Building Contracts And Your Options For Terminating Them

Having a new building created for your business is a huge commitment and such is the undertaking it is little surprise that protections exist both under commercial law, and often as a clause contained within the building contract itself. With the huge implications for your business financially, being able to cancel a building contract if all is not going smoothly is a right you will wish to have. Here is how that right could manifest itself.

Building Contract Termination

The definition of the termination of a building contract is that it releases both parties from some or all of their obligations under the contract. However, that does mean that either party does not still have rights that continue thereafter.

Your Grounds For Terminating A Building Contract

In most instances, commercial law provides the basis upon which a contract for building work can be terminated which we have outlined below.

#1 Breach Of Contract

Breach of contract will exist if the other party, in this case, the construction company, are failing to meet their obligations under the building contract. The list of breaches is almost endless, but it could include not using specified materials, not complying with building regulations, and failing to meet agreed milestones within a specified time. You must ensure a breach has taken place by first identifying it, and then gathering evidence of that breach.

Another consideration is whether the breach exists within the scope of ‘essential’ or ‘non-essential’ items. Essential would relate to significant elements of the building work such as the quality of steel used for the structure. Non-essential would relate to lesser matters such as the decor, which does not impact upon the structural integrity of the building.

#2  Repudiation Of The Contract

This justification for termination occurs when the other party makes it clear that they intend to not be bound by terms of the contract or that they are not willing to meet their obligations under the contract. In effect, they have not reached the point where they have breached the contract, but they are showing a willingness to do so.

As with breach, repudiation of the contract must be for a fundamental aspect of it so them refusing to use a certain colour of paint might not qualify but them stating they will not use fireproof cladding on the exterior would. If you repudiate a contract the other party can either accept the repudiation or they can choose to agree to terminate the contract.

#3 Agreement To Terminate The Contract

Termination by agreement can occur if both parties agree to the termination. Whilst it can be done verbally, given the obligations in a building contract it should always be done in writing. Agreeing to terminate sometimes does not release both parties from all obligations. It may require the building company to complete certain aspects of the work. On the other side, it may require the business owner to make certain payments. Other obligations can include:

  • Due care of the existing work
  • Safe handover to another building contractor
  • Handover within an agreed time
  • Any warranties that exist to be honoured
  • Additional indemnities to be honoured

In Conclusion

Disputes relating to a building contract do not necessarily finish when the contract is terminated. Depending on the circumstances, a business owner may seek additional damages or serve an injunction upon the building contractor. Given the complexities of these and the legalities involved in terminating a building contract, you must seek the advice and representation of a commercial lawyer.