Ending a contract

Ending a contract must be done correctly to avoid unnecessary litigation and claims.

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Check the contract first 

A contract will usually contain provisions concerning termination. This is the best starting point.  

Reasons for terminating a contract

There are different circumstances in which a contract may be ended. Check which applies to you:

Termination for convenience

Termination for any reason by notice. The notice period will be found in the contract (eg 30 days’ notice period). Remember that if you aren’t specifically allowed to do this in the contract, you cannot just end a contract because it no longer meets your business needs. Always consider this when agreeing to something. Being able to get out when you want, for any reason, is really important.

  • Termination because the other party has become insolvent in some way or is unable to pay their debts (termination for insolvency).
  • Termination for a default or failure to perform an important element of the contract by one party which means the other wants to end it (termination for cause). See further below.
  • The contract is for a fixed period of time which has now expired, or ended.
  • The contract has become impossible because of events outside the control of the parties such as a tsunami (termination for circumstances beyond a party’s control or 'force majeure').
  • The parties simply agree to bring the contract to an end.

Termination for cause

Before bringing the contract to an end for this reason, check the following:

  • is there a sufficiently serious problem with an important part of the contract?
  • is this problem caused by the other party?
  • have you done anything which might be taken as causing, encouraging or accepting this behaviour instead of complaining about it?
  • have you given the other party sufficient warning to remedy the problem with a fixed time?

Sending a notice to the other side - the technical bit

A written notice must always be used for any type of termination.

The contract usually tells you how to provide the notice (eg by fax or by post or by email) and the time period required. You must comply with these provisions.

It is important to identify what type of notice is being used to end the contract.

The notice should be entitled ‘Notice to terminate contract’. The notice must include the reason for ending the contract and a reference to a relevant paragraph in the contract. If notice is given to bring a contract to an end in circumstances where it should not have been, the party sending out the notice may face a legal claim for compensation for ending the contract too soon.

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