Be Careful When Terminating Building Contracts
What should I do before terminating a building contract?
Construction projects rarely go to plan.
Subcontractors aren’t always reliable, developers run out of money, and costs blow out.
Most of these issues tend to work themselves out before a project comes to an end.
But, in some cases, one party is left with no other choice but to terminate a building contract.
In this blog, we explain what the consequences of terminating a building contract are and what you should do before ending one.
I want to terminate a building contract. What will be the consequences?
Let’s get one thing straight.
You should treat terminating a building contract as your last resort as it is likely to:
damage your commercial relationship with the other party and in some cases, your reputation in the marketplace. No one likes to lose work, or be told that they are doing a bad job.
cost money. You may have to pay a new contractor to fix work that you have already paid for.
delay the date for completion. For instance, not having a concrete contractor to pour the slab might result in bricklayers not being able to commence work.
So, if it is not absolutely necessary to terminate a building contract, don’t.
What you should do before terminating a building contract
Now that we have got that out of the way, here’s what you should do before terminating a building contract.
Check in with the other party
Schedule a meeting with the other party. Ask them why they are having trouble fulfilling what they are contracted to do, and if they require an extension of time.
Make a note of exactly what they say to you and what you say in response. You may need to rely on your notes at a later stage so make them as detailed as possible.
Read the building contract carefully
If your meeting with the other party proves unsuccessful, it is time to pull the building contract out of the drawer to see if you have a valid reason for terminating it.
Look for paragraphs which deal with what gives you the right to terminate, and the process that you need to follow in order to terminate the building contract.
Chat to a solicitor who specialises in building and construction law
If you’re having trouble navigating a building contract, it is wise for you to engage a lawyer to advise on whether you have a valid reason to terminate, and how you can ensure that any termination sticks.
The lawyer will:
ask you about what has occurred.
Corporate Legal tip: Send the lawyer a chronology of events, the building contract, the notes you have taken in any meetings you have had with the other party and any documents that evidence what you assert that the other party has done ahead of your meeting.review the building contract to see whether you have grounds for termination.
The lawyer will determine:whether there has been a substantial breach of the contract. For example, has the other party been contracted to provide a travelator but installed an escalator instead?
if the contract can be repudiated. Has the other party done something to suggest that they don’t intend to comply with the contract?
whether you can terminate based on another clause in the contract.
tell you what you need to do to terminate the building contract. Do you need to attend a further meeting with the other party? Are you required to serve a “show cause” notice so the other party can rectify the issue?
assess whether you might be able to terminate by agreement. Could you terminate the agreement on the basis that the other party pays for the cost to fix defects?
advise you on a strategy of what to do next.
help you draft any “show cause” or termination notices that you need to serve on the other party.
There is utility in getting a lawyer to do this for you as it is imperative that any of these notices:are drafted carefully. A lawyer can help you stick to the facts and what the building contract says. Failing to have well-drafted notices could be a game-changing mistake down the line if you have to go to court.
include what the contract says to include. Does the building contract say that a notice needs to contain evidence of the other party’s breach?
be served on time, to the correct address and person, and by the means that the contract specifies. For example, if the building contract says that you need to serve a notice by post, email and carrier pigeon and by certain day and time, a lawyer will ensure that you comply with your obligations.
You might think that engaging a lawyer about terminating a building contract is expensive.
However, the costs of doing so are way cheaper than paying for a lawyer to appear for you in court if you get sued for not terminating the building contract correctly.
In summary
Don’t terminate a building contract on a whim. Try to make the contract work in the first instance.
If you have no choice but to terminate, schedule a meeting with the other party, read the building contract carefully and schedule a free consultation here with us to ensure that any termination sticks.