Terminating A Building Contract – Owners Guide

Terminating A Building Contract – Owners Guide

6 Feb 2017

Authored by Lovegrove & Cotton Construction and Planning Lawyers

If an owner needs to terminate a building contract it means that the contract has reached a terminal stage as it were. Owners must be very careful when they take it upon themselves to terminate the building contract – the reason being that the consequences of not terminating a contract correctly can be very prejudicial. The wrongful termination of a contract is called repudiation, the evincing of an intention to no longer be bound by a contract.

The Contractual Mechanics Of Terminating A Contract

Assuming the parties have entered into a building contract and in the case of residential building contracts, owners and builders must by law execute domestic building contracts. The contracts will ordinarily contain contractual termination provisions. The contractual termination provisions must be followed to the letter of the contract.

An owner cannot terminate a contract on the basis of a “willy-nilly” rationale; rather the owner must have strict regard to the reasons enunciated under the contract that permit the termination procedures to be invoked.

Ordinarily the building contracts will stipulate the basis or reasons that provide the owner with the opportunity to terminate the contract. Furthermore, ordinarily the contract will state that the owner must issue a notice of default which will stipulate the specific reason(s) for termination that are found within the relevant default procedures.

The contract will typically state that the builder must be afforded a sufficient period of time to remedy the default and that period of time, be it 10 days or 14 days, will be stipulated in the contract.

The owner must then ensure that the builder is afforded the opportunity to rectify the default within the stipulated time frame. If the builder fails to rectify the defaults within the stipulated time frames the owner will be able to terminate the contract by way of service of a notice of termination which refers to the relevant contractual provision(s) in the building contract.

Service of Termination Notices

The owner must have consideration to the provisions which govern the building contract and ensure that service is effected as per the service method stipulated in the building contract.

Some Cautionary Notes

In the majority of instances when a contract is terminated, mindful of the gravitas associated with contractual termination, the builder will engage a construction lawyer. In such circumstances the construction lawyer acting for the respondent will look very carefully at the termination paper work and will do his or her level best to find a way to dispute the validity of the owner’s termination methodology. If the respondent’s solicitor is successful in establishing that the termination procedure was flawed then the respondent’s solicitor can argue that the contract was repudiated. This then entitles the respondent to make a claim in quantum meruit whereupon the builder will be able to get paid the actual costs of carrying out the works and he/she/it will be able to claim a percentage of the profits.

Warning

Even lawyers who are not experienced in the jurisdiction of construction law find the drafting and dispatch of contractual termination instruments very challenging by virtue of their non-specific expertise. This being the case an owner will be foolhardy if he or she elected not to use the services of a dedicated construction law firm – www.lclawyers.com.au – with the view to invoking the termination contractual protocols, for fear of laboring the point, to the letter of the contract.