Understanding Termination for Convenience Clauses in Construction Contracts

Quit Getting Screwed Podcast

In this episode, Karalynn discusses termination for convenience clauses in commercial and residential contracts. She explains how these clauses can expose contractors to risk and shares practical strategies for negotiating fairer terms. Her goal is to help businesses protect themselves and succeed. Love the show? Please rate, review and share!

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Key Takeaways

1. Termination for convenience allows a general contractor or owner to terminate a contract for any reason, even if the subcontractor is not at fault. Once signed, subcontractors are bound and don't have the same right unless negotiated as mutual. This clause heavily favors the party who included it and can leave the other party exposed and uncompensated if terminated.

2. While it's difficult to have termination for convenience clauses removed entirely, it is often possible—and advisable—to negotiate these clauses to be mutual. This grants both parties the right to terminate for convenience, creating a more balanced agreement and providing contractors a valuable exit option.

3. Termination, whether for convenience or cause, can mean more than simply walking away from owed money. The terminated party can be financially responsible for additional costs the hiring party incurs, such as the cost difference if a replacement contractor is more expensive. Not understanding this risk can lead to significant financial exposure.

4. Residential contractors benefit greatly from including their own version of escape clauses. These provisions allow contractors to exit contracts without breach if circumstances change (such as difficult clients, mispriced scopes, or unexpected material cost increases), improving their business flexibility and negotiating power.

5. Including cancellation clauses that set out what happens if a homeowner cancels a contract—such as retaining the deposit or receiving a set fee—makes it easier to enforce and collect damages, and puts homeowners on notice that there are real financial consequences for cancellation. This helps make compensation clear and reduces disputes over profit lost due to cancellation.