Withholding payment or ending a contract with a builder: the risks

Two steps in a builder dispute carry more legal risk than any others: holding back money, and telling the builder not to come back. Both can be lawful. Both can also turn the customer into the party in breach. This guide explains how the law of England and Wales treats each step, for homeowners and small businesses dealing with a builder or tradesperson. See also the overview of what happens when a contractor walks off the job.

Withholding payment: start with the contract

A sum that has fallen due under the contract is a debt. Whether a stage payment is due depends on the payment terms. Arguments about extras are covered in quotes, estimates and extras. Where a sum is due, the law recognises three main grounds for paying less than the builder asks.

Abatement: paying less because the work is worth less

Abatement is a defence to a claim for the price, available where work has been performed defectively. In Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2006] EWHC 1341 (TCC), Jackson J set out its limits:

• The measure is the amount by which the defects have reduced the value of the work. The cost of remedial work can be evidence of that, but is not itself the measure.
• It can never exceed the sum that would otherwise be due to the builder.
• It does not cover delay, disruption, or damage to anything other than what the builder built.

Set-off: bringing a cross-claim into account

Set-off is wider. It brings a claim for damages (a cross-claim) into account against the builder's bill, including losses abatement does not reach. The test, as restated by the Court of Appeal in Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667, is whether the cross-claim is so closely connected with the builder's demand that it would be manifestly unjust to enforce payment without taking it into account.

If a court later decides the defects or losses were worth less than the sum withheld, the difference was owed.

The consumer's right to a price reduction

A consumer (an individual acting for purposes wholly or mainly outside their trade or business) has a further, statutory route. Under the Consumer Rights Act 2015 a trader must perform a service with reasonable care and skill (section 49). If the service does not conform to the contract, section 54 gives the consumer two rights: repeat performance (section 55) and a price reduction (section 56). Under section 56:

• the reduction is 'an appropriate amount', and may, where appropriate, be the full price;
• a consumer who has both rights is entitled to a price reduction only if repeat performance is impossible, or the consumer has required it and the trader has not done it within a reasonable time and without significant inconvenience to the consumer.

The Act sets no formula for 'an appropriate amount'. Section 54(7) confirms that other remedies remain open, including relying on the breach against a claim by the trader and exercising a right to treat the contract as at an end. See your rights under the Consumer Rights Act when a builder does poor work.

Ending the contract: which breaches are serious enough

Every breach of contract gives the innocent party a claim for damages. Only some also allow that party to treat the contract as at an end. Contract terms are of three kinds:

• A condition is a major term. Any breach of it entitles the innocent party to end the contract.
• A warranty is a minor term. No breach of it does; the remedy is damages only.
• An innominate term is neither. Whether the contract can be ended depends on how serious the consequences of the breach are. The test, from Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, is whether the breach deprives the innocent party of substantially the whole benefit the contract was intended to give them. Most terms are now regarded as innominate.

A breach that entitles the innocent party to end the contract is called a repudiatory breach. A builder who makes clear that they will not perform the contract at all is the plainest example. In Eminence Property Developments Ltd v Heaney [2010] EWCA Civ 1168 the Court of Appeal put the question as whether, looking at all the circumstances objectively, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract.

Delay and 'time of the essence'

Time is 'of the essence' when finishing by a date is a condition, so that missing it allows the other side to end the contract. Cartwright Pond Ltd v Wild [2021] EWHC 1600 (TCC) concerned works to modernise a house. The court held that variations, with no mechanism for extending time, meant the builder's obligation became to complete within a reasonable time, and that time for completion was not of the essence. The court referred to the textbook rule that delay where time is not of the essence does not amount to repudiation unless it shows the builder will not, or cannot, carry out the contract, or it deprives the customer of substantially the whole benefit of the contract.

In Shawton Engineering Ltd v DGP International Ltd [2005] EWCA Civ 1359, the Court of Appeal said that a party owed completion within a reasonable time could lawfully end the contract for delay only by giving reasonable notice making time of the essence, or by showing a breach grave enough to deprive it of substantially the whole benefit of the contract.

The central risk: ending the contract without the right to

A customer who shuts the builder out without being entitled to may be the one who has repudiated. In Cartwright Pond, the court found culpable delay and defective work by the builder, but not enough to amount to repudiation. The homeowner's failure to permit the builder to return to site, or to confirm that she was willing to, was itself a repudiatory breach, which the builder accepted. The builder is then the innocent party, with a claim for damages.

Accepting a repudiation

A repudiatory breach does not end the contract by itself. The innocent party chooses whether to accept it and treat the contract as over, or to affirm the contract and keep it alive. In Vitol SA v Norelf Ltd [1996] AC 800, Lord Steyn said that acceptance requires no particular form, but the communication or conduct must clearly and unequivocally convey to the repudiating party that the contract is being treated as at an end. In Cartwright Pond the court held that, even if the builder had been in repudiatory breach, the homeowner had not conveyed that clearly and unequivocally.

Termination clauses in written contracts

Written building contracts often contain their own termination clause, with notice steps. The Joint Contracts Tribunal (JCT) publishes standard forms, including contracts written for home owners. Such a clause has to be operated on its own terms. In Bellis v Sky House Construction Ltd [2023] EWHC 1473 (TCC), a homeowner having an extension built under a JCT Minor Works contract sent a warning notice and then a termination notice. The clause required the default to continue for seven days first. The court held that this meant seven clear days, that the termination notice was sent one day too early, and that the termination was premature and invalid.

What a solicitor will want from you

• The contract, quote or estimate, and all written variations.
• What has been invoiced, what has been paid and when, and what is being withheld and why.
• Dated photographs of the work, and any independent report on the defects.
• Every message about delay, defects, payment and site access, in date order.
• Any notice sent or received, with the date, time and method of sending.
• Whether the builder is still on site, has been asked to return, or has been told not to.

Run the free case check

This guide is general information about the law of England and Wales. It is not legal advice. Whether a payment can be withheld or a contract ended depends on the exact contract terms and facts, and the order in which things were said and done can decide the outcome.