By Geoff Hardy - 27 May 2019
This situation arises surprisingly often. Occasionally the
builder finds that he has over-committed himself, and doesn't have
the resources to do justice to all the projects he has on the go.
Sometimes that is because the building firm has lost one or more of
its experienced personnel through death or natural attrition. Or
the builder might discover that the property owner is very
difficult to deal with and it is clear that they are going to be at
loggerheads throughout the entire duration of the project. Of
course the property owner might reach the same conclusion about the
builder, and want to be rid of him. Or the property owner might
simply run out of money, or discover that the project is going to
turn out a lot more expensive than anticipated, perhaps because the
site requires a lot of excavation and removal of rock, or the
building contains asbestos which is going to take months to remove
safely.
It may surprise you to know that in general, you cannot simply
change your mind and bring the project to an end, whether you are
the builder or the property owner. A deal is a deal, and in the
case of a building project, the deal is that the builder will build
the whole thing until it is completed, and the owner will pay for
it all. You can understand why the law takes that stance. If a
builder bails out halfway through the project then the building
owner is going to be left with a half-completed structure, and no
guarantee of finding another builder to take up where the last one
left off. And from the builder's point of view, he was counting on
seeing that project through to the end, to feed his kids and keep
his creditors at bay. He has probably turned away work in reliance
on this job continuing, and he won't be able to pick up more work
just like that. Plus, he has probably taken on staff, hired
subcontractors and purchased building materials in the expectation
that it would go the full distance.
However there are some exceptions to the rule. A sophisticated
building contract will allow either party to cancel the contract in
certain circumstances - most commonly where the other party is in
breach of his or her obligations, or has gone bust. Sometimes the
building project can be "frustrated" which in legal terms means it
is no longer possible to perform it - for example if the owner is
unable to obtain resource consent or a building consent from the
Council. Or the parties may be prevented from performing their
obligations because of some "Act of God" or "force majeure" - some
event outside the parties' reasonable control, such as the building
site subsiding into the sea.
Then there are a couple of options that are unique to building
projects. Sometimes the building contract allows the builder to
cancel it if the property owner has failed to make a payment
because of financial difficulties, and the owner doesn't rectify
the default after a lengthy period or provide security for future
payment that is satisfactory to the builder. There is also the
possibility that the property owner might direct the builder to do
what is known as a "negative variation" - in other words to remove
some of the planned construction work so that the project can come
in within budget. However it is highly questionable whether the
property owner could use this device to remove all of the remaining
work altogether - at least without compensating the builder for the
losses it will cause him.
The important point is that cancellation of a building contract
is fraught with risk, and it is not something you should do as a
knee-jerk reaction, at least without the benefit of proper legal
advice.
Contact
Geoff
Hardy