Article by Melinda Cooper, Senior Associate, 19 April 2023.
If you are a homeowner and have entered into a contract with a builder, it is important you are aware of the grounds, if any, for you to terminate the contract. Your relationship with your builder may have started off idealistic and positive, much like many marriages, but as time passes by it is not uncommon for disputes to arise. Once that honeymoon period is over, problems with the builder or the building work itself may appear more profound. Unlike a marriage or relationship, you may not have the option to simply ‘divorce’ your builder and go your separate ways. Your ability to terminate the contract and relationship will come down to the terms of the contract.
Two of the most common standard form residential building contracts are the Housing Industry Association (HIA) and Master Builders Association (MBA) BC4 fixed price or lump sum contracts. Both standard form contracts confine the owner(s) grounds to terminate the contract insofar as the owner(s) can only terminate the contract if the builder is found to be in substantial breach or in default of the respective contract.
To illustrate just how narrow the grounds for termination may be, let us consider clause 27.1 of the HIA standard form lump sum contract, which states that a substantial breach of the contract by the builder includes but is not limited to:
(a) If the builder has its license cancelled;
(b) If the builder suspends the carrying out of the building works other than under
Clause 25 of the contract.
In the absence of any common law grounds to terminate the contract, such as a repudiation of the contract by the builder, under the HIA standard form lump sum contract, owners may only terminate the contract if one the builder has met one of the two criteria set out in clause 27.1.
If you find yourself in a situation where you cannot or do not wish to proceed with the contract, for whatever reason it may be, it is important you obtain legal advice. Even if you are considering terminating the contract, it is important that you comply with the terms of the contract until it is brought to an end (through termination). If your relationship with your builder or contractor has broken down, it is all the more important you obtain legal advice before making any representations to the builder about your wishes to terminate the contract.
Terminating a building contract is extremely complicated and, if it is not done correctly in strict accordance with the contract, you may be liable to a claim for damages for wrongful termination. If you require assistance in relation to an existing building contract or wish to obtain advice on a draft building contract, please do not hesitate to contact our office.
The information provided in this article is general information only and should not be relied upon as legal advice or be used as a substitute for obtaining legal advice. Due to the changing nature of this area of law, the law or standard form contracts referred to may have changed after the time this article was prepared.
