Home renovations can quickly become stressful when the contractor’s work is defective, incomplete, over budget, or significantly behind schedule. The situation can be especially difficult when the homeowner continues to live in the property while trying to manage construction problems, safety concerns, additional costs, and disruption to daily life.
In serious cases, a homeowner may consider terminating the renovation agreement and hiring another contractor to repair the damage and complete the project. However, ending a construction contract is not always straightforward. A homeowner who terminates too quickly, withholds payment without legal justification, or prevents the original contractor from correcting deficiencies may face a claim for breach of contract.
The key questions are:
- Can you terminate the contract if the contractor’s work is clearly deficient?
- Can you withhold payment if another contractor must be hired?
- Must you give the original contractor an opportunity to fix the damage and complete the work?
The answer depends on the terms of the contract, the nature and seriousness of the deficiencies, the conduct of the contractor, and the steps taken by the homeowner before termination.
Our top Calgary construction lawyers at OP Lawyers LLP handle cases of deficient construction works by builders regularly and can provide expert advice on how to navigate such situations for the best legal outcome.
What is a fundamental breach of a renovation contract?
A construction or renovation agreement is generally a performance contract. This means the contractor agrees to provide particular work in exchange for payment. The contract may include obligations relating to the scope of work, materials, workmanship, project schedule, budget, permits, inspections, and completion dates.
Not every defect or delay amounts to a fundamental breach. Construction work can involve minor deficiencies, incomplete finishing work, or corrections that are capable of being addressed without abandoning the entire project.
A fundamental breach is a breach that goes to the root of the contract. In other words, it must be so serious that the homeowner is deprived of substantially the entire benefit of what they contracted to receive.
In 1314058 Alberta Ltd v Albers, 2018 ABQB 9, the Court explained where a contractor has substantially completed the work, the contractor may still be entitled to payment of the remaining contract price, less the reasonable cost of correcting deficiencies. However, where the contractor has fundamentally breached the agreement, the homeowner may be entitled to accept the breach as repudiation, pay only for the value of the work actually received, and claim damages for the cost of rectifying the renovation work.
The fundamental-breach analysis is fact-specific. It is not enough to show that the homeowner is disappointed with the contractor’s performance. The question is whether the contractor’s failures are sufficiently serious to justify ending the contractual relationship.
1. Can I terminate the contract if the contractor’s work is clearly deficient?
Possibly. However, clearly deficient work does not automatically give a homeowner the right to terminate.
The court will typically consider the overall circumstances, including:
- The seriousness and extent of the deficiencies;
- Whether the work is unsafe or violates building requirements;
- Whether the defects affect the structure or essential systems of the home;
- The cost of repairing or replacing the defective work;
- The proportion of work completed compared with the total project;
- Whether the contractor has abandoned the project;
- Whether the contractor has repeatedly failed to comply with the agreement;
- Whether the contractor has missed important deadlines;
- Whether the contractor has substantially exceeded the agreed budget;
- Whether the contractor has refused to correct known deficiencies;
- Whether the same problems are likely to continue; and
- Whether trust and confidence between the parties has broken down.
Our Calgary construction lawyers at OP Lawyers LLP can assist homeowners in reviewing the original agreement, disputed invoices, communications, and evidence relating to alleged extras and advise on how these legal factors apply to your situation.
Examples of potentially serious breaches may include abandoning a project, performing extensive work in a fundamentally defective manner, refusing to follow approved plans, using materially inferior or unauthorized materials, creating significant water intrusion or structural damage, or repeatedly failing to comply with essential contractual obligations.
By contrast, relatively minor deficiencies, such as incomplete trim, paint touch-ups, isolated cosmetic issues, or small omissions, will generally not justify termination on their own. These problems may instead give rise to a claim for the reasonable cost of correction.
The courts generally prefer an interpretation of the contract that does not deprive a contractor of all payment simply because some defects or omissions exist. Where the contractor has substantially completed the project, the homeowner may have to pay the value of the work received, while pursuing a set-off or counterclaim for the cost of repairing the deficiencies.
Abandonment and repudiation
Termination may be more readily justified if the contractor has abandoned the project or clearly communicated that they will not perform their obligations. A complete failure to perform, refusal to return to the property, or refusal to complete essential work may amount to repudiation of the agreement.
However, a contractor’s temporary absence, delay, or disagreement about a change order may not necessarily amount to abandonment. The surrounding communications and contractual terms are important.
Before treating a contract as terminated, a homeowner should carefully review the agreement and preserve evidence showing what happened. Relevant evidence may include:
- The signed contract and all amendments;
- Project plans and specifications;
- Invoices, payment records, and change orders;
- Photographs and videos of defective work;
- Inspection reports;
- Building or engineering reports;
- Text messages and emails;
- Records of missed deadlines;
- Written complaints and requests for correction; and
- Estimates from qualified replacement contractors.
Our top Calgary construction lawyers at OP Lawyers LLP can assist homeowners in assessing whether the contractor’s conduct may amount to a fundamental breach and whether termination is legally available.
2. Can I withhold payment if I need to hire another contractor?
A homeowner may have a legal basis to withhold or reduce payment in some circumstances, but withholding payment is not automatically permitted merely because the homeowner is dissatisfied with the work.
If the original contractor substantially performed the agreement, the contractor may be entitled to payment for the value of the work completed, even if deficiencies remain. The homeowner may then have a claim for the reasonable cost of completing unfinished work and correcting defective work.
This is sometimes described as a set-off or “back charge.” A back charge may include reasonable costs such as:
- Removing defective materials;
- Rebuilding improperly completed areas;
- Repairing water, electrical, structural, or other damage;
- Completing unfinished portions of the project;
- Obtaining necessary professional inspections;
- Paying a replacement contractor to complete the work; and
- Addressing additional damage caused by the original contractor’s negligence or breach.
The homeowner generally should be able to connect the claimed costs to the contractor’s breach. A replacement contractor’s invoice alone may not establish that every item was caused by the original contractor or that every cost was reasonable.
The homeowner should also avoid treating all unpaid amounts as automatically forfeited. Depending on the circumstances, the original contractor may be entitled to the value of properly completed work, less the cost of correcting deficiencies and completing the contract.
A court may assess:
- The contract price;
- The value of the work properly completed;
- The amount already paid;
- The reasonable cost of completing the work;
- The reasonable cost of repairing defective work;
- Any additional damage caused by the breach; and
- Whether the homeowner acted reasonably to minimize losses.
The homeowner’s decision to hire a replacement contractor can create evidentiary difficulties. As the Alberta Court of Appeal noted in Aski Construction Ltd v Markos, 2017 ABCA 423, determining responsibility for deficiencies can be difficult where the original contractor is prevented from finishing and another contractor is brought in.
For that reason, homeowners should document the condition of the work before demolition, removal, or reconstruction begins. Where appropriate, an independent contractor, engineer, architect, or building consultant should inspect and record the deficiencies.
A homeowner should also be cautious about withholding payment in a manner that could itself constitute a breach of contract. Before stopping payment, it is prudent to obtain legal advice on this matter. Our Calgary construction lawyers at OP Lawyers LLP regularly assists clients to help determine whether an amount withheld is proportionate and supported by the anticipated repair or completion costs.
3. Do I need to give the contractor an opportunity to fix the damage?
In many cases, yes. Whether the homeowner must provide an opportunity to cure the deficiencies depends on the contract and the circumstances, but allowing a reasonable opportunity to correct problems is often an important step.
In Cubbon Building Centre Ltd v Gabrysh, 2020 ABQB 219, the court considered a situation where the contractor remained responsible for rectifying remaining issues. The owner was generally expected to allow the contractor an opportunity to complete fixes and finishing before asserting a reasonable back charge against the amount owing.
This reflects an important principle in renovation disputes: a homeowner should not unnecessarily prevent a contractor from completing work and then automatically charge the contractor for all work performed by a replacement contractor.
The opportunity to correct does not have to be unlimited. A homeowner may be justified in refusing to allow the contractor back onto the property where:
- The contractor has abandoned the project;
- The contractor has repeatedly failed to correct the same problems;
- The contractor has demonstrated incompetence or dishonesty;
- The proposed repairs would likely cause further damage;
- There is an urgent safety or habitability concern;
- The contractor has refused responsibility;
- The relationship has irreparably broken down; or
- The delay involved in giving another opportunity would substantially worsen the homeowner’s losses.
The homeowner should usually provide written notice identifying the deficiencies and requesting a clear plan for correction. The notice should state what must be addressed, provide a reasonable deadline where appropriate, and reserve the homeowner’s contractual and legal rights.
A homeowner should not make unnecessary admissions or issue an imprecise statement that the contract is terminated without understanding the consequences. Depending on the wording, an attempted termination that is not legally justified could itself be treated as wrongful repudiation.
What should a homeowner do before hiring a replacement contractor?
Before terminating a renovation agreement or hiring a new contractor, homeowners should consider taking the following steps:
- Review the contract. Look for termination provisions, cure periods, dispute-resolution requirements, payment clauses, warranty obligations, and provisions concerning changes to the scope of work.
- Document the deficiencies. Take dated photographs and videos. Keep records of damage, unsafe conditions, incomplete work, and disruptions.
- Obtain an independent assessment. A qualified professional may help determine whether the work is deficient, the cause of the problem, and the reasonable cost of correction.
- Notify the contractor in writing. Clearly identify the concerns and request a response or repair plan.
- Avoid destructive work before documenting the evidence. Once defective work is removed, it may become difficult to prove what was wrong or who caused it.
- Keep all invoices and estimates. Replacement-contractor costs should be itemized and connected to the original contractor’s failures.
- Consider safety and urgency. Immediate steps may be required to prevent further damage or protect occupants, but the homeowner should document why urgent action was necessary.
- Obtain legal advice before termination. A construction lawyer can help assess whether the breach is fundamental, whether payment can be withheld, and how to communicate with the contractor.
Conclusion
A homeowner may be entitled to terminate a renovation contract where the contractor’s conduct amounts to a fundamental breach, meaning the breach goes to the root of the agreement and deprives the homeowner of substantially the entire benefit of the renovation.
However, clear deficiencies do not automatically justify termination. Minor or repairable defects may entitle the homeowner to a set-off or damages rather than termination. Similarly, withholding payment may be justified in some circumstances, but the homeowner may still owe the reasonable value of properly completed work.
In most cases, the homeowner should give the contractor a reasonable opportunity to correct deficiencies unless the contractor has abandoned the project, refuses to cooperate, poses a safety risk, or has demonstrated that further work would be futile or harmful. Careful documentation is essential, particularly if a replacement contractor will remove or rebuild the original work.
At OP Lawyers LLP, our Calgary construction lawyers can help homeowners evaluate renovation disputes, assess potential fundamental breach, prepare appropriate notices, document deficiencies, address payment issues, and determine whether hiring a replacement contractor is legally and financially appropriate.
Disclaimer: This blog post is intended for informational purposes only and does not constitute legal advice. For advice specific to your circumstances, please consult a qualified Calgary Construction lawyer at OP Lawyers or another legal professional.