In 2018, the General Conditions for Works and Deliveries in Construction and Construction (also called AB) were revised and in 2019 it entered into force as AB18. In connection with the revision, several new paragraphs were added and others were clarified.
A construction agreement is usually a very burdensome agreement for the parties, which partly involves many hours of work and a lot of money. It is precisely for this reason that it is important that the parties pay special attention to their rights and duties. This may be a contributing factor to the fact that many business operators in contracting relationships choose to enter into the agreement on AB terms. It ensures uniformity and transparency in rights and obligations, right from tender to handover and a good amount of time afterwards.
Crunch in the relationship
As in all types of contractual relationships, major challenges of one kind or another can arise within contracts, which make one of the parties want to get out of the agreement. As a starting point, it must be said that it is often in the interest of all parties to try to resolve conflicts amicably without canceling the agreement, which the AB terms also encourage.
Sometimes situations can arise that mean that the only reasonable way out is to cancel the agreement. However, it is not entirely clear in which situations one enjoys this right and the consequences of an incorrectly made decision can be great.
The developer’s right to terminate a construction agreement
The developer has the right to terminate a construction agreement if one of four conditions is met. The four conditions can be summarized as follows:
- Delay in the execution of the work of considerable disadvantage
- Other delay of decisive importance
- The lack of quality of the work and a justified belief that the contractor will not be able to remedy the deficiencies satisfactorily
- Other material breach
Although it seems like four simple conditions, it is far from practical. It can be difficult to say with certainty whether a point in the contractual relationship falls under one of these conditions. It must be said that it depends on specific assessments from case to case.
What is fixed is; If the moment concerns a financial disadvantage, a client does not have the right to terminate the contractual relationship if the client can be satisfied in another way, e.g. through security provided or similar.
The consequence of canceling the agreement
If a developer rightfully cancels the agreement, his compensation claim against the other party could contain several parameters. It could, for example, be costs for completing the contract, costs for conversion of work already carried out and in glaring cases where the work already carried out is of such poor quality that it is not usable, the client will be able to demand repayment of the contract sum already paid.
On the other hand, the consequence for a client who withdraws unjustifiably is that the other party will be able to claim his loss covered by not being able to complete the work minus any savings, i.e. after so-called negative contractual interest. A wrong decision can therefore be costly.
Counseling
When a developer can cancel a construction agreement can be difficult to determine and have major financial consequences if you make the wrong choice. It therefore requires careful consideration and not least a thorough review of the legal basis.
We advise in all parts of the contract’s lifetime, both in good times, but not least when challenges and disputes arise between the parties. Do not hesitate to contact us for an informal chat about how you can best deal with disagreements and disputes. Contact us on phone 56 63 44 66 or by email kontakt@dslaw.dk.
By solicitor Nicolai Christiansen
