The recent global pandemic has caused not only interruptions to our usual day to day but also disruptions to a wide range of industries. One of those industries in particular is building and construction.  Government mandates in 2020 and 2021 saw forced closures to construction sites, restrictions on the number of workers onsite or in factories and labour shortages due to border closures.

Additionally, it is reported that recent weather events across the globe, such as bushfires and floods, have affected the supply chain and material supplies, including timber. As a consequence, construction materials have reportedly increased by 30% in the last 12 months, causing Australia to experience a significant economic impact to its building and construction industry.

As a result of the industry disruptions, homeowners and building contractors alike have suffered the consequences of the economic and industrial impacts.

We have recently received many enquiries from homeowners entering building contracts who have been hit with price increases to their fixed price building contracts. At the same time, building contractors entered contracts for a fixed fee which, due to the rising costs of the trade, will not cover the costs of carrying out the build.

Both homeowners and building contractors are seeking solutions or wanting to get out of their building contract in attempt to mitigate the issues and new realities that now face the building and construction industry in Australia.

How can you terminate a building contract?

Generally, a party must tread with caution when unilaterally terminating a building contract because, amongst other things, that party may expose itself to a claim for damages if they wrongly terminate, and those damages can be significant, depending on the circumstances.

While there are standard terms and conditions common to many building contracts, no two building contracts are the same.  A contract must be read and considered as a whole in order to properly understand the rights and obligations of each party, including any special conditions.

Usually, there is a strict process that the homeowner or the builder must follow before bringing a contract to an end or declaring that a contract is terminated. By the time a contract is signed and executed, each party would have already invested considerable time and expense to bring that agreement into existence. The contract process enables the parties to communicate before effecting and proceeding with the decision to terminate and will usually follow these steps:

1. First, there needs to be a breach of a term or condition of the contract.
2. Second, a party will need to give notice to the other party specifying the breach (or breaches, if there are many). The notice will usually need to be in writing and sent to the other party in accordance with the notice provisions of the contract. The contract may require that such a notice give the other party an opportunity and specific period of time to remedy or rectify the breach.
3. Third, if the breach is not remedied or rectified within the period of time allowed under the contract, some building contracts may then require a further notice to be sent to the other party of their intention to bring the contract to an end.

Consideration must be made to the particular terms of the building contract to ensure that the process is properly followed.

For example, some building contracts may give a builder the right to enforce or claim a price increase to the contract price, and therefore, entitles them to do so.

Termination of a contract can be a contentious issue because if it is not done properly, it can expose that party to a claim that the contract has been repudiated and a subsequent claim for damages. For this reason, homeowners or building contractors alike should exercise an abundance of caution when seeking to unilaterally bring their construction contract to an end.

Rose Litigation Lawyers has a team of experienced lawyers who are available to assist you in your building contract dispute.