New Home Contract Cancelled: Duration Clause and Escalation Clause

  • 3 min read

In the current real estate market, prospective homebuyers engaging in new construction projects face unexpected challenges arising from escalating building costs, supply chain issues, and contractual clauses. This blog delves into the legality of builders canceling contracts or demanding additional payments post-completion and explores the options available to homebuyers in such scenarios.

Understanding Escalation Clauses

Most new construction contracts incorporate an escalation clause. This clause allows builders to adjust the purchase price if material or labor costs exceed a predetermined percentage. While designed to accommodate fluctuations in the market, it can become a point of contention if misused by builders for additional profit.

Unpacking Duration Clauses

Duration clauses provide builders with the authority to cancel contracts if they encounter delays in starting or completing construction within the agreed timeframe. Builders may exercise this right even if building costs have surged, presenting homeowners with unexpected challenges.

Real-Life Dilemmas

South Florida witnessed a case where buyers contracted to build a house for $297,000 in February 2021. Delays in permitting and supply chain issues allowed the builder to consider canceling the contract. However, the proposed solution involved the buyers paying an extra $40,000 due to increased property value. Such situations prompt homeowners to question the fairness and legality of such practices.

Assessing Fairness and Legal Recourse

Determining the fairness of a builder’s actions requires a critical evaluation of the contract. While builders are justified in adjusting prices due to significant increases in building material costs, excessive demands may warrant legal scrutiny. Seeking legal advice is crucial to understanding the options available to negate contract cancellations or cost escalations.

Force Majeure Considerations

Contracts often include a force majeure clause, allowing builders to withdraw if unforeseen external forces make construction difficult or impossible. Homebuyers should investigate whether the cited reasons align with the contractual provisions and seek legal counsel to validate the builder’s claims.

Exploring Homebuyer Options

When faced with a potential contract cancellation or increased costs, homebuyers must evaluate their preferences. If the desire for the home persists, legal advice can help determine if the builder’s actions are lawful and if there are avenues to dispute the proposed changes. Additionally, exploring alternative homes may be a practical solution to avoid undesirable financial burdens.

Informed Decision-Making

Navigating the complexities of new construction contracts requires vigilance and informed decision-making. Homebuyers should carefully review contract clauses, seek legal guidance, and assess the legitimacy of builders’ claims. While the real estate landscape may present challenges, a proactive approach can empower homebuyers to make decisions aligned with their interests and financial well-being.

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