Breaking up with my Builder - when can I legally terminate a building contract with the Builder? (Part One)

Question: My builder has breached the building contract between us. Can I terminate my building contract? How can I effect a termination of the building contract? Are there any risks involved?

Question: My builder has breached the building contract between us. Can I terminate my building contract? How can I effect a termination of the building contract? Are there any risks involved?
Answer: “Termination” of the building contract as an option is a generally misunderstood concept amongst builders and homeowners alike. Needless to say, the proposal of termination is one which should be approached with extreme caution and requires more than simply a communication to the builder that you either are terminating or wish to terminate your contract.

Termination of the building contract, in effect, means severing the legal relationship created by the contract between you and the builder, however, if it is not done correctly, or, done hastily, can have significant financial consequences to you and your build.

If termination of the contract is not done correctly or legally, you will be at risk of being found to have wrongfully terminated the building contract (known legally as a “repudiation” of the contract) the likely result of which, is a claim against you by the builder for the loss of the “builder’s margin” under the building contract.

The first step is to carefully consider the written building contract and read the clauses which relate to termination. Usually, the building contract will list certain circumstances in which an owner may terminate the building contract, for example: (a) the builder has suspended the Works; (b) the builder has engage in a substantial breach of the building contract; (c) the builder has entered into a form of insolvent, external administration; but, this is not the end of the story.

The building contract will also generally set out how the termination must be affected. Under most building contracts, you will be required to send the builder a notice setting out the conduct of the builder complained of and requesting that the builder take specific steps in order to remedy the complaint within 10-working days of the date of deemed delivery of the notice.

In addition to any rights expressly provided under the building contract to terminate it (“express rights”) there are a set of rights which are not written down in the contract, but, which nonetheless, apply to you and your contract.

The most prevalent of these rights is the right to terminate the building contract in circumstances where the builder is said to have “repudiated” the building contract (touched upon above).

The builder may be said to have repudiated the contract where the builder has engaged in conduct which an objective observer would understand the builder to have demonstrated an intention: (a) no longer to be bound by the building contract; (b) to carry out the building contract other than on the terms agreed by the parties and/or (c) demonstrated an unwillingness or inability to perform the contract.

In the above scenario, termination of the building contract may be affected in largely the same way, which is, to issue the builder with a notice setting out the conduct complained about and requesting that the builder take specific steps to remedy the conduct within 10-working days, failing which, the owner may terminate the building contract.

Termination is a vastly complex area of law and the consequences of getting it wrong are disastrous. If you believe that your builder has done something which may trigger a right to terminate the building contract, the clear course is to obtain legal advice as to your rights.