How to exit a builders contract ?

Hope someone can help with regards H&L for a first home buyer.

What is the validity of a building contract when a builder enters a contract and takes 5% deposit from a home buyer where the land is not even titled yet?

If the buyer wants to exit the contract can the builder ask for a loss of profit in addition to the 5% deposit?

 

Depends on the terms of the contract. Seek specific legal advice.

 

They would usually just seek to recover costs, soil testing and engineering.
On what grounds do they want to end the contract? If it’s finance related that usually means they can’t buy the land either so the builder won’t have anything to sue.
It’s best to try and nominate the land and the build contract to a new purchaser if that’s the case and everyone’s happy.

 

Thanks.
Only the plans and other admin work done because the land is not ready yet.

 

Why are they trying to exit the contract? Are they trying to lose the land too?

 

It is to change the building design and builder altogether to a different builder.

 

You'll need to be a bit more specific.
1. Is it a HIA contract.
2. Are there interdepency clauses between the land contract and building contract.
3. Is there a separate payment of deposit under the build contract.
4. Has the build contract been dated and signed.
5. Exit which contract, the land or the building contract. They are two separate contracts.
6. Timing requirements of payment of deposit under the build contract, is it upon signing of the building contract etc.

 

Put it on the new builder to organise. If there’s a way, they will find it. Leave it to the party with the most to make from the transaction to organise.

 

Thank you. A good suggestion.

 

Hi @WinterGold

1. Is it a HIA contract?
Yes but there are some added extra clauses to favour the builder.

2. Are there interdepency clauses between the land contract and building contract?
No.

3. Is there a separate payment of deposit under the build contract?
Yes. Only 5%

4. Has the build contract been dated and signed?
Yes.

5. Exit which contract ?
The land or the building contract ? They are two separate contracts.

Only the building contract.

6. Timing requirements of payment of deposit under the build contract, is it upon signing of the building contract etc.

As soon as the 5% was paid , the Building contract was signed.

It is interesting that another suggestion came that the validity of such a HIA contract when a builder enters a major building contract with someone when the said land :
1. Is not titled and not owned by the “buyer”.
2. There is no soil test report or suitability to build and true costs are not aware.

 

Not legally owning a property is no barrier to entering a contract.

 

Yes, in that case it seems the building contract was validly entered into.

If you tried to repudiate, there would be clauses in the HIA specifying that this would be a material breach.

There would also be another clause which would allow the builder to terminate and recover costs of material etc from suppliers and costs of exiting the site.

You'd also have to look at the special conditions.

Your building tender may or may not be a "contract" document so there might also be additional costs involved with additional marketing and admin costs etc that might be forfeited.

The builder would have to justify their costs and damages, if they tried to sue for more than that.

But no, this isn't like a land contract where the builder's could normally seek specific performance.

 

Thanks @WinterGold for your thorough response. There is no soil testing or any site related work done since the developer was not able to title the land yet. Builders work mostly limited to admin work and drawing plans only.