So you are a property owner or a builder, but your project has gone sour and you want to get out of it by terminating the contract.
There are three potential legal sources which can enable you to do so. One of these, the common law, can give you such a right. Beyond that, the contract itself is probably the most common legal source to get out of the contract, and perhaps less commonly, legislation may give you the right.
A critical point to make if you rely on a contractual right of termination is that you need to follow any procedure set out in the contract as to termination, such as proper notice. If you don’t, you yourself could have breached the contract and you could be sued and be made to pay damages.
With rehard to contractual termination, where often the contract sets out how to terminate, it is also often says in what circumstances valid termination can occur. Of course, once the parties have performed their obligations, the contract is ended. Sometimes, contracts can be terminated automatically where, for example, a set condition is not fulfilled. The consequences of this can be provided for in the contract, or they can be resolved between the parties in a dispute resolution procedure, or sometimes litigation is the route taken.
Serious contract breaches can give the right of termination of a building contract, with examples of such serious breaches including not making a payment which is due, not supplying building materials on time or not supplying the correct quantities of materials to a large degree or proportion. While you may have the right to terminate, you have a choice whether or not to do so. You can chose not to terminate and insist on performance from the other party.
Less serious breaches of a contract (such as a warranty) may not however, give you a right to terminate. They may only give you the right to damages from the other party. So if you were to terminate in such a case, you would risk being sued for contract breach.
There is a third category of contract breach called a breach of an intermediate term. The result of such a breach depends on the consequences for the non-breaching party, the exact nature of the breach, and the type of contract entered into. So it must be a serious breach and or serious consequences for the non-breaching party if such a breach is to give the legal right to terminate.
You will also have the right to terminate the contract if the other party to the contract shows an intention to not abide by the contract. This is where disputes can occur. Often, the non-breaching party argues the other party is showing expressly or implicitly that they will not or are not abiding by the contract’s terms. But the allegedly breaching party says it has the right to do what it did, as the other party for example is suspending or has suspended its obligations. Back and forth and back and forth we go, with each party saying they are acting as they should, or as the law allows. This is a fertile ground for lawyers to be involved in building contract resolution.
As mentioned, the common law – and often the contract itself – allows a party to have a right to terminate. So the two sources of termination right can co-exist and can both provide a termination right.
The non breaching party can accept the other party’s repudiation of its obligation and if it does so, the contract is terminated upon the acceptance of the repudiation. Or the non-breaching party can insist on performance as stated earlier, and if this is not forthcoming, they can sue for damages, loss of profits foregone and/or terminate.
A less common means to enable one to terminate a contract is to be provided such a right by legislation. Probably the most common such right is the consumer protection law: the follow on from the old Trade Practices Act, the Competition and Consumer Act. This piece of legislation can allow, when breaching a consumer guarantee such as use of due and skill in supply of goods and services, or where the goods or services are not fit for their specified or even obvious purpose, termination of a building industry contract.
Some of the terminology in this area, let alone the law in this area and its complexities, can be quite unfamiliar and at times downright confusing. Proper advice should be sought if you are uncertain about any such issues you may confront.
Critically, and finally, if you are in any doubt as to a possible right to terminate any sort of building contract in the widest sense of the word, don’t do it. Get advice first. And terminate correctly, and ‘cross’ your t’s and ‘dot’ your Is. It is simply not worth it to do otherwise.