As a client, you can always terminate a construction contract through dissolution or cancellation. Dissolution requires attributable breach and default by the contractor, whereby you pay only for completed work. Cancellation can occur at any time but obligates payment of the full contract sum minus savings – a difference that proves financially decisive.
The construction sector regularly faces time pressure, staff shortages and planning complications. Contractors falling behind schedule due to excessive simultaneous projects, clients failing to meet payment deadlines, or quality problems escalating – these situations force parties into difficult decisions. Termination of the construction contract represents a legal crossroads with potentially far-reaching financial consequences.
Specific statutory rules from Title 13 of Book 7 Dutch Civil Code govern construction contracts. Additionally, standard conditions such as UAV 2012, AVA 2013 or AVV 1998 frequently apply. These conditions sometimes deviate from statutory law, requiring extra attention during termination. Wrong choices lead to costly legal proceedings in 75% of cases.
What Does Dissolution of Construction Contracts Mean Under Dutch Law?
Dissolution terminates the construction contract with immediate effect when the counterparty attributably fails to fulfill contractual obligations. This breach must justify dissolution and the debtor must be in default, unless performance becomes temporarily or permanently impossible.
Article 6:265 Dutch Civil Code forms the general statutory basis for dissolution of reciprocal agreements. For construction contracts, Article 7:756 Dutch Civil Code additionally applies, offering broader dissolution possibilities. According to this provision, the court can dissolve the agreement if it becomes probable before the established delivery date that the work will not be delivered timely or properly.
This expanded dissolution possibility contains an important condition: only the court can pronounce this dissolution. Extrajudicial dissolution remains possible under Article 6:265 Dutch Civil Code, but then requires strict compliance with default conditions.
Which Conditions Apply for Valid Dissolution in the Netherlands?
Dissolution primarily requires an attributable breach – the contractor or client fails without justification such as force majeure. Additionally, the breach must be sufficiently serious to justify dissolution. Minor defects or marginal delays generally do not suffice.
Moreover, the debtor must be in default. This concretely means you place the counterparty in formal written notice mentioning a reasonable period for remedy. This period generally amounts to 14 days, but varies depending on the nature and scope of the breach. Default only arises after unused expiration of this period.
Exception: default arises without notice when performance becomes permanently impossible or the debtor expressly indicates they will not perform. Case law demonstrates that unambiguous refusal of further execution automatically produces default.
How Does Financial Settlement Work After Dissolution According to Dutch Legislation?
Dissolution has no retroactive effect – the agreement ends at the moment of dissolution. Parties are released from obligations not yet fulfilled. For performances already rendered, reversal obligations arise according to Articles 6:271 and 6:272 Dutch Civil Code.
In theory, this means the contractor returns paid installments and the client returns installed materials. Practically, however, this proves mostly impossible with partially completed work. Therefore the compensation principle applies: the contractor receives payment for work performed, corrected for defects.
A practice example: a client dissolves the agreement after the contractor completed 60% of a renovation project. The original contract sum amounts to €200,000 and €120,000 has already been paid. With defects valued at €15,000, the contractor receives €105,000 (60% of €200,000 minus €15,000 defects minus already paid €120,000 results in a repayment by the contractor of €15,000).
Additionally, the client retains the right to damages for breach-related losses. These damages include additional costs for completion by third parties, expert costs and potential consequential damages such as rental loss or delay damages.
When Can You Cancel a Construction Contract in the Netherlands?
Cancellation by the client is possible at any time without stating reasons, but obligates payment of the full contract sum reduced by savings resulting from non-completion. These savings constitute the difference between total contract sum and actually incurred costs plus lost profit.
Article 7:764 paragraph 1 Dutch Civil Code grants the client this unique authority. The legislator thereby recognizes that the client’s interest in non-continuation can exceed the contractor’s interest in completion, provided the contractor suffers no financial disadvantage. Cancellation requires no notice of default, no judicial intervention and no contractor breach.
Cancellation can occur in writing, orally or even implicitly through conduct. Written cancellation, however, strongly deserves preference for evidentiary purposes. A bailiff can record cancellation through official report, which carries decisive value in disputes.
Paragraph 14 UAV 2012 contains a comparable regulation under the term ‘termination in incomplete state’. AVA 2013 and AVV 1998 also contain similar provisions that correspond in legal effect to statutory cancellation.
What Financial Obligations Arise Upon Cancellation Under Dutch Law?
Article 7:764 paragraph 2 Dutch Civil Code stipulates that the contractor is entitled to the full contract sum minus savings through cancellation. These savings encompass all costs the contractor need not incur because they do not complete the work.
However, costs already incurred constitute no savings. Has the contractor purchased materials that are non-returnable or reusable? Then these belong to the payable contract sum. The same applies to already hired personnel with continuing contracts or subcontractors with established agreements.
The client bears the burden of assertion and proof for these savings. Simultaneously, a duty of disclosure rests on the contractor – they must thoroughly elaborate their defense against alleged savings with concrete figures and substantiation.
In practice this means: the earlier in the construction process you cancel, the greater the financial consequences. With cancellation after 20% completion you generally pay 90% or more of the contract sum, because only limited savings are demonstrable. Materials are often already ordered, personnel is scheduled and subcontractors are contracted.
Concrete calculation: a contract sum of €300,000 at 30% completion. The contractor calculates €90,000 in performed work, €120,000 in lost profit and costs for purchased material, and sets savings at €90,000. The client then pays €210,000 while only 30% is realized.
How Do You Determine the Correct Termination Method in the Dutch Jurisdiction?
Dissolution generally results in lower costs for the client than cancellation, because only performed work is compensated instead of the full contract sum. However, dissolution requires demonstrable breach and correctly followed default, while incorrect dissolution automatically counts as cancellation with all financial consequences.
Case law consistently shows this pattern: when a client invokes dissolution but the court rules no attributable breach or default existed, then the termination declaration qualifies as cancellation ex Article 7:764 Dutch Civil Code. The Arbitration Board confirmed this principle in multiple rulings between 2013 and 2019.
Why Do Legal Misunderstandings Arise During Termination in the Netherlands?
Communication plays a crucial role. An email where the client writes “we’re pulling the plug” can legally be construed as cancellation, even if the sender intended dissolution. Formulation determines legal qualification and thereby financial consequences.
Therefore it merits recommendation to:
- Use exact legal terminology in termination declarations
- Explicitly mention whether you dissolve or cancel
- For dissolution, specify the breach in detail
- Refer to previous notices of default with dates and deadlines
- Have a lawyer draft the termination declaration beforehand
Which Strategic Considerations Are Relevant Under Dutch Law?
Timing forms an essential factor. With prolonged suspension of work due to circumstances in the client’s risk sphere (objection procedures, encountered contamination, archaeological discoveries), cancellation can prove more advantageous than continuation. The contractor accumulates stagnation damage that upon resumption escalates to amounts far exceeding the cancellation compensation.
Consider: suspension lasts six months due to permit problems. The contractor claims €80,000 in stagnation damage for standstill of equipment and personnel. Cancellation with compensation of €50,000 in lost profit limits total damage to €50,000 instead of €80,000 plus completion costs.
Documentation of work status proves crucial during termination. Have the work status recorded independently, preferably by the Arbitration Board or through a bailiff who creates an official observation report. This recording determines the basis for financial settlement in both dissolution and cancellation.
What Are the Consequences of Termination for Payment Schedules in the Netherlands?
After dissolution, payment schedules lose their contractual meaning because the agreement ends. The value of performed work is determined by the construction project status and additional costs for completion by third parties, not by pro rata application of agreed installments.
Payment schedules base themselves on the starting point of complete execution. With termination through dissolution, however, primarily the additional costs and client damages prove relevant – consider expert costs for quality assessment, additional costs for engaging a new contractor, and potential consequential damages.
How Does Work Inspection Relate to Termination According to Dutch Legislation?
Before having the work completed by a third party, thorough inspection proves necessary. This applies more strongly for dissolution than for cancellation, but remains valuable in both cases. A site inspection by the Arbitration Board costs on average €2,500 to €5,000, depending on complexity and scope.
This investment prevents discussions about:
- Exact completion percentage at moment of termination
- Quality of executed work
- Present materials and building supplies
- Potential defects or shortcomings
- Necessary remedial work
With changed scope or non-completion, this inspection determines the amount of compensation due to the contractor. Without documented inspection, prolonged evidentiary problems arise that delay proceedings by two years or more.
What Role Do Standard Conditions Play in Termination Under Dutch Law?
UAV 2012, AVA 2013 and AVV 1998 contain specific termination provisions that deviate from statutory rules. Paragraph 14 UAV 2012 recognizes ‘termination in incomplete state’ with a compensation arrangement encompassing the contract sum increased by non-completion costs and reduced by saved costs.
This compensation arrangement closely resembles statutory cancellation regulation but contains nuances. The contractor can claim the profit margin over the entire work, comparable to Article 7:764 paragraph 2 Dutch Civil Code. The difference is that some standard conditions contain additional obligations for documentation and communication during termination.
Article 7:764 Dutch Civil Code has no mandatory effect, allowing contractual deviation. Model purchase/construction agreements from Woningborg and SWK explicitly deviate from statutory cancellation regulation with customized compensation arrangements.
Why Does Termination Under Standard Conditions Require Extra Attention in the Netherlands?
Standard conditions can prescribe deadlines and formalities that deviate from the Dutch Civil Code. Thus a notice of default under UAV can have different formal requirements than Article 6:82 Dutch Civil Code. Compliance with these specific conditions proves essential for valid termination.
Moreover, standard conditions often recognize dispute resolution mechanisms with arbitration. Disputes about termination under UAV are submitted to the Arbitration Board for Construction, not to the ordinary court. These arbitrators apply interpretations that sometimes deviate from ordinary court case law.
Therefore pay attention during contract conclusion to:
- Which standard conditions are declared applicable
- Whether deviating termination arrangements are included
- Which dispute resolution applies
- Whether specific deadlines or formalities apply
- How compensation calculation is arranged upon termination
How Do You Prevent a Stalemate During Termination in the Dutch Jurisdiction?
A stalemate arises when termination qualifies neither as dissolution nor as cancellation, because no attributable breach exists but also no clear cancellation declaration. Parties then remain contractually bound without possibility for enforceable performance or termination.
A recent ruling from the Central Netherlands District Court illustrates this risk. A client sent an email with the text “we’re pulling the plug”, followed by a letter from their lawyer about partial dissolution. The magistrate ruled that no breach existed at the moment of dissolution, but also that no clear cancellation occurred.
Result: both parties lost their claims. The contractor received no contract sum based on cancellation, the client received no recognized dissolution. A legal impasse that can cause years of proceedings.
Which Best Practices Minimize Termination Risks in the Netherlands?
Early legal advice remains the most important protection. Have a specialized lawyer analyze the situation before taking termination steps. This analysis includes:
- Assessment whether dissolution is possible based on documented breaches
- Verification whether correct notice of default occurred
- Estimation of financial consequences with dissolution versus cancellation
- Formulation of legally watertight termination declaration
- Preparation of work inspection and evidence collection
Solid documentation during execution prevents evidentiary problems afterwards. Record breaches through emails, photographs, independent expert reports and written warnings. This documentation supports dissolution and weakens the counterparty’s defense.
Do you need certainty about your legal position with a problematic construction contract? Our specialized lawyers in Amsterdam analyze your specific situation and advise on the optimal termination strategy, considering financial consequences and procedural risks.
Which Specific Situations Demand Termination Under Dutch Law?
Prolonged stagnation, quality defects making repair impossible, and payment problems constitute the most common reasons for terminating construction contracts. Each scenario demands a specific legal approach aligned with factual circumstances and contractual context.
How Do You Terminate Upon Repeated Breaches in the Netherlands?
Repeated minor breaches can collectively constitute dissolution grounds, even though each individual breach alone does not justify dissolution. Consider a contractor who structurally:
- Arrives 30 minutes to one hour later than agreed
- Delivers materials of lesser quality than specified
- Neglects cleanup work
- Fails to communicate about progress
Cumulatively, these behaviors can indicate lack of professionalism and commitment. Document each breach separately and upon continuation always send written warnings. This pattern formation supports a subsequent dissolution request.
When Does Cancellation Prevail Over Continuation According to Dutch Legislation?
With risks in the client’s sphere, cancellation can prove strategically advantageous. For example with permit problems causing suspension of six months or longer. The contractor accumulates stagnation damage for standstill of personnel, equipment and subcontractors.
Concrete calculation: at €10,000 stagnation damage per month, €60,000 in claims arises after six months. Cancellation with €35,000 lost profit compensation limits total damage significantly. Strategic cancellation then functions as damage limitation instrument.
Also with fundamental scope changes during execution, cancellation can merit preference over contract modification. A new contractor can execute the modified work more efficiently without inheritance of the old planning and agreements.
What Are Common Mistakes During Termination in the Netherlands?
The biggest mistake during termination is unclear communication about the chosen legal ground. A second error concerns insufficient documentation of breaches and default, whereby dissolution cannot subsequently be substantiated. Both mistakes regularly lead to unintended cancellation with costly financial consequences.
Why Do Dissolutions Fail in Practice Under Dutch Law?
Premature dissolution without correct notice of default forms the primary pitfall. The law requires that you grant the contractor a reasonable period to remedy breaches. This period amounts to minimally 14 days with normal defects. With acute safety risks, a shorter period of 48 to 72 hours can suffice.
Without this deadline setting, no default arises and the dissolution fails. The termination then automatically counts as cancellation with all financial consequences. Case law demonstrates that judges practice no leniency with formal errors in dissolution procedures.
Insufficient specification of the breach forms a second problem. A general complaint like “you work too slowly” or “the quality is inadequate” does not suffice. Specify exactly:
- Which contractual obligation was violated
- On which dates and times the breach occurred
- Wherein the breach consists (deviation from specification, deadline overrun, etc.)
- Which damage or disadvantage results
- Which remedy within which deadline is demanded
Which Communication Errors Lead to Disputes in the Netherlands?
Mixed signals between parties cloud legal qualification. For example: first announcing dissolution, then nevertheless entering into negotiation about amicable termination, subsequently communicating cancellation. This inconsistency makes unclear afterwards which termination ground parties envisioned.
Orally canceling or dissolving without written confirmation creates evidentiary problems. The counterparty can contest existence of termination or contest the exact date. Without proof of termination, uncertainty arises about the moment contractual obligations end.
Therefore always use registered mail with acknowledgment of receipt or have a bailiff serve the termination declaration. This formality seems excessive but prevents months of discussion about whether and when termination occurred.
Contact our law firm in Amsterdam for personal legal advice about terminating your construction contract. Our specialists assess your situation, calculate financial scenarios and guide the termination process from A to Z.
