When an ACT Builder Can Lawfully Terminate a Building Contract

What it is

Termination is the point where a builder stops work and treats the contract as at an end. Get it right and the builder recovers the value of what was built. Get it wrong and the builder becomes the party in breach, wearing the cost of a job someone else finishes.

In the ACT the margin for error is wider than most builders assume, because the Territory supplies almost none of the rules.

The Building Act 2004 gives the builder no statutory right to walk

Part 6 of the Building Act 2004 (ACT) is the residential contract part. It runs from s 84 to s 127AC and carries the part 6 definitions, the statutory warranties, the standard conditions power, defective building work, residential building insurance, latent defects insurance, the approved fidelity fund schemes and the consumer representative. It contains no termination provision. Neither party gets a statutory right to end the contract, and neither gets a statutory procedure for doing it.

The ACT does not even require the contract to mention termination. Section 89C lets a regulation prescribe standard conditions, but none has ever been made, so there is no prescribed termination clause to include or omit.

That is not the national pattern. Victoria gives a builder a statutory right to end a domestic building contract in defined circumstances. New South Wales requires every large contract to state that it may be terminated in the circumstances provided by the general law, and that the parties may agree additional grounds. The ACT requires nothing. Whatever the contract says is the entire law of termination on that job.

The contractual grounds and the notice that makes them stick

Because the ground has to come from the contract, a workable clause carries the usual list: substantial breach by the owner, failure to pay a properly claimed progress payment, failure to give access to the site and the owner's insolvency.

The procedure matters more than the ground. A standard clause requires written notice specifying the breach and a period to remedy it, or a show cause notice, before any right to terminate arises. That step is not decoration. Terminating without serving it means ending the contract with no contractual right to do so, which is itself a repudiation. The builder who thought they were enforcing the contract has just breached it, and the owner can accept the repudiation and claim the cost of completion.

Repudiation and what the builder can recover

Separately from the contract, a builder can accept an owner's repudiation at common law where the owner's words or conduct show an unwillingness or inability to be bound. Refusing to pay anything further and locking the builder off the site are the usual candidates. The bar is high and the risk is asymmetrical, so the contractual notice route is safer.

On a valid termination the builder recovers the value of work performed to the date of termination plus whatever the contract gives. What does not go away is the s 88 statutory warranties on the work already done, which run for 6 years on structural elements and 2 years on the rest.

The insurance point that decides the real outcome

This is the part both sides miss. ACT residential building work insurance covers the owner against being unable to enforce or recover under the contract because of the insolvency, disappearance or death of the builder, and s 90 (3) says in terms that a policy may exclude claims other than those three. A builder is taken to have disappeared only if, after proper search and inquiry, they cannot be found in Australia.

So a solvent builder who walks off a job triggers no cover at all. The owner is left suing the builder. The minimum cover is $200,000 and a claim must be made within 180 days, but neither figure helps when the trigger never fires. Deposit loss recovery is capped at $10,000 and arises only on insolvency.

The registrar can reach you for 10 years, and reach the directors

Walking away does not close the file. The Construction Occupations Registrar can make a rectification order up to the end of a 10-year period running from the later of the day the offending act happened or ended and the day a certificate of occupancy was issued. Where the order is against a corporation the registrar may also order a director. If the company is wound up or deregistered before the order is made, the registrar can order the people who were directors when the service was provided, personally, including making them pay a licensed person to do the work.

Where the fight lands

ACAT hears civil disputes up to $25,000. Above that the parties must agree in writing or the applicant abandons the excess, which on a terminated build usually means the Magistrates Court. Serve the notice. Keep the file.