Whether it is a domestic or commercial building contract, terminating a building contract is a serious matter.
There are various reasons why a party to a building contract may wish to terminate the contract. From the builder’s point of view, it may be that the owner is not paying the builder’s progress payments, has not given the builder unobstructed possession of the site or refuses to give the builder necessary instructions to carry out the building works. On the other hand, an owner may wish to terminate a building contract because the builder has abandoned the works, is not progressing the works with due diligence or the works being carried out by the builder are seriously defective.
As with any contract, generally there are 3 bases for terminating a building contract, namely:
- where a party has committed a serious breach of the contract;
- where a party has repudiated a contract or, in other words, manifested an intention not to be bound by the terms of the contract or to insist upon the contract being performed in a way that is inconsistent with the terms of the contract; and
- pursuant to a right of termination provided by the contract.
Where there is a right of termination, subject to the terms of the building contract in question, the starting point is that the contract should be terminated by notice in writing.
Where the terms of a building contract are in writing (which is generally the case) it is important to check for any procedures for the termination of a contract specified in the written terms. Many building contracts contain procedures for the termination of the contract where a party has committed a breach of the contract. These procedures often require the innocent party to first give notice of their intention to terminate the contract if a breach is not remedied within a certain period of time.
It is important to consider whether these procedures are an essential prerequisite to terminating the contract or if they merely provide a right to terminate in addition to a party’s rights under the general law of contract. This will depend upon the intention of the parties ascertained objectively from the terms of the contract.
Purporting to terminate a building contract when you are not entitled to do so, or not taking the proper steps to terminate a contract, can have serious consequences. Preston Law frequently advises parties to building contracts as to their rights of termination and can assist with preparing notices necessary to lawfully terminate a building contract.
For more information, get in touch with one of our lawyers today.