A contracting agreement is one of the most commonly used contracts in various projects. It regulates the relationship between the employer and the contractor and clearly defines the rights and obligations of each party.
However, some projects may face circumstances that lead to disputes between the parties or difficulty in fulfilling obligations, which makes them ask about the conditions required to terminate the contract. Therefore, in this article, we will explain the most important conditions for terminating a contracting agreement, the procedures for filing a termination lawsuit, and the legal effects resulting from it.
What Is a Contracting Agreement Under the Saudi System?
A contracting agreement is a contract concluded between the employer and the contractor, under which the contractor undertakes to perform certain work for the other party in return for a fee agreed upon in the contract.
This makes it a binding contract for both parties: the contractor by performing the required work, and the employer by paying the agreed fee to the contractor after the required work is completed.
The contracting agreement has witnessed significant development under the Civil Transactions Law, because the law considers contracting agreements a form of contract. It defines the rules and regulations governing the contract from its conclusion through its execution and completion.
Conditions for Terminating a Contracting Agreement in Saudi Arabia
The parties to a contracting agreement may need to terminate the contract. In this case, certain conditions must be met for termination, the most prominent of which include:
- If one of the parties breaches the agreements and clauses of the concluded contract.
- If the contractor intentionally causes damage to the work, in which case the contractor may be required to provide compensation for such damage.
- If the contractor assaults the employer or the employer’s representative.
- If one of the parties commits acts that violate trust and honor.
- If it is proven that the contractor exploited the work to achieve personal interests through unlawful means.
- If the contractor repeatedly absents themselves from work without an excuse, provided that a prior warning is given to the contractor before resorting to contract termination.
Obligations of the Contractor and the Employer Before Discussing Termination
Both the contractor and the employer are bound by many obligations toward each other. Below, we explain the obligations of each party as follows:
Contractor’s Obligations:
- The contractor is obligated to complete the required work according to the contract terms and within the agreed period.
- If the contractor breaches the contract terms during the course of work, the employer may notify them to comply and correct the work within a reasonable period specified in the notice. If this period expires, the employer may assign another contractor to correct or complete the work at the expense of the first contractor, or request termination of the contract.
- If the item is damaged or destroyed for a reason beyond the contractor’s control before delivery to the employer, the contractor may not claim the agreed fee or the expenses incurred, as long as the employer was not in breach of their obligation to receive the work at the time of damage or destruction.
Employer’s Obligations:
- The employer is obligated to pay the fee upon receiving the agreed work.
- If the contracting agreement is based on an agreed design for a total fee, the contractor may not claim any increase in the fee, even if the prices of materials used in the work, workers’ wages, or other expenses increase.
- If an addition or modification is made to the design, the contractor may not claim any increase in the fee unless this results from an error by the employer.
The Most Common Reasons for Terminating a Contracting Agreement
There are many reasons that may lead to terminating a contracting agreement. The common reasons include the following:
- The contractor’s failure or delay in carrying out the agreed work.
- Delay in delivering the project, which may cause the employer to incur additional losses, especially in cases of unjustified or repeated delay.
- The quality of the work does not match the specifications agreed upon in the contract, as any failure to meet those specifications may harm the project.
- Legal or financial disputes, including delayed payment, claims for matters not agreed upon, and problems related to additional costs.
The Difference Between Mutual Termination, Judicial Termination, and Automatic Termination
Mutual termination occurs when the contractor and the employer agree to end the contract by their mutual will without resorting to court. Judicial termination, on the other hand, takes place by virtue of a judgment issued by the competent court when one party claims that the other party has committed a material breach of their contractual obligations.
In this case, the court studies the contract, evidence, and facts before issuing its judgment regarding termination and the resulting effects and compensation.
Automatic termination occurs by force of law or as a result of a specific event that makes continuing the contract impossible, whether legally or practically. In this case, the contract ends due to circumstances or events that cause the obligation to cease, without the need for a new agreement or a termination judgment in some cases.
Can a Contracting Agreement Be Terminated by One Party?
According to Saudi regulations, a contracting agreement may be terminated by one party in two cases. The first case is if the other party violates the agreement stated in the contract clauses. The contracting agreement may include clauses allowing termination if a certain condition is met.
If this condition occurs, termination of the contract becomes legally permissible by one of the parties due to the other party’s breach of the agreements contained in the contract.
The second case is when one party wishes to end the contract and the other party refuses. In this case, the solution is to file a lawsuit to terminate the contracting agreement. If one of the conditions for termination is met, the plaintiff’s position in the case will be strong and a termination judgment may be obtained.
When a dispute arises in a contracting agreement related to real estate or a construction project, a real estate lawyer may help you understand your rights and the lawful steps for termination.
Conditions for Terminating a Contracting Agreement When Resorting to Court
When reaching an amicable solution between the two parties becomes impossible, resorting to court may be the appropriate option to request termination of the contracting agreement. In this case, certain conditions must be met, such as:
- The existence of a material breach of contractual obligations, such as unjustified delay in carrying out the work.
- Executing the project in a manner that violates the agreed specifications.
- Refusing to pay financial dues.
- Stopping the required work without a legitimate reason.
The Competent Court in Contracting Agreement Disputes
The Commercial Court and the General Court are the competent courts for contracting agreement cases and lawsuits. The court with actual jurisdiction is determined according to the type of case and claim.
Therefore, it is recommended to study the contract and the facts surrounding the dispute before filing the lawsuit, to ensure that the competent judicial authority is chosen and to avoid any procedural issues that may delay the resolution of the case.
Procedures for Filing a Lawsuit to Terminate a Contracting Agreement
A lawsuit to terminate a contracting agreement is filed by following these procedures:
- Preparing the statement of claim, which must include the evidence and reasons for terminating the contract.
- Attaching the contracting agreement, notices, and previous correspondence.
- Specifying the requests, such as contract termination and compensation for damages.
- Submitting the lawsuit through the Najiz platform or before the competent court.
Legal Effects Resulting from Terminating a Contracting Agreement
Terminating a contracting agreement results in several important legal effects that affect the rights and obligations of both parties. One of the most prominent effects is the end of future obligations arising from the contract, so neither party is required to perform works or obligations whose due date has not yet arrived after termination.
Termination may also result in a financial settlement between the parties to determine the value of the work actually completed, the amounts due, and the costs incurred before the contract was ended. The legal effects may also include returning certain materials, equipment, or documents related to the project, depending on the nature of the contractual relationship.
If the contracting agreement is connected to a financed real estate project or a mortgaged property, you may need to understand the new real estate mortgage law, so you can know the effect of the mortgage and financing on contractual obligations before requesting contract termination or claiming compensation.
Compensation After Terminating a Contracting Agreement
The party harmed by the termination of a contracting agreement has the right to claim compensation for the damages suffered as a result of the other party’s breach of contractual obligations.
The compensation claim may include direct financial losses, additional costs incurred by the harmed party due to project suspension or delay in execution, or damages resulting from works that violate the specifications.
Other effects that can be proven to have a direct connection to the contractual breach may also be taken into consideration. The issue of compensation is subject to the court’s discretion based on the evidence submitted, the extent to which the damage is proven, and the relationship between the damage and the alleged breach.
Contracting Agreement Termination Form: When Is It Useful?
If the parties to a contracting agreement agree to end the contract amicably, a contracting agreement termination form is the most suitable solution to avoid any legal disputes. This form should include clear clauses explaining the agreed reasons for terminating the contract, the obligations of each party after termination, and how financial dues will be settled.
It is preferable to draft the termination form in precise legal language while taking into account the terms of the original contract to avoid any future ambiguity. The form should also include complete details about the obligations and rights of both parties, such as:
- Settlement of financial dues, including any agreed compensation or remaining payments.
- Delivery of project documents and works, and ensuring that there is no joint ownership after contract termination.
- Releasing the contractor from any future obligations related to the project after the contract termination date.
Nawaf bin Awad Al-Harbi Law Firm: Experience in Contracting Agreement Termination Cases
Nawaf bin Awad Al-Harbi Law Firm is the most suitable choice for anyone looking for a firm experienced in contracting cases and contract termination in the Kingdom, thanks to its extensive experience and deep understanding of local laws and regulations. The following are among the reasons that make it a suitable option:
- It has long experience in handling cases related to contracting agreements.
- Its legal team has an accurate understanding of the legal texts governing contractual relationships in Saudi Arabia.
- It has a strong record of achieving amicable settlements that preserve the rights of the parties, reducing the costs of legal disputes and saving time.
- Its team has skills in drafting and reviewing contracts and providing legal support at different stages of disputes.
Contact now with the best real estate cases lawyer to handle the procedures for terminating a contracting agreement, prepare the statement of claim and legal evidence, and follow up the case before the court to ensure that your rights are protected and that you obtain the compensation due under Saudi law.
Conclusion
Knowing the conditions for terminating a contracting agreement is important if one of the parties wants to terminate the contract for any reason. If the contractual relationship can no longer continue or a material breach of one of the agreed obligations occurs, resorting to contract termination is an appropriate solution for the harmed party, who may also claim compensation for the damages suffered.
When dealing with termination of contracts related to real estate or contracting works inside a leased property, it may be useful to review tenant eviction procedures to understand the correct legal path.
Frequently Asked Questions
When Does a Contracting Agreement End Under Saudi Law?
A contracting agreement ends when the required project is completed and delivered according to the previously agreed timeline. However, the project may also end by terminating the contract due to delay in project delivery, failure to perform the agreed works, or other legal or contractual reasons.
Can a Contracting Agreement Be Terminated by Mutual Agreement Without Resorting to Court?
Yes, the contractor and the employer may agree to end the contracting agreement by mutual consent without resorting to court, while regulating the financial rights, completed works, and settlement mechanism between them in a clear written agreement.
Does the Employer Have the Right to Terminate a Contracting Agreement at Any Time?
Contract termination is not permissible in all cases. Rather, it must be based on a legal or contractual reason that justifies ending the contract, such as a material breach of the contractor’s obligations or an agreement between the parties to terminate.
