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Parties may end a construction contract without a breach

On Behalf of | Aug 14, 2021 | Firm News

Supply chain shortages and increased costs of building materials may lead to instances of Texas builders canceling their contracts. As reported by Chron.com, a contract’s provisions may allow parties to terminate an agreement by providing written notice.

Construction defects or missed deadlines may also qualify as valid grounds for canceling a contract. If a builder begins work and discovers a supplier provided low-quality materials, parties may have cause for severing the agreement without breaching it.

Contracts containing a termination clause

An investigation by the KXAN news team found several Texas families left with canceled residential construction projects when their builders unexpectedly terminated their contracts. Reporters discovered, however, that including a “Termination of Purchase Agreement” clause gave builders the right to cancel a construction project with or without cause.

It is not uncommon for builders to inspect a site for potential issues such as faulty pipes or a broken drainage system. If a builder determines that backing out of a project costs significantly less than repairing a defective site, a termination clause may permit canceling the contract without penalties.

Possible obligations when terminating an agreement

A contract’s terms may specify the rights and obligations of each party when one of them provides notice of cancellation. Provisions describing cancellation terms may describe how each party may provide the other with limited but reasonable financial relief.

A terminating customer, for example, may incur the responsibility to pay the builder for materials already purchased. An agreement may also outline reimbursing a contractor for labor expenses or the cost of construction permits.

Contracts may need to include a timeframe outlining how and when a party can initiate termination. In some cases, it may appear more reasonable to cancel rather than complete a project. The involved parties may, however, choose to negotiate an amicable outcome to avoid a more expensive termination involving legal action.