Is it Legal for a homebuilder to cancel a construction contract for “any reason at all”? — An Austin Construction Attorney Weighs In.
Local Austin station KXAN reported a home buyer nightmare experienced by an Austin home purchaser whose dream home near Cedar Creek turned into a legal nightmare. On the eve of the closing on her 1,935 square home the builder exercised an unrestricted right to cancel before closing. The clause read as follows:
“Seller may elect to terminate this agreement at any time prior to closing for any reason, with or without cause.”
To say that the home purchasers were crushed by this unilateral act is an understatement. They were devastated.
KXAN looked peripherally at the issue as would be expected by non-attorneys and consulted industry spokespersons. There was some discussion on the rising costs of homebuilders.
As an Austin Construction Attorney of many years, I have the ability to weigh in. What the builder did appears to be violative of Texas law. As I have not reviewed the contract, I cannot opine as to the legality or not, but this is what I would recommend to Austin home purchasers who have been treated callously by homebuilders.
- Yes – obviously review the contract. If you see a clause which allows the builder to cancel for any reason, do not sign. No point of contention there.
- In the event you already signed on the dotted line, there are ways to attack these horrific provisions. Under Texas law, clauses which have no legal consideration or are punitive in nature (punish one side) can be set aside (voided) and deemed enforceable. Another line of attack would be to determine whether this provision was set out in bold font and conspicuous. If not, that is another excellent basis to set aside. There are also a host of what are called “equitable” which unwind bad deals as constituting a windfall to the other side – unjust enrichment.
- The increased cost of supplies caused by Covid supply disruptions has been held to be a valid basis to cancel a contract. However, builders cannot exercise this remedy strictly for monetary gain. If this provision appears in your contract definitely have an experienced construction attorney review it.
- Apart from the above warnings, be on the lookout for merger clauses, limitation of damages, and arbitration provisions.
Merger Clauses –
This may sound esoteric but can destroy your dreams as well. It is buried at the end of a construction contract and limits the contract to verbiage itself and not any other documents exchanged between the parties, for example text messages or emails. In the typical example, the builder makes a concession which is set forth in a text message and later argues that it cannot be considered in court because of the merger clause. This happens all the time. BTW – the builder usually wins.
Damage Limitations Clauses –
These prevent homeowners from recovering damages caused by the builder and are enforceable. Typical provisions prevent the purchaser from filing legal claims based on fraud which has been held enforceable if in bold print in the contract. Hard to believe but true!
Arbitration Clauses –
These prevent you from filing a lawsuit in a public court requiring that the lawsuit be brought before a private judicial service otherwise known as arbitration. If an adverse decision is entered by the private judge, it can’t be appealed! Hard to believe that this is the law in America, but it has been affirmed by the Supreme Court for decades.
Assuming you have closed on your dreamhouse and actually moved in, what are your rights if everything goes bad thereafter?
As an Austin Construction Attorney, I have seen instances of construction defects which render a new home uninhabitable from shifting foundations, collapsing roofs, mold infestation, among other deplorable items. In these situations, an Austin construction attorney can advise as to the legal remedies available to the aggrieved homeowner which are set out in Texas Law in accordance with the Residential Construction Liability Act (RCLA).
An array of damages are recoverable, however, the failure to abide by the rules and deadlines can lead to the loss of your investment and heartache.
At the Moster Law Firm we are focused on representing home purchasers in their fight against rogue homebuilders. Give us a call for a free consultation and send along a copy of your contract
We are here to help.
