or faults, the amount of the damages must be set taking into account the total amount payable by the injured party to repair such defects. The ruling further highlighted that the unjust enrichment of the property owners’ community cannot be considered, insofar as the community lacks a legal personality and is therefore a VAT taxpayer and unable to offset output VAT in its tax returns, thus rendering the amount pertaining to this tax included in the damages.and circumstances are met which allow the application thereof.