Suppose you own a commercial building, and intend to lease it to a number of tenants. Before you do, you need to make a number of improvements and hire a contractor.
The contract between you and the contractor is expected to last for approximately one (1) year. About seven (7) months into the contract, you notice a number of problems with the contractor’s work:
- there are numerous water leaks;
- the exterior painting is sloppy, incomplete and incorrectly applied; and,
- there are multiple cracks in the flooring.
These errors, known as deficiencies in the construction industry, can range between the severe (leaks in a roof) and the less severe (the painting is incorrect). Many times, an owner in this situation will become extremely frustrated with the contractor and consider terminating the contract. The question is — is this legally permissible?
In general, a contractor will always have the right to repair a deficiency. In other words, an owner cannot terminate a contract without giving the contractor a reasonable opportunity to repair the deficiency. If the owner terminates the contract without doing so, then if the owner hires another contractor to repair the original contractor’s work, that owner cannot seek costs from the original contractor for the costs it incurred to make the repairs.
There is one major exception to this rule: if a deficiency is so serious that it prevents an owner of substantially receiving the whole benefit of the contract, which is known in the legal industry as a ‘fundamental breach’, then an owner (1) is entitled to terminate the contract without giving the contractor an opportunity to repair the deficiency, and; (2) can sue that contractor for all of the costs it incurred to repair the deficiency. Whether something is considered a fundamental breach is a judgment call based on the facts of the particular case. For example, although painting the exterior of a commercial building may not be fundamental to the construction of the building as a whole, the opposite may be true if an owner hired the painter directly, and it was the painter’s only job to paint the exterior wall. Therefore, before terminating a contract because of a deficiency, always consider whether the deficiency is so fundamental that it entitles you to terminate the contract without giving the contractor a reasonable opportunity to repair.