The challenges facing the Scottish, UK and wider global economy in recent years have led to an increasing number of parties questioning the economic viability of the contracts they have entered into. As a result, parties are left wondering which options are available to them to terminate their written agreements.
To terminate a contract, it is generally the case that a material breach must have occurred. We have written previously about the things to consider when identifying whether a material breach has taken place.
However, identifying a material breach is not the end of the story. In this blog, we explore a number of ways in which the right to terminate a contract on the basis of a material breach can be lost.
1. Waiver/Personal Bar
You can lose your right to terminate through acting in a way which gives the impression that you have given up this right. It is not necessary for the giving up of the right to have been your intention.
You must also be careful in your dealings with the other party as it possible to lose your right to terminate by leading someone to believe that you are not going to terminate based on the breach. If the other party relies on this impression to their detriment, it can prevent you from relying on the breach.
2. Lapse of Reasonable Time
If you fail to act on a breach within a reasonable time period, you can again lose your right to terminate. However, this will not necessarily prevent you from relying on older breaches as the clock will only start running from when you had knowledge or reasonably should have had knowledge of the breach which would have entitled you to rescind.
It is always possible that a party will act to remedy a breach before you have acted to terminate the contract. A party acting to remedy a breach can prevent you from relying on it.
The above ways in which a right to terminate can be lost serve to highlight the importance of making a decision to terminate on the basis of a material breach quickly.
However, as we have mentioned in our previous blog, if a contract is wrongfully terminated, then the party terminating the agreement will themselves be in material breach. This potential for wrongful termination, coupled with the potential of losing the right to terminate makes it all the more important to seek legal advice on the issue.
If you require advice in relation to breach of contract, please do not hesitate to get in touch with our Real Estate Litigation team or your usual Brodies' contact.