Commercial Litigation Special Counsel Jade Carlson breaks down a recent NSW Supreme Court decision that warns builders they cannot raise their prices mid-contract and then terminate a deal simply because the owner doesn’t agree to pay.
A New South Wales court has found that a builder wrongly terminated a residential construction contract, overturning a Local Court decision that would have required the property owner to pay the builder more than $76,000 in damages.
The Supreme Court of New South Wales found that the owner’s silence in response to a proposed price increase was not a substantial breach of contract and did not give the builder grounds to walk away from the deal.
The parties entered into a standard Housing Industry Association (HIA) contract for the construction of a residential dwelling, which included a special condition permitting the builder, Fairmont Homes, to revise the contract price where there was a delay to the commencement of building works.
Fairmont Homes had issued the disputed “variation” after multiple delays to construction of a property in the Sydney suburb of Guildford. Fairmont Homes relied upon the special condition to issue a notice of variation to the price. The case turned on how that word “variation” was defined in the special conditions and whether the builder’s actions matched what the contract actually allowed.
The decision has significant implications for builders looking to terminate a contract based on an owner’s breach. Before issuing a termination notice, builders will need to confirm that the conduct they are relying on meets the specific definition of breach set out in their own contract, rather than assuming a customer’s inaction is enough.
It also sets a precedent for owners who may feel pressured into accepting a price increase, as it shows how a builder’s right to terminate must be exercised strictly within the terms of the contract.
Background to the case: Khan v Fairmont Homes (NSW) Pty Ltd [2026] NSWSC 770
At the heart of the dispute was a $491,620 contract for Fairmont Homes to construct a residential dwelling in Guildford for Shina Khan. The contract, which was entered into in November 2020, used a standard HIA form with special conditions attached. It also included a clause allowing Fairmont Homes to increase the price if works had not commenced within 180 days of signing.
The builder raised its price by $48,573 in June 2022, citing escalating material costs. When the owner did not sign or return the variation, the builder issued a breach notice in December 2022 and terminated the contract in February 2023. Fairmont Homes then sued the owner for damages and won in the Local Court, with the owner ordered to pay $76,703.
Attwood Marshall Lawyers represented the owner on appeal and secured a reversal of that decision, with the Supreme Court instead ordering the builder to pay our client’s costs.
Where the lower court went wrong
The Supreme Court found that the Local Court judge had erred in treating the owner’s failure to respond to the price increase as a breach of contract. The court reasoned that reading the contract this way would expose both parties to an unworkable outcome, given the owner was relying on finance from a lender to fund the build:
“It is inherently unlikely that the parties intended that the plaintiff would – after 180 days – become liable to pay whatever new price might be put forward by the defendant,” Justice Muston wrote in the ruling.
His judgment went further, noting that binding the owner to an unagreed price could leave her unable to pay for works she was contractually obliged to have completed, while equally binding the builder to complete works under terms that no longer made commercial sense for either side:
“The plaintiff’s primary construction produces an outcome which might be simultaneously deleterious to both parties. In my view, this is most unlikely to reflect the common intention of the parties when they entered the contract.”
Practical takeaways for builders and homeowners on construction contract termination
The judgment also pointed to “substantial departures” from the contract elsewhere in the project, including how disputes over the demolition of the existing property (which were subject to separate proceedings in the NSW Civil and Administrative Tribunal) and the discovery of asbestos on site, both of which contributed to delays to the building work commencing.
The court found that Fairmont Homes could have lawfully ended the contract when the asbestos was discovered but chose not to. Instead, it attempted to terminate because the owner failed to respond to the price variation, a step the court found it was not entitled to take.
The case is a reminder that the wording of a contract, not a builder’s or owner’s assumptions about it, governs when and how a contract can be brought to an end.
Given the ruling hinged on how “variation” was defined against “building works,” the case highlights the challenges that can arise when contractual terms are inconsistent and reinforces the importance of carefully drafting special conditions to ensure the parties’ intentions are clearly reflected.
A special condition cannot be read in isolation from the standard conditions it modifies.
For builders, that means checking any variation or termination clause against its precise contractual definition before acting on it.
Attwood Marshall Lawyers – experts in the building and construction sector
Don’t let a dispute with a builder derail your plans for your dream property. Attwood Marshall Lawyers’ team of specialist construction litigation lawyers is well-versed in helping homeowners resolve disputes that arise throughout and after construction.
Book a consultation with one of our experienced construction law specialists, who can assess your situation and help you navigate these complex disputes so you are in the best position to protect your rights.
If you are involved in a building and construction dispute, please get in touch with our Commercial Litigation Department Manager, Georgia Trapp, on (07) 5506 8257, email gtrapp@attwoodmarshall.com.au, or free call 1800 621 071.
