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A contract can be terminated in a number of ways, including by performance, breach, agreement, frustration or by law. In the building industry, contracts are more commonly terminated by performance, breach or agreement.
A contract will come to its natural end when both parties have performed or completed all of their duties and obligations under the contract. A deed is not required in this instance.
An innocent party may terminate a contract, depending on the terms of the contract, as a result of a breach by the other party.
The parties mutually agree to terminate the contract for any other reason. A deed of mutual termination may be used for both a termination by breach and termination by agreement.
A deed of mutual termination is a separate written binding legal document which confirms both parties mutual intention to cancel the original contract.
The deed will bring the parties responsibilities and obligations under the contract to an end and depending on the terms of the deed, will relieve them of carrying out any obligations that would have otherwise arisen under the contract in the future.
A deed of mutual termination should be used when:
The terms of a deed will vary depending on a range of factors such as the stage of works at which termination will occur, any money owing or agreed to be paid, any further works required to be carried out prior to termination or any defects to be rectified.
Below are just some examples of the type of details that should be included:
Background details, known as ’recitals’ are not required for a deed, but can be useful in providing the background to the agreement.
The background details are often used to interpret the parties intention when entering into the agreement.
Accordingly, it is important that the recitals contain the key facts that describe the circumstances leading to the parties agreeing to enter into the deed.
Parties may agree to release and waive one another from any claims relating to the subject matter (i.e. the building contract).
The parties cannot demand performance of any outstanding obligations or claim damages.
A ‘bar to action’ or ‘bar to proceedings’ clause is critical as it prevents the parties from bringing any further action, claim or demands in relation to the terminated contract.
A ‘no waiver’ clause may be included in a deed to allow one party to take action against the other if they have breached the original contract. These types of clauses can have serious implications on you as the execution of the deed does not prevent a claim being made for a breach of the original contract and does not necessarily mean that the matter has come to an end.
We strongly recommend that you seek legal advice in the event you receive a deed with a ‘no waiver’ or similar clause.
Where one party is to pay a sum of money to the other party, there should be clear terms identifying:
A mutual disparagement clause may be important if parties have been involved in a lengthy dispute or the relationship has broken down. This clause prevents either parties from “bad-mouthing” the other or damaging the others reputation.
Generally, the terms of a deed should be kept confidential and this will be stipulated in a confidentiality clause. This requires both parties to keep the terms of the deed confidential and may include the terms of the contract.
Breach of a deed may give the innocent party the right to commence legal proceedings to recover damages for any loss suffered as a result of the breach.
All statutory obligations and warranties provided by a builder to a home owner will continue to apply following the termination of a contract and cannot be contracted out of.
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No matter the size of the job, a watertight building contract is critical to protect your business, and the current climate presents a great opportunity to go digital with your contracts.