Terminating a Building Contract
If a party breaches an essential term of the contract, also known as a condition, you may have grounds to terminate a building contract at common law. Exercising the right to terminate a contract for breach of contract should not be taken lightly. By purporting to terminate the contract for breach you can yourself be in breach of the contract by failing to terminate for just cause. You could be required to pay the other party’s costs instead of pursuing them for your own loss. For this reason it is imperative that you seek legal advice before terminating any building contract.
Key points to consider when terminating a building contract are:
- time periods – “Business Days”
- Remedy periods – has the builder been given an opportunity to fix any defects before terminating the contract;
- Method of delivery of notice – post or hand delivery;
- Address for notice – the registered address of the office or personally on a director of the company: section 109X of the Corporations Act
The easiest way to terminate a contract is to exercise a term of the contract itself. Contracts themselves often provide the parties with information such as if and how the contract can be terminated and the consequences of terminating a contract. You should remember that is not as simple as a breach of a term of a contract will not allow you to terminate a contract unless it is an important term.
- Issue a Notice of Intention to Terminate – a notice must specify:
- The grounds relied upon as a basis for the notice;
- State the period of time by which the other party must remedy the defaults;
- State that a failure to comply will mean that the contract may be terminated without further notice; and
- Notice must be served in the manner the contract dictates.
- Issue a notice terminating the contract if the defects are not remedied and serve it on the other party.
Repudiation is conduct that shows a party is unwilling or unable to substantially perform the contract. Repudiation can be express, such as where a party refuses to continue building, or implied. A good example of an implied repudiation is when a builder walks of the site and refuses to complete building works or a principal refuses to provide the builder access to the site. When one party has repudiated the contract the other party may either continue with the contract or accept the repudiation and terminate the contract.
The lawful termination of a contract at common law will result in the following:
- both parties are discharged from future performance;
- clauses intended to survive termination will remain binding;
- accrued rights are preserved for example damages.
The exercise of a contractual termination right will result in the same effects as under common law. A contract, however, may stipulate other terms that apply on termination such as the compensation payable. A contract may also allow you to terminate part of a contract rather than the whole contract as is required at Common Law.
The unlawful termination of a contract itself amounts to a repudiation under common law. This makes terminating a contract a high stakes game as if you get it wrong you’ll be forced to pay the other party damages for breaching the contract. For this reason you should seek legal advice before you consider terminating any contract.