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When Can You Terminate a Contract for Building Work?

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Terminating a Contract for Building Work for Breach

Getting The Right Answer is Crucial

Terminating a construction contract because one party believes the other is in breach of contract can be a dangerous business and is not always as straightforward as it sounds.

Perhaps inevitably building projects evolve, specifications change, timings alter and deadlines move, but do any of these factors constitute a breach of contract entitling you to terminate?

Getting the right answer is crucial, as getting it wrong can prove expensive.

At the centre of the issue is the identification of the ‘Ts & Cs’- the terms and conditions- of the building contract, the nature of the “term” and the breach. These are dependent on the outcome, or remedy as follows:

Condition

If a term is central to the purpose of the contract and vital to the performance of the contract, it will be considered a condition of the contract. If a condition is breached, the innocent party will be entitled to consider the contract at an end or to terminate it.

However, not completing the contract on time will not in itself be a repudiatory breach, unless the contract expressly states it is or that “time of the essence.”

Similarly, late payment of a staged payment plan will not necessarily trigger a repudiatory breach, nor will works having to be re-done due to them being below standard. This mirrors the position in section 54, 55 and 56 of the Consumer Rights Act 2015, requiring repeat performance if the service is not carried out with reasonable care and skill.

Term or Warranty

A term of contract is also known as a warranty, which as the latter implies, in common parlance is an assurance or promise in a contract, which if breached gives rise to a claim in damages, but not the right to terminate. This again is mirrored in the Consumer Rights Act, with the right to a price reduction.

Innominate or Intermediate Term

This is where the term can neither be identified as a condition nor a warranty but is dependent on the effect of the breach. If the effect of the breach substantially deprives the innocent party of the benefit of the contract, it will be deemed to be a breach of condition. If it’s less serious, it will be as if it were a warranty.

Anticipatory Breach

If a builder by his actions, or expressly declares his intention, beyond a reasonable doubt, that he no longer intends to perform the job or some aspects of it, the homeowner will be entitled to treat the construction contract as ended. The same may be true if the homeowner expresses their intention not to pay.

If the contract is treated as ended when the other party has not breached a condition, the contract is likely to have been unlawfully terminated. However, if there was a breach of a condition which had not then been discovered, it cannot be relied on.

Whatever the circumstances, the innocent party must take reasonable steps to mitigate their losses and will be unable to claim for losses for which reasonable steps to mitigate have not taken place.

It’s quite complex! We advise building firms and clients in all aspects of construction and development, so, when in doubt, give us a call on 0333 700 7676 for free initial advice.