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Opportunity to Cure

The decision to terminate a subcontractor is difficult one and can lead to disaster if not done correctly.  Before ultimately making the decision to terminate, the non-performing contractor must be given an opportunity to cure its breach.  The opportunity to cure a breach of contract is a well established and fundamental right, routinely recognized by New York courts[1].  The right of a breaching party to be given an opportunity to cure its own material breach is intended (1) to prevent forfeiture by termination, (2) to allow the breaching party to mitigate damages, (3) to avoid similar future deficiencies in performance, and (4) to promote the informal settlement of disputes.  In other words, an opportunity to cure is meant to provide the parties to a construction dispute one final chance to come to agreement and avoid the cost, delay and general angst that comes along with a termination.

A notice to cure must meet certain requirements to be effective.  At its most basic, the notice must be specific enough so as to give the other party a reasonable opportunity to cure the breach[2].  The notice must describe the inadequate performance and must fairly advise the subcontractor that the general contractor considers the inadequate performance serious enough that, without prompt correction, the contract will be terminated[3].  The cure notice must thoroughly define the parameters of the problem.  Routine letters, meeting minutes and punch lists will most likely not qualify as a formal notice of cure.  

Together with the common law right to an opportunity to cure, most standard construction contracts also require that a notice of cure be sent prior to any termination for cause.  Failure to follow these requirements will likely render a termination wrongful and subject the general contractor to liability for the resulting damages.

A New York court recently made such a finding Mike Building & Contracting, Inc. v. Just Homes, LLC 27 Misc.3d 833, 901 N.Y.S.2d 458 (N.Y.Sup., 2010). The Court found that the termination letter sent to plaintiff by defendants merely stated “[p]ursuant to Section 14.2 of the contract dated July 12, 2005 ... we hereby give notice of termination of your services effective seven (7) days from the receipt of this letter.”  Due to this lack of specificity, it was determined that the Defendants had failed to give plaintiff an opportunity to cure their allegedly defective or nonconforming work, and failed to provide the second written notice as required by the subcontract.  The court ultimately decided that the failure to comply with the applicable notice and cure provisions in the contract barred recovery on the defendants’ counterclaim based upon allegations of non-performance.

If you ultimately decide that termination makes sense, be sure that every notice requirement laid out by your subcontract is followed to the letter and that the subcontractor is given a meaningful opportunity to cure its breach.  Otherwise, the already costly situation of a non-performing subcontractor will only be compounded by a judgment against you for breach of contract.  Consultation with an experienced attorney would be the wisest way to avoid making a costly mistake.

If you have any questions about the information set forth in this Legal Alert, call us at 914-220-0216. Please understand that this alert provides general information only. It is not intended to provide legal advice. We encourage you to contact an attorney should you desire to discuss specific situations for which you may need specific legal advice.



[1] 5 Bruner & O’Connor Construction Law § 18:41 citing US for Use and Benefit of Cotolano & Barone, Inc. v. Morano Const. Corp., 724 F. Supp. 88 (SDNY 1989)

[2] Ulla-Maija, Inc. v. Kivimaki, 2005 WL 2429490 (SDNY 2005)

[3] 5 Bruner & O’Connor Construction Law § 18:41 citing Restatement (Second) of Contracts §248

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