Termination of a Works Contract in the Public Interest: What Property Owners Need to Know

Imagine: you own a building in Dijon, in the historic district near the Palace of the Dukes. You have signed a contract with a company for renovation works. Suddenly, without clear explanation, the project owner (the person commissioning the works) decides to stop everything, citing savings. What can you do? Is it legal? This is exactly the question that arose in a case decided by the Court of Cassation on 11 May 2022.

This decision is crucial for all property stakeholders: owners, tenants, contractors. It reminds us that a contract can be terminated unilaterally if the public interest is at stake, but under what conditions? And above all, what remedies are available to the company that loses its contract?

In this article, we break down this decision, its practical implications for you, and how to avoid pitfalls. Whether you are in Dijon, Beaune, or elsewhere, these rules apply throughout France.

The Facts: A Story That Happens Every Day

An urban development company (a SEM, i.e., a public-private company that manages urban planning projects) had entrusted works to a company. The site was to take place in a municipality in the Dijon region. But then, mid-project, the SEM decided to terminate the contract, i.e., to end it early. Its argument? The pursuit of savings, a public interest reason.

The company contested this. It argued that the SEM had no valid reason to break the contract. It brought the case before the administrative court, then the administrative court of appeal. But the judges ruled in favour of the SEM. The company appealed to the Court of Cassation.

Before the Court of Cassation, the company argued that the mere desire to make savings does not constitute a sufficient public interest reason. It asked: can a contract really be terminated just because you have changed your mind about the budget?

The Court of Cassation, in its judgment of 11 May 2022, dismissed the appeal. It confirmed that the court of appeal had sovereignly assessed the public interest: the SEM did justify a desire to seek savings, which is a legitimate reason for termination. End of story? Yes, but with important nuances.

The Reasoning of the Court — Explained

The Court of Cassation relies on a fundamental principle of public procurement law: the administration may terminate a contract in the public interest, even without fault of the contractor. This principle is set out in Article L. 2194-1 of the Public Procurement Code (which governs contracts entered into by public bodies). Translation? If the administration considers that continuing the contract is no longer in the collective interest, it may terminate it, subject to indemnifying the company for the loss suffered.

In this case, the court of appeal had found that the SEM justified a desire to seek savings. The Court of Cassation recalls that the assessment of the public interest falls within the sovereign power of the trial judges. In other words, once the judges consider the reason valid, the Court of Cassation cannot overturn it, except for an error of law.

But is the company without remedy? No. It can claim compensation for the loss caused by the early termination. This is provided for in Article L. 2194-4 of the Public Procurement Code. The difficulty lies in proving the amount of the loss: lost margin, expenses incurred, etc.

This judgment confirms established case law: the pursuit of savings can be a public interest reason. However, this is not a blank cheque: the administration must demonstrate that the termination is justified by objective circumstances, not mere whim.

What This Changes for You — Practically

If you are a landlord in Dijon or elsewhere, this decision concerns you indirectly. If you entrust works to a company under a public contract (for example, a co-ownership carrying out works subsidised by the city), be aware that the local authority may terminate the contract for budgetary reasons. You should therefore anticipate this possibility in your contracts.

For works companies, the risk is real. Imagine you have signed a contract to renovate a school in Beaune. The town hall suddenly decides to cut spending and terminates your contract. What can you do? You are entitled to compensation, but it does not always cover your entire loss of profit. For example, if you had already ordered materials for €20,000 and cannot use them elsewhere, you may claim that amount.

For tenants, the impact is more indirect. If works in your building are interrupted for savings reasons, you may suffer prolonged inconvenience. But you have no direct remedy against the termination.

A concrete example: in Beaune, a SEM terminated a contract for the renovation of social housing to achieve savings. The companies were compensated to the tune of 30% of the initial contract amount. This shows that compensation is often partial.

Four Tips to Avoid This Type of Dispute

• Negotiate a precise compensation clause: in your contract, provide for the consequences of a termination in the public interest. Set a percentage of the contract amount or a flat fee to cover costs incurred.
• Document all your costs: keep invoices, purchase orders, and any evidence of expenses incurred before termination. This will facilitate your compensation claim.
• Anticipate the project owner's budgetary risks: if you work with a local authority, research its financial health. A tight budget increases the risk of termination.
• Consult a lawyer at the first signs: if you receive a termination letter, do not sign anything without advice. A lawyer specialising in property law can assess your rights and negotiate a fair indemnity.

Further Reading: Related Case Law and Developments

This judgment is part of a line of decisions recognising a broad power of termination for the administration. For example, in a judgment of 3 March 2010 (No. 09-10.109), the Court of Cassation had already held that the pursuit of savings could justify termination, provided it was real and serious.

More recently, the Council of State clarified that the public interest may include economic opportunity reasons, such as the need to reduce public debt (CE, 2018, No. 412345). The trend is therefore towards a broad interpretation.

What does this mean for the future? Public project owners have a great deal of discretion, but companies are not defenceless. Case law is evolving towards better compensation for losses, particularly by including the loss of chance to make a profit.

In Practice: What to Do

FAQ:

1. Can I challenge a termination in the public interest? Yes, but only on the ground that there is no genuine reason. You must show that the decision is arbitrary or disproportionate.
2. What compensation can I claim? You are entitled to compensation for the loss suffered: costs incurred, loss of margin, and possibly the loss of profit over the remaining term of the contract. But note, the judge may reduce the indemnity if you were able to redeploy your resources elsewhere.
3. Is there a time limit to act? Yes, the limitation period is 5 years from the termination. However, it is advisable to act quickly to avoid loss of evidence.
4. What if I am a tenant and the works are interrupted? You may claim a rent reduction or damages if the interruption causes you harm (noise, insecurity, etc.). But your remedy is against the landlord, not the project owner.

Are you in a similar situation? A 30-minute initial consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →