Cancelling a Contract

[Scave]

Approximately 2 months ago I entered into a contract with a turnkey bathroom company. I paid a 25% deposit with the intention to proceed as soon as the house was repiled. As a result of the house repiling, there are now some remedial structural works that need to take place. The remedial works will essentially require the entire space to be gutted and re-lined. No such works were included in the scope of the contract. Unfortunatly, as a result of the additional costs, I am no longer in a position to carry out the bathroom installation in the foreseeable future and wish to cancel the contract.

I took a look at the terms of the contract and there is no reference to cancellation.

I have approached the company involved and they are understandably reluctant to cancel the contract. I have made it clear that I am happy to pay for their time to date and potentially some restocking fees if indeed they have purchased any items.

Does anyone know where I stand if the company chooses to either refuse to cancel the contract, or refuses to partially refund the deposit? I have not had a straight forward response from them in weeks!!

[lawt]

In commercial construction it was generally held that a cancellation would cost the client costs incurred so far and the contractor was entitled to claim for lost profits too. This was based on case law.

There are a couple of acts that you may consider, they are the contractual mistakes act and the contractual remedies act, but by my reading of your post they do not appear to apply here.

[Orkibi]

lawyers explain: Whats Happens If I Don’t Settle on Property Purchase.

you need to seek some legal advise!

read this and i hope it would help: Auckland lawyers explain: Whats Happens If I Don’t Settle on Property Purchase.

You’ve declared the agreement for sale and purchase unconditional – or signed an unconditional agreement. Later, you find that you either can’t, or don’t want to, settle. What are you risking?
Common reasons for a purchaser not settling are:
• Finance fell through, or anticipated funding wasn’t available after all;
• “Cold feet”: the purchaser has changed their mind;
• The purchaser discovers problems with the property or the title, or believes that the vendor has misrepresented the property or breached the contract, and no longer wishes to go ahead with the deal.

If a purchaser doesn’t settle due to lack of finance, or they get “cold feet”, then they are clearly in the wrong, and will be at the mercy of the vendor. This also applies to where the vendor has misrepresented something, or committed a breach, but the breach is not sufficiently serious to justify cancelling the agreement. While the vendor gives the purchaser a number of “warranties” under clause 6 of the standard REINZ – ADLS agreement, breach of these warranties gives the purchaser a right to claim damages – but does not give them the right to refuse to settle unless the vendor’s breach is a genuinely serious one.

Grounds for Cancellation

A purchaser only has a right to cancel an agreement (i.e. bring it to an end) without penalty after it has been declared unconditional (assuming that the vendor is otherwise willing, ready and able to settle), if section 7 of the Contractual Remedies Act applies (clause 5.4). This section will only apply if the vendor is seriously in the wrong. There are two alternatives:

1. The truth of the thing represented by the vendor, or the term which has been breached, must have been one which was essential to the purchaser – and the parties must have expressly or impliedly agreed that it was essential. If the purchaser stressed the importance of seclusion and privacy to the agent, and prior to settlement, the vendor removes all the trees on the property which provided the privacy, this could provide grounds for cancellation. Other matters are so obviously essential that it goes without saying, and there is an obvious right to cancel. For example, if the agreement said the property was at 15 Sunrise Ave, but the property actually being sold was the house next door at 13 Sunrise Ave – a totally different building.

2. The effect of the misrepresentation, or breach, is to substantially reduce the benefit, or incrase the burden, or make the benefit or burden substantially different from that represented or contracted for. For example, if the vendor built a house without getting a building consent (a breach of clause 6.2(5) of the standard agreement), and because of the way it has been built, it’s a “leaky building”, this type of breach would justify cancellation if the cost of repairs was significant. On the other hand, a smaller, less costly non-compliance (such as a deck built without a building consent) would only justify damages, not cancellation.
Consequences of Failing to Settle Without Grounds for Cancellation

If the purchaser can’t settle, or refuses to settle, but doesn’t have grounds to cancel the agreement, then the vendor can:
1. Insist that the agreement remain on foot, and claim penalty interest on the unpaid purchase price indefinitely, and / or
2. After the expiry of a settlement notice served on the purchaser under clause 10.1, making time of the essence, either:
2.1 Sue the puchaser for specific performance, requiring the purchaser to buy the property; or
2.2 Cancel the agreement, keep the deposit up to the value of 10 % of the purchase price, and sue the purchaser for damages, if their actual loss is greater than 10% of the purchase price.
Purchaser’s Potential Liability to the Vendor

An important thing for purchasers to realise is that they can potentially be liable to a vendor for more than the deposit they have paid, if the vendor’s loss is greater than this amount. The deposit they have paid is the minimum that a wrongful failure to settle could cost a purchaser.

A purchaser’s liability to a vendor for damages can be a lot more in a falling market, where the vendor may be unable to re-sell the property for a long time, and the property is then re-sold for substantially less than the purchase price shown on the agreement. In this suituation, the measure of damages would be the drop in value on the re-sale, together with penalty interest through to the date of cancellation or resale, mortage interest the vendor was required to pay, the vendor’s expenses and outgoings such as rates, and the vendor’s expenses on the resale. If the property is a residential property, and the vendor has committed to the purchase of another home in the expectation that they can use the sale proceeds from the sale of their property to purchase the home, then the purchaser will also be liable to the vendor for their losses in being unable to settle – which could be greater than 10% of the purchase price on that agreement. A purchaser can be liable to a vendor for other losses as well, provided that the type of loss could have been forseen at the time they signed the agreement. It is even possible for a purchaser’s liability for failing to settle to be as much as, or more than, the purchase price shown on the agreement.

The moral of the story is: do your homework before you sign. Get a lawyer to advise you on an agreement’s terms before you make an offer. Be wary of unconditional agreements. Get a LIM, get a building report, inspect the property yourself, and inspect it again before you settle. And don’t declare an agreement unconditional unless you are certain you are able, and willing, to go through with the purchase.

By: Margaret Matthew, Associate, Rennie Cox
Rennie Cox/Urban Legal
Barristers and Solicitors
AUCKLAND

Source

[Scave]

Thanks for your feedback. Just to clarify - I am only talking about a contract to install a new bathroom in a property that I already own. I wish to cancel the contract as I have incurred unrelated and unexpected costs and it is no longer feasible to install a bathroom of this standard (i.e. cost). The company involved has not started any works onsite but they may have already purchased some of the hardware. I remain hopeful that they will at least partially refund my deposit and I can put an end to the ordeal. I'm trying to establish if they have any legal grounds not to allow me to get out of the contract and/or refund my deposit.

[Keys]

Another one who will not stand by his word. Contracted one at that!

[lawt]

Thanks for your feedback. Just to clarify - I am only talking about a contract to install a new bathroom in a property that I already own. I wish to cancel the contract as I have incurred unrelated and unexpected costs and it is no longer feasible to install a bathroom of this standard (i.e. cost). The company involved has not started any works onsite but they may have already purchased some of the hardware. I remain hopeful that they will at least partially refund my deposit and I can put an end to the ordeal. I'm trying to establish if they have any legal grounds not to allow me to get out of the contract and/or refund my deposit.

That was the subject of my post.
Although I mention commercial construction, contract law is (for the most part) contract law i.e. applicable in all contractual situations.
I say "for the most part" as various consumer laws for example may in some situations over ride cantract law - but I don't see that being the case here.

Oh and as for costs incurred so far, in addition to the possible ordering of materials they would be entitled to claim the costs associated with preparing their quote (even if they advertise free quotations, they are still a cost incurred) and potentially for down time if they had say scheduled your job for a given time and had put off other work to do yours. Not thinking this last point would be likely in this case, just making you aware of it.

[Winston001]

I'm trying to establish if they have any legal grounds not to allow me to get out of the contract and/or refund my deposit.

Yes they do have legal grounds. Its called a contract for a reason. Your (understandable) wish to break the contract is illegal in the civil law sense. Ie. no crime is committed but you are breaching contract law. The restitution for breach of contract is usually forfeit of any deposit.

However most businesses do not want to upset customers and will accept a reasonable compromise. You should try and deal with them face to face, explain your financial hardship, offer a sum they can retain, and politely ask for the balance deposit.

From a legal perspective you are not in a strong position. It is arguable that 25% restitution is excessive which is the course you'd follow in the Disputes Tribunal.

[Wayne]

Another one who will not stand by his word. Contracted one at that!

that's a bit harsh Keys - the circumstances have changes. And they have offer
I have made it clear that I am happy to pay for their time to date and potentially some restocking fees if indeed they have purchased any items.

If I was the company I would take the offer - next time their company may be at the top of the list or Scave may tell all their friends what a fair company they are to deal with. Word of mouth is such a powerful thing - can be the best marketing around.

[garrett]

Approximately 2 months ago I entered into a contract with a turnkey bathroom company. I paid a 25% deposit with the intention to proceed as soon as the house was repiled. As a result of the house repiling, there are now some remedial structural works that need to take place. The remedial works will essentially require the entire space to be gutted and re-lined. No such works were included in the scope of the contract. Unfortunatly, as a result of the additional costs, I am no longer in a position to carry out the bathroom installation in the foreseeable future and wish to cancel the contract.

I took a look at the terms of the contract and there is no reference to cancellation.

I have approached the company involved and they are understandably reluctant to cancel the contract. I have made it clear that I am happy to pay for their time to date and potentially some restocking fees if indeed they have purchased any items.

Does anyone know where I stand if the company chooses to either refuse to cancel the contract, or refuses to partially refund the deposit? I have not had a straight forward response from them in weeks!!

Is the contract you signed a standard form of some kind? e.g. Masterbuild, NZS3910, NZAIA

With most standard form contracts there are provisions within for dealing with matters such as these.

Usually all costs incurred by the contractor to date, plus the the loss of profits on lump sum items can be claimed by the contractor.

They would be foolish to force a contract where the other party signals a change in circumstance early. Your notification to them was the responsible thing to do.

Contrary to the criticism about not standing by a contract (which none of critics have even read), you have acted wisely and fairly. The costs to date and loss of profits offer means the other party has not lost a cent. Not only that but if they manage to pick up another job over that time they get double the profit. It is short sighted and stupid to turn down an offer like that.

If you had pushed ahead with the contract and/or didn't warn the contractor of increased other costs and ran out of money half way through that would have been completely irresponsible and would cost both parties considerably more in disputes.

If you notify the contractor of increased costs and they push ahead with the contract despite your lack of funds they will have little sympathy from an adjudicator or judge when they find out not only were they notified of the change in circumstance but were offered a standard contract cancellation early on at no loss to them but turned it down hoping you'd magic even more money out of thin air.

[garrett]

Another one who will not stand by his word. Contracted one at that!

Very harsh, considering you don't even know the content of the contract.

[Scave]

Thanks again for your responses. The contract is not a standard form, it is just 3 pages with some terms and conditions on it (none of which mention cancellation).
I am expecting an outcome next week. I actually hope to carry out the works in the distant future but in the meantime need to recover as much money as possible.

[Gladdynook]

Hopefully they will take pity on your financial situation and not force you to carry out the work as per the contract. It is entirely up to them however.