The business contract: knowing the risks to avoid the pitfalls

You are an entrepreneur and have the required licenses to act in this capacity. A client approaches you near your construction sites and, contrary to usual, he wants to hire you for the construction of an isolated single-family house only, a model from your catalog in addition, on land that he already owns in the municipality next to the one where yours are located. A great business opportunity that is coming, isn't it? Yes, but as long as you know the main risk factors well in order to avoid the potential pitfalls that may be linked to such an exercise.

Unlike a preliminary contract where the customer buys land belonging to the contractor on which the contractor erected a building before the title is granted to a notary, the example in the introduction describes a contract of enterprise: the land already belongs to the customer and the client hires the services of a contractor to build the building of his choice. We are therefore in the presence of a service contract which, since it involves the construction of a building that is spread over several stages, is said to be carried out successively. ¹.

In particular, it is this successive execution of steps that can constitute a risk factor for the contractor, since in the context of a service contract with successive execution, the customer can unilaterally cancel the contract, even though the construction of the work or the provision of the service has already been undertaken.². In short, the customer can end the contract whenever he decides, regardless of whether the construction is finished or not.

The entrepreneur must therefore plan his contract accordingly, for example by including clauses providing for penalties in the event of unilateral termination without cause or an unequivocal renunciation of the right to unilateral termination. It can also provide for remuneration based on progressive disbursements to be paid at key stages or even, modulate the contract so that it is of the cost-plus price type since, unlike a fixed price,
the cost-plus contract allows a quick and accurate assessment of the balance due in the event of termination before the end of the work.

Other risks inevitably arise from land ownership. Contractors who build on their land generally have a good knowledge of the site: groundwater level, soil bearing capacity, presence of iron ochre, presence of rock that can interfere with excavation, etc. In order to avoid various problems that can inflate the bill during construction, the wise contractor will have to obtain the necessary information from his client and may even require soil tests to be carried out, all in order to have a portrait as accurate as possible before the start of work on in order to foresee the various additions and extras required before the start of the work.

Obviously, other elements can bring their share of complications: the urban planning rules of a municipality where you have never built may differ as well as the deadlines for obtaining permits. The financing of your
customer can also be the source of complications, for example progressive disbursements requiring the approval of the creditor or the lack of liquidity during the completion of the work.

In any case, since it is unfortunately not possible to guarantee that the completion of the contract of employment will take place without pitfalls, the wise contractor must at least do what is necessary to try to protect himself against them by obtaining as much information as possible before the start of work and by having a contract signed adapted to this type of work. Isn't it said that prevention is better than cure?

¹ Article 1383 of the Civil Code of Quebec.
2 Article 2125 of the Civil Code of Quebec

Did you know that?
Even if it is a contract of employment, insofar as the object constitutes a building subject to Regulation on the guarantee plan for new residential buildings, it will find application.

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