Your contract may not be as solid as the work done
A contractor sometimes backs out of a contract due to miscommunications about cost, timeline, and work environment.
Before you sign a contract, ensure it has a cancellation clause that will protect you if a contractor backs out.
If a contractor’s withdrawal violates the terms of the contract, you may need to take legal action.
When you hire a contractor to install new hardwood floors or upgrade your plumbing system, a legally binding contract signed by both parties is crucial. But if something comes up, it’s still possible for either you or the contractor to cancel. Cancellation will be easiest if you haven’t paid a deposit upfront and if they haven’t yet broken ground on the project.
Each state typically has its own set of rules regarding contract cancellations. If your contractor decides to cancel a contract you already signed, follow your state’s instructions to void the contract within the specified time period—usually three days.
After combing through bids and finally selecting a contractor to help you with a home project, it’s devastating when the contractor decides to cancel. It likely means you’ll have to start your search all over again. When a contractor decides to cancel, it’s usually a miscommunication on their part. To avoid this situation, be very clear with them from the beginning so that they know what they’re getting into.
Some common reasons a contractor may wish to rescind the contract are:
Unexpected costs
Lack of manpower
Poor work environment
Unreasonable timeline
The consequences for a contractor who backs out of the project before it officially starts will depend on your contract. For instance, homeowners are usually entitled to have their deposit refunded.
Things get more complex when the contractor's withdrawal breaches contract terms, which could result in you taking legal action. The contract may stipulate cancelation terms, like a timeframe for cancellation before incurring fees. Reviewing your agreement to understand what you agreed to is always best before deciding if legal action is necessary.
Put simply, a contractor could face legal consequences, including lawsuits, for canceling a project after work starts. However, there may be circumstances where a contractor may be justified in halting work. One instance is if the client is behind on payments. The contractor may have the legal right to terminate or pause your project.
It’s not the end of the world if a contractor cancels. In fact, it can be a good thing—you definitely don’t want an unenthused contractor taking shortcuts to finish the project quickly and under budget.
That said, you will need to take some steps to ensure that everything is wrapped up nicely. In most cases, your state will have guidelines to help you through the process.
A thorough contract should have a cancellation clause that spells out who can cancel the contract and when. This section should also explain what happens when a contract is cancelled and whether or not either party will owe money. Read this agreement carefully before signing as it will determine whether or not your contractor can back out after you sign.
If there is no cancellation clause, a judge must determine that there is a valid reason behind the cancellation in order for a contractor to rescind it. If both parties have signed and there isn’t a valid reason for cancellation, they cannot cancel and could be liable for damages if they do not complete the work they agreed to. But if you are the only party that signed, cancellation is on the table.
Most states have a three-day contract cancellation deadline, meaning you have three business days to cancel a signed contract. This number can vary by state, though, so check your state’s laws for specifics.
You’ll need to mail in a signed and dated written notice of cancellation within the deadline (again, typically three days after you sign the contract).
If you wish to void the contract after the initial three days, consult a lawyer to determine how you can handle the situation.
If a contractor cancels on you, consider it a kindness. At least they didn’t break ground on the project only to realize they’re in over their heads and go MIA. If the contractor does sign the contract and then backs out after starting the work (which would be a contract breach), consult a lawyer to work out the details of who owes what.
After your contractor has canceled and you have voided the contract, it’s unfortunately time to go back to square one. Search for a new contractor with the qualifications you need and set up an appointment to discuss the project with them. You may have lost valuable time in your project due to the cancellation of the last contract, but you can discuss that with your new contractor to figure out a timeline that works for everyone.
Six situations that can void a contractor’s contract include nonpayment by the client, breach of contract terms, mutual agreement to terminate, material misrepresentation, unseen events—like natural disasters—and illegality of the contract, such as when the project violates building codes.
Contractors can't change pricing after a contract is signed unless the contract includes clauses allowing for adjustments, such as unforeseen costs or client-requested changes. Remember, both parties must agree upon any cost changes. Unauthorized changes may breach the contract and be disputable.
In California, homeowners have three days to cancel a contractor agreement, except when the contract involves service and repair work or was arranged at the contractor’s business location.
