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Published 22 February 2022
The challenges of the past two years have driven a marked increase in the number of property transactions and developments falling into delay, failing to secure funding or simply becoming commercially unviable. Property contracts often contain express provisions entitling the innocent party to terminate in the event of delay, insolvency or breach, particularly where ongoing development obligations are involved. But in the absence of express termination rights, it is still possible for a party to bring a contract to an end for a serious – “repudiatory” - breach.
A repudiatory breach is one so serious that it goes to the root of the contract. Other breaches of contract will not have this effect. If a repudiatory breach occurs, the innocent party can either elect to continue the contract - claiming damages and/or forcing performance of the outstanding obligations - or choose to accept the repudiatory breach and treat the contract as terminated, claiming damages for loss.
It can be tricky to assess whether a breach of contract is repudiatory or not. Property contracts in particular often contain many layers of obligation and it can be difficult to judge whether breach of one obligation (for example failure to progress works) is enough in the circumstances to strike at the root of the entire contract. This uncertainty can be particularly problematic because if a party purports to terminate a contract for a breach, and that breach turns out not to have been serious enough to constitute a repudiatory breach, then the act of termination itself will constitute a repudiatory breach, turning the tables so that the defaulting party could sue the innocent party for wrongful termination. It’s therefore crucial to seek specialist advice before attempting to terminate a contract on this basis.
It's also useful to remember that if you are the party struggling to comply with contractual obligations, the other party may be able to walk away from the contract if the breach is sufficiently serious – there does not need to be an express right to terminate.
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Kai Ricciardiello, Clare Hartley