Design-Build Institute Of America (DBIA) Exam 3 Practice

Direct Damages or Consequential Damages? 'Loss of rental income from tenants.'

Direct Damages Consequential Damages Incidental Damages Punitive Damages

Correct Answer:

Consequential Damages

Explanation:

When a contract is breached, direct damages cover the immediate financial impact tied to the breach (the cost to fix or complete the work). Consequential damages are losses that flow from the breach in a more indirect way, such as lost profits or rental income, if those losses were foreseeable at the time the contract was formed. Loss of rental income from tenants falls into the category of consequential damages because it represents the economic impact of the project not being usable as agreed, rather than the direct cost to cure the breach. It’s not incidental (those are costs incurred to handle the breach itself, like storage or shipping adjustments) and it’s not punitive (punitive damages are not typically recoverable in contract disputes).

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