How would you rightly terminate a Contract?

I recommend you follow these steps before putting an end to a contract.

In a commercial relationship, no matter how much the parties trust each other, disagreements may happen.

And, there are only two directions they can go from that point:

Either resolve it mutually or terminate the contract.

In some cases, termination is the only choice, even when the parties genuinely want to resolve the dispute.

Many don’t know when and how they should terminate a contract.

And not following the right steps can give the other party the right to sue you for damages.

Grounds for Termination:

Firstly, when you are terminating a contract, you should have a reason for it, that is recognized under the contract.

You can not give any random reason and then, send a notice for termination.

The other party will get a right to sue you for wrongful termination and breach of contract, and claim damages.

Mainly your right to terminate falls into two categories:

1) Contractual Provisions

Usually, the contract itself has different termination options.

It could include - the expiry of the contract duration, breach by other parties, insolvency etc.

It provides the steps to be taken to terminate as well, such as a prior notice for breach correction, or following a dispute resolution mechanism.

They should be strictly followed or otherwise your notice of termination will be null and void.

2) Common Law Rights

Some badly drafted contracts do not even have termination grounds or a process provided.

It does not mean the contract can not be terminated.

There are some grounds that the law recognizes even when not expressly provided in your contract.

This could include - sending a reasonable notice period, frustration (performance becomes impossible), and a material breach by others.

Which common law right is available to you depends upon your circumstances.

E.g. - when you accept the delay by the other party in doing something, you automatically waive your right to terminate on that ground.

How to Terminate:

If the parties have mutually decided to terminate, they can simply sign a termination agreement waiving the requirements under the contract.

In case of one-sided termination, sending a notice first is the right way providing grounds for termination and the effective date.

If the contract provides any specific way of sending notice- that should be strictly followed.

Termination should only be resorted to as the last option when there’s no scope for re-negotiation or dispute resolution.

But, if the push comes to shove, make sure to do it the right way.

That's it!

Now you have a better idea of how to properly terminate a Contract.

And also the correct way to get out of a tough situation.

Good luck!

P.S. Did you ever have to Terminate an Agreement? 

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