Termination Notices

There are many reasons why a business may wish to terminate a contract or lease before the agreed upon date. Although each situation is different, the two most common reasons for termination include:

• Termination by Breach: This is when one party material breaches the contract. When this happens, the innocent party may be entitled to terminate the contract. This releases them from their contractual obligations. In this case, a Termination Notice is usually required.
• Termination by Mutual Agreement: This is when both parties mutually agree to terminate the contract. In this case, a Termination Agreement is required.

The following are less common reasons why a contract may be terminated:

• Termination due to Frustration of Contract: A contract may be “frustrated” when there has been an unforeseen situation or supervening event which was not self-induced or the fault of either party. This unforeseen situation or supervening event must have caused a radical change in the nature of the fundamental contractual obligation. There is a high bar to proving that a contract has been “frustrated.”
• Termination due to Force Majeure: A contract may terminate if there is a “force majeure” clause and a force majeure event occurs. The force majeure event must be beyond the control of the parties and must make it impossible for the party to perform the contract.

Regardless of the reason for termination, it is beneficial to put the termination in writing via a Termination Agreement or Termination Notice because it clarifies that the parties no longer owe each other any contractual obligations. Plus, a Termination Notice creates written evidence in case things go sideways. For example, a party may sue the other party and claim damages because they did not receive sufficient notice of the termination.

If a contract is properly terminated, all parties will be released from their remaining contractual obligations. This is known as discharging a contract.

If the termination was due to a severe breach, then the breaching party may even need to provide the other party with certain remedies. For example, they may have to pay monetary damages to the other party.

However, keep in mind is that there are often specific laws regarding the cancellation of certain agreements, such as Commercial Leases, Loan Agreements, or Employment Agreements depending on your jurisdiction. This is why it is important to consult with a lawyer to determine if a clean break from your legal responsibilities is truly feasible.

Unless all parties mutually agree to terminating the contract, the process of terminating a contract can be challenging. A careless attempt to terminate the contract can expose you to legal liabilities. It is not enough to say that you want out of a contract just because the other party committed a minor breach. If you attempt to terminate a contract without sufficient grounds to do so, then you could be liable for wrongful termination or anticipatory breach. Therefore, before you express your intention to terminate a contract, you should consult a lawyer to determine whether or not you have valid grounds to do so.

The right to terminate a contract will often be laid out within the contract itself. Although this should make it clear whether you have grounds for termination, these termination clauses are often worded in complicated legalese. Moreover, the termination clause will usually detail the process for terminating the contract, including whether written notice is required as well as the notice period. It is important to adhere to this process.

If a party decides to terminate the contract without mutual agreement, then written notice should be provided to the other party. This is where Termination Notices come into play. These should detail the reason for the contract termination, including the section of the contract that the party breached, if applicable.

However, if all parties mutually agree to terminate the contract, then all that is usually required is a Termination Agreement. Note that only the parties that have signed the contract can terminate the contract.

Depending on the circumstances, it may be better to simply amend the original agreement rather than terminating the contract entirely. In this case, a Contract Amendment Agreement should be signed.

If a party decides to terminate the contract without mutual agreement, then a written Termination Notice should be sent. Once the party has established a valid reason for contract termination, they must notify the other party of their intentions. The Termination Notice should detail the reason for the termination, including the section of the contract that the other party breached, if applicable.

Here are three general guidelines for drafting Termination Notices:

A contract lawyer can help you draft or review your Termination Notice. Importantly, we can analyze your particular circumstances to determine if you have the right to terminate the contract legally without any unintended consequences.

Since terminating contracts without grounds to do so can expose you to legal liability, we recommend against downloading a basic template online and sending it without careful consideration. Consult with us to ensure that you are making an informed decision before terminating a contract.