Termination of a Construction Contract

Termination of a Construction Contract

As a principal, the law allows for the termination of a construction contract even if the contractor has committed no fault, compensating them for all expenses, work, and potential profits. However, it is emphasized that this regulation is supplementary law, and the contractor may limit or exclude it through contractual agreement.

Upon termination, the contractor is entitled to compensation covering completed work, preparatory costs, ordered materials, and potential profits. Contractors often include a fixed indemnity clause in their contracts for cancellations, but it must be reasonable and reciprocal, especially in contracts with individuals, according to jurisprudence.

Fixed indemnity clauses must meet strict conditions, particularly regarding the claimed amounts. If they clearly exceed the extent of the damage suffered by the company, they are not allowed. The law also permits the judge to reduce an indemnity clause deemed manifestly unreasonable.

In a B2B situation, a clause exceeding the extent of the damage suffered by the contractor is considered abusive, although the contractor can refute this presumption by showing other favorable contract provisions. Partial cancellation of a construction contract, involving the exclusion of certain works, is also subject to the same rules and risks of compensation. In case of cancellation, it is advisable to negotiate a termination with minimal indemnity and formalize this agreement in writing.