Legal Risks of Ending a Contract Wrongly

A building contract can be ended mutually by agreement. It can also be ended where one party to the contract breaches the contract, and the other party elect to accept the repudiation and terminate.

Owner is the defaulting party

Under the MBA ACT Home Building Contract, the builder may end the contract according to clause 28 (The Builder Ending this Contract) if the owner is defaulting party. Clause 28 requires the builder to give a written notice to the owner clearly identifying the default and allowing the owner 5 business days to rectify the default. If the default is not rectified in accordance with the notice, then the builder will be entitled to terminate the contract.

Suspension of Work

Where the default is a failure by the owner to make a progress payment on time, clause 23 of the contract gives the builder the additional right to suspend work under the contract. Members are reminded that the builder can only suspend work under clause 23 if it is the progress payment that the owner fails to pay. The builder cannot suspend the work if the owner fails to pay the costs variation.

Dispute resolution

If a dispute or difference is raised during the course of construction, for instance the owner refuses to pay a cost variation.  The parties must attempt to resolve the dispute in accordance with the procedure of dispute resolution (clause 29) under the contract. A party to the contract must provide a written notice to the other party to signify the starting of the dispute resolution process. If the dispute is not resolved within 20 business days of the notice being provided, either party has the right to take legal proceedings to determine the matter.

Great care must be taken to follow the contractual procedure for ending the contract, and the default to be relied upon should be clear and able to be proven. If a party purports to terminate a home building contract without a proper entitlement to do so, the other party can treat the purported termination as a repudiation of the contract, and terminate itself. The consequences of a wrongful termination are extreme. We strongly recommend that members do not end a building contract without seeking appropriate legal advice first.

If you need any advice in relation to ending the contract, please reach out to our Workplace Relations and Legal Team on (02) 6175 5900.