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Understanding your rights and obligations in terminating a building contract

Posted by Mario Rashid-Ring, Greta Koshy on 27 Jul 2021

The recent decisions of the Appeal Panel in the NSW Civil and Administrative Tribunal emphasises the consequences of invalidly terminating the home building contract. If you are an owner, it is essential that you understand your rights and obligations with respect to terminating a contract.

Facts 

The Respondent, Redmyre Group Pty Ltd (Builder), carried out building works to renovate and restore a 4-storey residential terrace of historical interest in the inner-Sydney area for the Appellants, Nandini Patel, Harsh Jain and Jainco Services Pty Ltd (Owners).

The contract stated practical completion was to be achieved in 32 calendar weeks from commencement of the works, being 27 July 2018. The works did not achieve practical completion by this date.

On 20 February 2019, the owner issued a show-cause notice demanding a schedule of works and an estimated time for completion from the builder within ten days, failing which the owners intended to terminate the contract.

On 7 March 2019, the owners issued a notice of termination with immediate effect due to the builder’s alleged breach of the contract and statutory warranties and noting the owners were reposing the site and would change the locks.

On 4 April 2019, the Builder responded to the owners noting the builder’s intention to rectify the defects and seeking access to the site. The owners did not provide access.

The owners alleged that the builder failed to progress the works with due diligence and claimed $215,683 for the incomplete works and $130,000 in delay damages.

The builder submitted that the delay was beyond the builder’s control and due to several factors, including:

  1. the requirement for experienced trades such as heritage consultants to be engaged;
  2. the owner’s directly delayed the builder undertaking the works (e.g. the builder had to wait for work to be completed by separate contractors engaged by the owners at the site);
  3. variations to the initial works.

Decision 

The Senior Member (G Blake) said that he was not satisfied that letter of 20 February 2019 was a valid notice as contemplated by clause 25 of the contract because

  1. the owners had not established that the builder had failed to proceed with the works diligently in breach of the contract;
  2. the builder did not have an obligation under the contract to provide a schedule of works and estimated time for completion.

Further Senior Member found that the owners repudiated the contract in their letter dated 7 March 2019, but the contract remained on foot as the builder had not terminated it given its later request to return to the site to rectify the defects.

Senior Member rejected the owners’ claim for damages for delay and incomplete works noting the owners’ failure to mitigate its loss and provide the builder reasonable access.

Appeal Panel 

The Appeal Panel (F Marks Principal Member & D Robertson Senior Member) agreed with the Senior Member and rejected the owners grounds of appeal.

The appeal was dismissed, with the owners ordered to pay the costs for the builder.

Key Take Away

The decision is a reminder to the owners’ seeking to terminate a building contract:  

  1. to ensure any contractual notices issue to terminate a contract are not outside the terms of the contract;
  2. an owners may need to prove that a builder had not proceeded with due diligence;  
  3. there is an obligation on the owners to mitigate loss and a duty to allow reasonable access to the builder and not interfere with the works.

If you require any assistance or if you have any questions relating to the above, please do not hesitate to contact a member of Coleman Greig's Building & Construction team, who would be more than happy to assist you.

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