The termination of the Contract for Work and Materials is legally permissible for both the contractor and the client. The law sets forth various requirements for both parties, as well as the corresponding legal consequences for a valid termination. These should be specified in greater detail within the contract for work and services, tailored to the specific subject matter of the contract—the more precise the contractual provisions, the lower the risk of a costly dispute.
How does the client give notice of termination?
The client has two basic rights to terminate the contract: an unconditional right to terminate and a right to terminate due to breach of contract or poor performance.
The Right to Terminate a Contract at Will (Section 649 of the German Civil Code (BGB))
The client’s right to terminate the contract at will is based on Section 649 of the German Civil Code (BGB). According to this provision, the client may terminate the contract for work and services at any time until the work has been successfully completed. Upon termination, the client’s right to have the work completed ceases. Conversely, the contractor’s right to compensation remains in effect.
Due to the termination, the contractor is no longer obligated to complete the work. This allows the contractor to avoid further expenses for materials and labor. These saved expenses must be deducted from the agreed-upon compensation for the work. This also applies if the contractor maliciously fails to find a new client for the time now available to him.
Recommendations for Drafting Contracts
It is advisable to specify in advance how compensation for work time already spent will be calculated. Compensation for materials used should also be addressed in the contract for work and services so that it can be properly accounted for in the event of termination.
Termination due to nonperformance or poor performance (Sections 634(3) and 636 of the German Civil Code (BGB))
If the work is found to have significant defects at the time of acceptance, the client may demand subsequent performance and set a deadline for remedying the defects. If the deadline has expired without the defects being remedied, the client may withdraw from or terminate the contract. This is provided for in Sections 634(3) and 636 of the German Civil Code (BGB).
It is important to note that:
- A reasonable deadline must be set for rectifying the defects.
- It must be defined at what point a defect is considered significant—ideally, already in the contract for work and services.
- It is advisable to define in advance the types of defects that are typical for the specific project in order to avoid disputes over their severity.
How does the contractor give notice of termination?
The contractor may also terminate a contract for work and services. To do so, the contractor may invoke „termination for good cause." In addition, a partial termination may also be effected.
Termination for Good Cause
The contractor has the right to terminate the contractual relationship if there is good cause. Good cause exists when the contractor cannot reasonably be expected to continue the contractual relationship until the previously agreed-upon termination date. There are two typical standard cases:
Case 1: Failure to Pay Compensation. The contractor cannot reasonably be expected to continue performing under the contract for services if the agreed-upon compensation is not paid. This generally does not occur until the work has been accepted, since the compensation becomes due only at that point. However, it may also result from a clear and unambiguous statement by the client if the client has declared its final intention not to pay the remuneration.
Alternatively, this situation also applies to agreed-upon partial services: If the partial service was linked to milestones and installment payments, and the installment payments are not made, the contractor cannot reasonably be expected to continue its work. The contractor may terminate the contractual relationship for cause.
Case 2: Lack of cooperation on the part of the client. The second typical scenario arises when the client is required to provide cooperation as stipulated in the contract—for example, by providing information needed for the work and its final form. If this cooperation is not provided, the contractor may set a reasonable deadline. If the deadline expires without result, the contractor can no longer be expected to continue working on the project and may terminate the contract for services.
Partial Termination of the Contract for Work and Services
If a work consists of several clearly distinguishable parts, the contract may be terminated with respect to those parts. A prerequisite for this is that the performance of that part of the work has become impossible. The contractor retains the right to the agreed-upon compensation for the other, unaffected parts of the work.
Overview of Termination Rights
| Type of Termination | Who can give notice? | Requirement | Legal Consequence |
|---|---|---|---|
| Right to Terminate at Will | Client | At any time prior to completion; no reason required | Claim for wages minus saved expenses |
| Termination Due to Defects | Client | Significant defects; expiration of the period for subsequent performance without success | No payment for work performed; damages against the contractor, if applicable |
| Termination for Cause | Contractor | Failure to Pay or Lack of Cooperation on the Part of the Client | Right to Compensation for Services Rendered |
| Partial termination | Contractor | A clearly definable sub-project; its implementation has become impossible | The right to compensation for the remaining parts remains in effect |
How does the termination process work?
It is strongly recommended that termination be handled in writing. This provides certainty later on when it comes to the evidence. Clear conditions for termination should also be specified in the contract, and these reasons should then be stated as precisely as possible in the event of termination.
It is also essential that the termination be subject to a deadline. For example, a deadline is set for remedying the defects, and failure to meet that deadline results in termination.
Checklist: How to Validly Terminate a Contract for Work and Services
- Check the reason for termination: Is there a right to terminate the contract without cause, a defect, or cause for termination?
- Set a deadline (if necessary): In the event of defects or a failure to cooperate, a reasonable period of notice must be given before termination. Document this in writing.
- Comply with the written form requirement: Always provide notice of termination in writing (an email is sufficient in many cases; for construction contracts, written notice is required by law).
- Clearly state the reason for termination: State the reason for the termination as precisely as possible—vague wording can lead to disputes over interpretation.
- Document performance level: Document the condition of the facility at the time of termination (photos, condition reports, records).
- Reimbursing Expenses: Calculate the savings in expenses (materials, labor) compared to the contract price and provide documentation to the other party.
- Seek legal advice: Especially for high-value projects, it is advisable to consult a lawyer specializing in contract law.
Furthermore, it is important to understand that terminating a contract for work and services is a significant step. It almost always leads to a dispute over the financial and legal consequences, which frequently results in litigation and the associated risks and expenses. Therefore, it is important to proceed with great care in such cases and to seek legal advice when necessary.
What are the legal consequences of terminating a contract for services?
The termination of a contract for work and services has different legal consequences depending on the type of termination. As a general rule:
In the event of termination at the client's discretion
- The contractor is entitled to the agreed-upon compensation.
- Expenses saved (materials no longer needed, labor time saved) should be deducted from this amount.
- Under the law, it is presumed that the contractor is entitled to 5 % of the remuneration attributable to the unperformed portion (Section 648, sentence 3, of the German Civil Code (BGB)). However, the contractor may prove that the amount due is higher; the client may demonstrate that the amount due is lower.
In the Case of Termination Due to Defects
- The client is not obligated to pay the fee for the work.
- The client may be entitled to claim damages if the contractor is at fault for the defects.
- The contractor has the right to reclaim the materials; if this is not possible, the contractor may demand compensation for their value.
In the event of termination by the contractor for cause
- The contractor may bill for the services rendered and request payment for the completed portion.
- In the event of culpable conduct on the part of the client, the contractor may also claim damages.
- Services not rendered will not be compensated—however, the contractor may sue for reimbursement of expenses if he has already performed work.
Additional information: Contract for Work and Services – Legal Aspects
FAQ: Frequently Asked Questions About Terminating a Contract for Work and Services
Yes. Under Section 649 of the German Civil Code (BGB) (now Section 648 BGB, as amended), the client has the right to terminate the contract at any time until the work is completed—without giving any reason. However, termination does not result in the contractor losing their claim to compensation: The agreed-upon remuneration remains due, less any expenses saved (materials no longer needed, labor time saved). By law, 5 % of the outstanding remuneration is presumed to be the minimum payment.
The contractor may terminate the contract only for good cause. The two typical cases are: (1) The client fails to pay the agreed-upon compensation or agreed-upon installment payments. (2) The client fails to fulfill its obligation to cooperate (e.g., failure to provide necessary information). In both cases, a notice period must first be set before termination can be declared.
For standard contracts for work and services, the law does not require a specific form—however, for evidentiary purposes, the written form is strongly recommended. For construction contracts, on the other hand, the written form is required by law under Section 650h of the German Civil Code (BGB): A termination declared verbally is invalid. In any case, the reason for termination should be clearly stated, and the condition of the work at the time of termination should be documented.
Saved expenses are all costs that the contractor no longer incurs as a result of the early termination: materials that no longer need to be purchased, labor hours that no longer need to be spent, and overhead costs for work that will no longer be performed. These amounts are deducted from the agreed-upon contract price. The exact amount is often disputed—therefore, it is advisable to include a precise breakdown in the contract for services.
Partial termination is possible if the work consists of several clearly distinguishable parts and the performance of a specific part has become impossible. In this case, the contractor terminates only the affected part—the right to compensation for the remaining parts of the work that can still be performed remains in effect. A prerequisite is that the parts are objectively distinguishable and not inseparably linked to one another.
Before terminating the contract: the reason for termination should be carefully reviewed and documented; in the event of defects or a lack of cooperation, a written deadline should be set; the condition of the work at the time of termination should be documented (photos, report); the expenses saved should be calculated; and—for larger projects—a lawyer specializing in contracts for work or construction law should be consulted. Termination without proper preparation often leads to unnecessary legal disputes.