Resource ● Last updated 28 August 2024 ● 7 min read
How to end a domestic building contract
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What is this resource?
This resource is for homeowners in Victoria who have a domestic building contract and want to end their domestic building contract before the planned finish date.
This resource gives you legal information on how to end domestic building contracts properly so that you are not caught by unexpected legal consequences.
Check your contract first
This resource provides general information based on standard form contracts from Master Builders New Homes Contract and the Housing Industry Association (HIA) New Homes Contract.
You should always look at your own contract because it may be different from the information in this resource. If you have another type of contract, please get independent legal advice.
Why is it important to end a contract correctly?
The law makes contracts enforceable. Incorrectly ending a contract carries significant legal risk, including the risk of being sued.
If you do not end your contract correctly, you may have to pay compensation to your builder. If your builder ends a contract incorrectly, they may have to pay you compensation.
A contract can end for different reasons and in different ways. To correctly end a contract, you must:
- Have a right to end the contract; and
- Strictly follow legal processes.
Terminology – ‘termination’ means ‘ending a contract’
Ending a contract before it was planned is called termination.
This resource generally refers to ‘ending a contract’, but sometimes termination is used to be technically correct.
What rights do I have to end a contract?
There are different legal rights that let you end a contract.
- Relying on a contractual right.
- Your contract will have terms and processes that explain when and how you can end the contract.
- Using a right under the law.
- You have additional rights under the law to end a contract.
- You have a right to end the contract for repudiation.
Terminology – ‘repudiation’ means ‘not following through on a contract’
Repudiation is when someone shows an unwillingness or inability to keep the contract going through their words or actions.
If you repudiate a contract, you are not following through on a contract by saying or doing something that makes it clear you are unwilling or unable to keep the contract going.
What is the easiest way to end a domestic building contract?
The easiest way to end a domestic building contract is by following the process in your contract.
You can only end the contract for certain issues. These issues will be in the contract.
Your contract may contain a cooling off clause. A cooling off clause is a section in your contract with a timeframe, called a cooling off period, that lets you cancel the contract without legal consequences. Once your cooling off period has ended, you cannot end the contract if you decide you no longer want to go ahead with building a home.
To end a contract, you need to notify your builder in writing about the issues that must be fixed. This will give your builder an opportunity to resolve the issues without ending the contract.
There are two steps to ending a domestic building contract.
- Give notice explaining the issues you want resolved.
- End the contract if the issues are not resolved.
Terminology – ‘issue’ means ‘breach’
An issue that may give you the right to end a contract is called a breach.
This resource generally refers to issues, but sometimes breach is used to be technically correct.
Giving notice
1a. Which issues will breach a contract?
You can only end the contract for certain issues. Your contract will state the issues that allow you to end your contract.
- Does not give you a copy of their insurance policy or certificate of currency;
- Does not do the building work competently or with due diligence;
- An example could be that there have been serious delays that are not caused by something outside the builders control.
- Unreasonably suspends building work;
- Consistently does not remedy defective work or remove improper materials in a way that negatively impacts the building project;
- An example could be the building surveyor or inspector not being able to sign off on a stage in the building project because of the nature of the defects, causing delays moving forward.
- Consistently not complying with the contract;
- Examples could include that the builder changes the contract incorrectly (see our ‘How to change a domestic building contract’ resource), does not finish work on time according to the contract, does not finish work according to agreed extensions of time, or issuing incorrect payment invoices.
- Is unable or unwilling to complete the building project or abandons the work; or
- This could be because of financial issues.
- Is in substantial breach of the contract.
- A substantial breach needs to be closely connected to the nature of your building contract causing serious consequences. It will always depend on the circumstances. If you think your builder may have substantially breached your contract, seek legal advice to understand if your circumstances are likely to be considered a substantial breach.
Your written notice must describe the issues you want resolved.
You can end your contract if your builder is in substantial breach of the contract. A substantial breach will include if your builder:
- Suspends building work;
- Has their building licence cancelled or suspended; or
- Is otherwise in substantial breach of the contract.
- A substantial breach needs to be closely connected to the nature of your building contract causing serious consequences. It will always depend on the circumstances. If you think your builder may have substantially breached your contract, seek legal advice to understand if your circumstances are likely to be considered a substantial breach.
1b. How do I notify my builder that I want to end a contract?
If there are issues with the building project and you want to end your contract, you need to notify your builder in writing. Your written notice must describe the issues you want resolved.
The written notice must include:
✔ Issues you want resolved and reasons why you want to end the contract. You must describe the breaches of the contract.
✔ Your intention to end the contract if the issues are not resolved.
✔ The timeframe for the builder to remedy the issues. The timeframe will be in your contract.
The written notice may need to be delivered in a particular way.
You must send your written notice via registered post.
Your builder has 14 days from the day they receive the notice to resolve the issues you have identified.
You can send your written notice via registered post, email, fax, or hand delivery.
Your builder has 10 days from the day they receive the notice to resolve the issues you have identified.
Ending the contract
2a. How do I end a contract if the issues are not resolved?
If your builder does not resolve the issues in your written notice, you may be able to end the contract.
It is important that you only end the contract for valid reasons. Incorrectly ending a contract carries significant legal risk.
If you decide to end the contract, you must notify your builder in writing again, telling them you are ending the contract.
If your builder has not resolved the issues in your written notice within 14 days, you can send another written notice stating you are immediately ending the contract.
Your second written notice must be sent via registered post.
If your builder has not resolved the issues in your written notice within 10 days, you can send another written notice stating you are immediately ending the contract.
Your second written notice can be sent via post, email, fax, or hand delivery.
2b. Who covers the cost of ending a contract?
If you end your contract correctly, there will be outstanding costs in your contract. You must pay the builder for work that has already been completed.
There will most likely be incomplete work that needs to be finished. If you engage a new builder to finish the building project, this will affect the outstanding costs.
If you hire a new builder to complete the works and it costs more than the outstanding balance of your original contract, your original builder will have to pay the difference.
For example, you terminate your contract at the end of the lock-up stage. Under your original contract, you had $105,500 left to pay for the fixing stage and the completion stage. When you enter into a new contract to finish the fixing stage and the completion stage, it now costs $117,800. This might be because of inflation or because of defects that have to be fixed in the original work. You can ask the original builder to pay you the difference between the outstanding balance in the original contract and the new contract, which is $12,300.
If you hire a new builder to complete the works and it costs less than the outstanding balance of your original contract, you will have to pay the difference to your original builder.
Any outstanding costs in your original contract will be suspended for a reasonable time until you can find another builder to complete the building project and fix any defects.
If you hire a new builder to complete the works and it costs more than the original contract, your original builder will have to pay the difference. You must notify them in writing, and they will have 7 days to pay the difference.
If you hire a new builder to complete the works and it costs less than the original contract, you will have to pay the difference to your builder immediately.
2c. When can’t I end a contract?
You can’t end the contract in some circumstances, including when you are in substantial breach of your contract as well.
You can’t end your contract unreasonably or vexatiously. An example of this may be that it is unreasonable to end the contract if 14 days have passed, but your builder has started to remedy the issues in your written notice.
You can’t end your contract if you are also in substantial breach of your contract. An example of this may be that you are not paying invoices, not allowing access to the property, or you have moved into the property.
You can’t end your contract if you have not paid an invoice. Your builder may suspend works if you have not paid an invoice. Suspending works in this case will not give you a reason to end the contract.
You can’t end your contract if you are also in substantial breach of your contract. Your builder may suspend works if you are in breach of the contract. Suspending works in this case will not give you a reason to end the contract. An example of this may be that you are not allowing access to the property, or you have moved into the property.
Can I end a domestic building contract under the law?
You have additional rights under the law to end a domestic building contract. You may be able to end a contract if:
- Your contract price increases significantly; and/or
- There is a long delay to the building project.
To end a contract under the law, you must notify your builder in writing about the reason you want to end the contract.
Your builder cannot contract out of these rights. This means your builder is not allowed to include contract terms that contradict, change, limit, or ignore your right to end the contract for the reasons described below.
You must have a ‘Major Domestic Building Contract’
To end your contract for reasons under the law:
✔ Your building contract must be over $10,000.
This is based on the price you agreed to when you first signed the contract.
Giving notice
1a. What reasons can end a contract under the law?
You must explain the reason why you want to end the contract in a written notice.
You can only end your contract for a price increase or delay if you meet the requirements set out in the law.
You may be able to end the contract if your builder increases the price of the building project by 15% or more.
✔ This applies if your builder could not have anticipated the price increase when you signed the contract.
The 15% increase is based on your original contract price. For example, if your original contract price is $100,000, a 15% increase is $10,500. If your builder increases the overall contract price to $110,500 or more after the date you signed the contract, you may be able to end your contract because of price increase.
There are some costs that will not be included in the 15% increase. These will generally be costs that depend on your decisions. Prime cost items, provisional sums and variations are calculated separately.
- Prime cost items: may include things like doors, taps, carpet, or tiles that you want to choose yourself because of the design or quality.
- Provisional sums: may include a bath and its installation, or a hot water system and its installation.
- Variations: any agreed changes made to the contract after it is signed.
Prime cost items and provisional sums cannot always be priced accurately when a contract is signed so your builder will estimate their cost. The estimated allowance will not be included in the 15% price increase to give you a reason to end the contract.
You may be able to end the contract if your builder does not finish the building project within 1.5 times the period it was meant to finish.
✔ This applies if your builder could not have anticipated the delay when you signed the contract.
🗙 You cannot count delays that you caused in the building project towards the increased time. Examples could include if you failed to pay invoices on time and the works were suspended as a result, or you did not give your builder information they needed on time.
The 1.5 times the period is based on your original contract timeframe. For example, if your original contract timeframe is 12 months, 1.5 times the period is 18 months, so if your builder does not finish the building project within 18 months from the date you signed the contract, you may be able to end your contract because of delay.
There are some delays that will not be included.
- If it takes extra time to carry out prime cost items or provisional sums (flexible costs in your contract), this time does not count.
- Extra time taken because your contract is varied (formally changed after you first signed the contract), this time does not count.
If you want to change your contract, you may find our ‘How to change a domestic building contract’ resource helpful.
1b. How do I notify my builder that I want to end a contract under the law?
If you meet the requirement under the law and want to end your contract for price increase or delay, you need to notify your builder in writing.
The written notice must include:
- Your intention to end the contract under the law (section 41 of the Domestic Building Contracts Act).
- Reason for ending the contract, including how you meet the requirements.
- Your signature.
- The date you choose for the contract to end.
Ending the contract
2. How does a contract end under the law?
When your builder receives the written notice, they will need to leave the property and you must pay for work completed.
After your builder receives the written notice, you can expect them to leave the property.
Your builder must leave the property as soon as reasonably practicable. This may include returning any keys you have given them and removing building materials or equipment from the property.
If you end your contract correctly, there will be outstanding costs in your contract. You need to pay a reasonable price for the work that has already been completed.
Reasonable costs will be calculated based on your contract. Your builder cannot receive more than they would under the contract.
Seek legal advice
If you are thinking about ending your domestic building contract under the law, seek legal advice to understand if your circumstances are likely to be eligible.
Can I end a contract for repudiation (not following through on a contract)?
You or your builder can end a contract for repudiation.
Repudiation is when the other person is unwilling or unable to keep the contract going. The other person will not follow through on a contract by saying or doing things that makes it clear they do not want to or unable to keep the contract going.
If you or your builder repudiate the contract, this gives the other person:
- A right to end the contract; or
- A right to enforce it. Enforcing the contract means the person does not use their right to end the contract and decides to keep the contract going.
If you or your builder try to end the contract when you don’t have a legal right or do not strictly follow legal process, this is known as wrongful termination. One way that you or your builder may repudiate a contract is by wrongful termination.
Disputes about repudiation are resolved on a case-by-case basis. This generally means that you and your builder must go to the Victorian Civil and Administrative Tribunal (VCAT).
Incorrectly ending a contract or repudiating a contract carries significant legal risk because you may have to pay for the builder’s losses, and it can be expensive and time consuming to go to court.
Terminology – ‘wrongful termination’ means ‘ending a contract incorrectly’
Ending a contract before it was planned is called termination.
Ending a contract when you do not have a legal right to end a contract, is called wrongful termination.
When will a contract end for repudiation?
Repudiation will always depend on the circumstances. If you think your builder has repudiated your contract, or you think you may have repudiated your contract, you can apply to our Domestic Building Legal Service for legal help. For more information about where to start for a domestic building legal dispute, you may find helpful our flowchart about navigating domestic building disputes.
Consequences of repudiating a contract
If you repudiate a contract, you may have to pay the builders losses. This can include paying for work they’ve already done on the building the project, the cost of materials already bought or the amount of profit the builder would have earned if they had finished the building project.
If you do not pay, the builder will likely go to VCAT against you. At VCAT, it will be decided whether you did repudiate the contract and if so, how much money the builder is entitled to.
The builder can also insist that you continue the contract. If you don’t agree, the builder can go to VCAT against you and ask VCAT to require you to continue the contract.
If your builder repudiates your contract, you can choose whether to:
- Accept your builder’s repudiation and use your right to end the contract immediately; or
- Insist that your builder completes the building project by keeping the contract going.
The circumstances of not following through or incorrectly ending a contract, and working out compensation, is decided on a case-by-case basis. To resolve a dispute, you will most likely need to go to VCAT. At VCAT, it will be decided whether the builder did repudiate the contract and if so, how much money you are entitled to.
If you accept your builder’s repudiation and decide to end the contract, you can ask your builder to pay for your losses.
Your losses may include the cost of hiring another builder to finish the building project or related expenses, such as rental costs while you wait for the project to be completed.
If you want to claim your losses from your builder, you may find our ‘What can I claim in a building dispute at VCAT’ resource helpful.
If you choose to keep the contract going, it may be difficult to make your builder finish a building project they don’t want to complete.
If the builder doesn’t agree to you asking them to continue the building project, you may have to go to VCAT against them, and ask VCAT to order the builder to continue the works. VCAT will decide the matter on a case-by-case basis. Going to VCAT can be a long and expensive process, and VCAT may not make the orders you ask them to make.
Seek legal advice
If you think you or the builder has repudiated your contract, seek legal advice to understand if your circumstances are likely to be considered repudiation.
Can I end a contract for repudiation (not following through on a contract)?
There are other circumstances when both you and your builder can validly end a contract.
- Where you or your builder cannot get planning or building permits.
- Where you or your builder are insolvent.
- When your builder needs to change the contract because of a mistake in the plans or specifications.
Terminology – ‘insolvent’ can mean ‘bankrupt’ or ‘in liquidation’
Being insolvent describes not being able to pay your debts.
- A person who is insolvent may be declared bankrupt.
- A company may go into liquidation when it can no longer pay its debts.
Unobtained permits
If the necessary planning and/or building permits are not obtained, you or your builder may have the right to end the contract.
Both you and your builder have the right to end a contract if the necessary planning and/or building permits are not obtained within 60 days from when you first signed the contract. A written notice must be sent to the other person.
You may need to pay your builder to cover their services and expenses during this time.
If you or your builder want to end the contract because planning and/or building permits are not obtained, a written notice must be sent to the other person.
Your contract will specify a timeframe for obtaining planning and building permits. This timeframe will be agreed to when you first signed the contract.
- If neither of you are at fault for not obtaining permits, both you and your builder have the right to end the contract within 14 days from the end of the timeframe. A written notice must be sent to the other person.
- If your builder is at fault for not obtaining permits, you have the right to end the contract within 14 days from the end of the timeframe. You must send a written notice to your builder. You may also be able to recover part, or all, of your deposit from the builder.
- If you are at fault for not obtaining permits, your builder has the right to end the contract within 14 days from the end of the timeframe. Your builder must send you a written notice.
If your builder is not at fault, you may have to pay the cost of any services they carried out and expenses during this time. Costs may include a percentage of their profit margin and overheads that was agreed when you first signed the contract. This will be 20% if no other percentage was negotiated.
Insolvency
If you, your builder, or your builder’s company, experience financial difficulties or insolvency, you or your builder may have the right to end the contract.
There is an exception that may apply if your builder is a company that is experiencing financial difficulties. This exception is called the ipso facto regime. If your builder is a company, you can look up Australian Securities and Investments Commission (ASIC) register to check the financial status of the company.
If you want to learn more about your options if your builder is insolvent, you may find our ‘What if my builder has dies, disappeared or become insolvent?’ resource helpful.
You or your builder can end the contract if the other is insolvent, becomes bankrupt or experiences financial difficulties affecting their ability to meet the financial obligations of the contract.
The person ending the contract must send a written notice via registered post. The written notice must explain why the contract is ending.
If your builder is a company, the ipso facto regime may apply (see below). The ipso facto regime supports companies experiencing financial difficulties to resolve their issues without going into liquidation. If your builder goes into liquidation, this exception will not apply.
You or your builder can end the contract if the other becomes bankrupt or has a receiver or liquidator appointed/enters an administration process to arrange for debts to be paid.
You or your builder must send a written notice by registered post. The written notice must explain why the contract is ending.
If your builder is a company, the ipso facto regime may apply (see below). The ipso facto regime supports companies experiencing financial difficulties to resolve their issues without going into liquidation. If your builder goes into liquidation, this exception will not apply.
If your builder is a company the ipso facto regime may apply.
- If you’re not sure if your builder is a company, check your contract first.
- If you’re not sure if your contract is with a company, or another type of business such as a sole trader or partnership, check the Australian Securities and Investments Commission (ASIC) register.
It will depend on the nature of your builder’s company’s financial difficulties and the steps they are taking to resolve these issues. Your builder’s financial difficulties may not be serious enough to give you the right to end a contract. The company may be protected by the law (Corporations Act 2001 (Cth)).
Where the ipso facto regime applies, your right to end the contract will be paused in certain circumstances:
- Your builder’s company has gone into voluntary administration. This means that the builder’s company is in financial difficulties. An administration process will recommend what happens to the company.
- Your builder’s company has gone into receivership. This means that the builder’s company owes someone money. An administration process will arrange for this debt to be paid.
- Your builder’s company is undertaking a process to avoid insolvency. This means that the builder’s company is in financial difficulties. An administration process will help restructure their finances to avoid voluntary administration or liquidation.
This exception applies if the only reason you want to end the contract is because of your builder’s company’s financial difficulties.
When your builder needs to change the contract because of a mistake in the plans or specifications
If the builder finds a mistake in the plans or specifications, they must tell you as soon as possible. You will have 7 days to tell the builder how you want the problem to be solved. If you don’t respond to the builder, they can decide themselves.
If extra costs are required as a result of the change and you don’t agree to the change, you or the builder can decide to end the contract.
The right to end a contract in these circumstances only applies if you have a HIA New Homes Contract.
You or your builder can end the contract if:
- Your builder sends you a written notice to change to the contract (a variation request notice) because of an issue with the plans and specifications, that will increase the contract price; and
- You do not consent to the change within 7 days.
If you do not consent to the changes within 7 days (consent period), your or your builder can end the contract.
Your or your builder must send a written notice to the other person within 14 days of the consent period ending.
If your builder is not at fault for the mistake in the plans or specifications and the contract is ended, you may have to pay the cost of any services they carried out and expenses during this time.
Costs may include a percentage of their profit margin and overheads that was agreed when you first signed the contract. This will be 20% if no other percentage was negotiated.
If the builder is at fault for the mistakes in the plans and/or specifications, then they are not allowed to claim extra costs.
Key Terms
| Legal Term | Meaning |
|---|---|
| Bankrupt | A person who is unable to pay their debts. |
| Breach | An issue that may give you a legal right to end a contract. |
| Insolvent | A person or company that cannot pay their debts. |
| Liquidation | A company goes into liquidation when it can no longer pay its debts. |
| Repudiation | Not following through on a contract through words or actions. Showing an unwillingness or inability to keep the contract going. |
| Termination | Ending a contract before it was planned. |
| Wrongful termination | Ending a contract when you do not have a legal right to end a contract. |
A list of building definitions can be found on the Consumer Affairs Victoria Building definitions website.
This resource was last updated on 28 August 2024. This is legal information only and does not constitute legal advice. You should always contact a lawyer for advice specific to your situation. Please view our disclaimer for more information.
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