In certain circumstances, a breach of your construction contract by your counterparty may entitle you to terminate the contract as part of any other remedy you may have under the agreement, including, for loss and damage.

Termination of your construction contract is a minefield of legal danger and significance. Accordingly, it should not be entertained lightly.

Generally speaking, there are three sources of legal right to terminate a contract:

1. rights afforded by the contract itself (express contractual right).
2. rights recognised at law as a basis to terminate the contract but which are not written down in the contract itself (common law rights).
3. rights conferred by statute (statutory rights).

Express contractual right 

The contract itself will generally contain clauses which inform the parties as to when and if they are entitled to terminate the contract.

For example, a construction contract may provide that if the works are suspended without lawful or reasonable excuse, the contract may be terminated by the innocent party.

The contract will also usually contain clauses that explain how the right is to be exercised. For example, a common method may require you to first issue a notice to your counterparty, informing them that a breach has occurred and request that they cease the conduct amounting to a breach within a specified period of time.

It is important to carefully review the contract in question to ensure that your termination is not called into question by virtue of the failure to properly comply with the provisions of the contract.

Common law rights

The law recognises a right for an innocent party to terminate an agreement in three situations:

1. A breach of an essential term of the contract: Essential terms, also known as conditions, are said to be terms so important to the contract in question that the innocent party would not have entered into the contract for anything less than full performance of the term in question.
   
   Whether a term is a condition of the contract is a question of law, which you should engage a knowledgeable building and construction lawyer about to ensure that you do not mischaracterise a term as a condition and mistakenly terminate the contract.
   
   
2. A serious breach of a non-essential term: If the term breached is not a condition, there may still be a right to terminate the relevant contract.
   
   More often than not, whether the breach of the non-essential term will entitle the right to terminate will require an examination of the consequences of the breach and the nature of the contract.
   
   
3. Repudiation: This word describes conduct by which a defaulting party has, by the nature of their conduct, demonstrated: (a) an intention no longer to be bound by the contract; or, (b) an unwillingness or inability to perform their obligations under the contract.
   
   To read more about repudiation, click here.

If you are contemplating terminating your contract, or, your counterparty has attempted to terminate your contract, you should immediately seek legal advice from our experienced building and construction lawyers.