In this episode of Talking Legal, construction lawyer, Len Watt, discusses terminating a construction contract.
Enquiries about terminating contracts are becoming more prevalent these days due to the current Covid-19 climate and a breakdown of communication between parties.
Can a consumer terminate their construction contract if they are not generally happy with the builder?
The short answer is no.
A contract is a binding agreement for the parties for the construction of a home.
The consumer has obligations to the builder, including the payment of invoices, and the builder has obligations to the owner, including the quality of the home and general warranties (including statutory warranties).
However, a construction contract can be terminated on the basis of a substantial breach of contract.
What is a substantial breach of a contract?
A substantial breach of contract includes anything that is fundamentally different to what was agreed between the parties, or circumstances where either party has not fulfilled their obligations.
Examples can include:
- The owner not paying the progress payment on time
- The builder suspending works without a valid reason
- The builder losing their license
- Building a single-story house instead of a double-story house
Are there any consequences for terminating a contract without a valid reason?
The consequences for terminating a construction contract without a valid reason is what we call a repudiation of a contract. This means that a party is not ready, willing or able to perform their obligations.
Being unable to undertake your obligations under the contract can lead to the other party seeking and being award damages, including a loss of profit.
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