Legal Question in Construction Law in California

The starting point for most questions of this type is a careful review of the contract terms. In almost every case, you're going to find somewhat limited "wriggle room" for terminating the contract early, or for opening up the plans and specifications for unknown future modifications. Excessive change orders in themselves can breach the contract, as can causing delays while a new owner makes up his mind.

So, you may find yourself in a position where the new owner will be liable, in some way, either under the mechanic's lien approach or as your assignee, for the existing contract. You would undoubtedly also remain liable as the orignial contracting owner. The liability would be that the contractor is entitled to "the benefit of the bargain" meaning that if he were not allowed to complete the job someone would be liable to him, not necessarily for the full contract price, but for his expected profit (after all costs related to shutting down and winding up his work).

To avoid this probably unpleasant and expensive situation, it's probably a good idea to initiate a negotiation with the contractor, possibly at some stage also including the new owner-to-be. The contractor may be quite willing to work with both of you to minimize the costs and risks of changing owners in mid-project.

As mentioned, your legal obligation is to assure that the contractor suffers no financial harm as a result of your early termination (probably a breach) of the existing contract; you could be found liable for his costs plus expected profit, and likely his attorney fees if there is an attorney-fee clause in the contract (which is likely).

If it were a $1 million contract that was 50% complete and 45% paid for at the time you pulled the plug, and the contractor's expected profit was $100,000 of that $1 million, you would be liable for at least $150,000, representing the 5% completed but unpaid and the $100,000 profit expectation. If litigated and you lost, add attorney fees and court costs. This is just an example; actual judge, jury or arbitration awards are unpredictible and often differ from theory.

Mr. Whipple is making this much more complicated than it needs to be. The buyer has no right to interfere with your contract with the contractor. If you want to accommodate the buyer, and the contractor agrees, you can all work it out so that you and the buyer agree on how much of the work will be done and you will pay for, and then the contract gets assigned to the buyer, with a release of your obligations upon payment for your agreed part. If the contractor and buyer don't agree, then just finish the house under the original contract, and the buyer can remodel to their liking once they own it.