I’ve been slow to address a breach of contract. Does that affect my right to terminate?
You enter into a contract with a builder to construct your dream home, and he takes a deposit.
All is well until the project comes to a screeching halt.
You try to call the builder every day for two months to find out why, but he doesn’t answer.
When the builder finally takes your call, he informs you that he cannot finish your home right now as he has committed all of his resources to a new job.
And - to make matters worse - you’ve discovered that by taking two months to address the breach, you may have lost your right to terminate the contract.
In this blog, we unpack how to address a breach of contract wisely so it does not affect your right to terminate.
Let’s dive in.
Understand the law
What is a breach?
You need to identify a breach in your contract (i.e. where the other party has not followed the contract).
A breach may be:
a failure to perform. This can happen when there is:
Non-performance. The builder enters into a contract with you to build your home, takes a deposit, but fails to complete the work.
Defective performance. The builder constructs your home but fails to build it in accordance with the contract’s specifications.
Late performance. The builder erects your home but finishes it at a time that is later than what the contract says.
an anticipatory breach. The builder agrees to construct your home by a specific date. He halts work four months in and commits all his workers to completing a new job so he cannot finish your home.
A party has breached their contract with me. What does the law say I should do?
You should promptly write to the other party to address the breach, and say whether you intend to:
terminate the contract because of the breach; or
continue with the contract despite the breach.
If you do not do this as soon as the breach arises, it means that you accept the other party’s breach, you lose your right to terminate, and you have no choice but to continue with the contract.
Can I change my mind after I choose to terminate or continue with the contract?
No. You are bound by your decision.
If you elect to continue with the contract despite the breach, your right to terminate is no longer available and vice versa.
2. Confirm your understanding with a lawyer
This is an optional step but one that will set you up for success.
A lawyer will be able to confirm if the other party’s actions amount to a breach of contract.
They can also give you a better understanding of what to do next, and offer you some helpful guidance on steps 3 and 4 below.
3. Meet with the other party
In the meeting, ask the other party why they have breached the contract. This will help you determine whether you can continue with the contract, or whether you have no choice but to terminate it.
Keep a detailed note of everything that is said in the meeting, and the reasons that the other party gives for the breach. You will need this information if you decide to terminate the contract.
4. Write a letter to the other party to notify them of your decision
You should confirm with the other party in writing that you wish to terminate or continue with the contract.
If you need more time to make a decision and do not want to lose your right to terminate, it is imperative that you write to the other party and say that:
you intend to address their breach of contract by either continuing with or terminating the contract in due course; and
you reserve all your rights.
The lesson
While delays occur, get into the practice of promptly addressing any contractual breaches as soon as they arise.
Sending a simple letter to the party who has breached the contract saying that you reserve your rights is the perfect way to buy yourself more time to make a decision.
Failure to take this step may mean that your right to terminate is no longer available.
If you have any questions about what a breach of contract is or how to address one, get in touch with us here