An unpaid application or invoice can place a contractor under immediate pressure. However, non-payment does not automatically entitle you to leave site or terminate your contract. The rights to recover payment, suspend performance and terminate are separate, and each has its own requirements.
Similar issues arise for subcontractors and construction professionals working under appointments, although the relevant wording and statutory coverage may differ.
Establish What was Due, and When
Check the contractual payment provisions, your application for payment, and whether any payment or pay less notices have been served. A pay less notice is a notice explaining an intention to pay less than the sum otherwise notified, along with the basis of the calculation. Whether a notice is valid and served in time can affect the immediate payment obligation.
The amount you invoiced is not necessarily the amount legally payable at that stage. Identify the applicable final date for payment and distinguish a valuation dispute from a failure to pay a sum which must presently be paid.
Check the Contractual Termination Route
Many contracts permit termination for specified payment defaults after a notice is given, and a period for the client to remedy the default has expired. A further termination notice may then be required within a defined window.
Follow the actual wording, including amendments. The naming of a standard form contract does not necessarily establish the procedure agreed on your project. Separate agreements as to notice recipients, service methods and the calculation of time can all affect whether termination is effective.
Repeated late payment needs particular care. A clause dealing with repeated defaults may require an earlier right to terminate to have arisen first. Two late payments do not necessarily create a termination right where the first default was remedied before the relevant notice period expired. Nor should you assume that your client's termination rights mirror your own.
Is Suspension Available?
Where the statutory construction payment regime applies, failure to pay a sum required to be paid by the final date can give a right to suspend any or all contractual obligations. At least seven days' notice of the intention to suspend, stating the grounds, is required.
This is a pause in performance, with its own consequences, rather than termination. A valid suspension can carry rights concerning reasonable costs and time, and the statutory right ceases when the relevant sum is paid in full. Check that the statutory conditions are met before relying on it.
Be aware that contracts with residential occupiers concerning their own homes are generally excluded from this regime, although contractual rights may still exist.
Can Non-Payment Justify Termination at Common Law?
Possibly, but the threshold can be high. The nature of the payment obligation, the scale and persistence of defaults and what the client's conduct shows about future performance all matter.
A late payment caused by an administrative mistake presents a different question from a substantial, persistent refusal to honour the payment bargain. Even a deliberate breach does not automatically justify termination. A sufficiently serious breach giving that right is called a repudiatory breach.
You must identify an existing contractual or legal basis for ending future performance. Cash-flow pressure, however severe, does not itself supply that basis.
Protect Your Position Before Leaving Site
Preserve applications, notices, certificates and evidence of service. Keep a clear chronology of due dates, receipts and communications. Consider whether continuing unreservedly after a known serious breach could affect the right to terminate for it.
An invalid termination may allow the client to claim replacement costs or other losses. Before withdrawing labour, closing access to project information or removing materials, check both the right being exercised and its practical consequences.
If your client is withholding payment, and you need advice on recovery, suspension or termination, contact Hamshaw today