Terminate Contract: Learn 5 Common Reasons

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Terminate Contract Agreements: Common Reasons for Ending Contracts

Unfortunately, not every contract that small business owners draft is going to continue to hold its appeal or relevance to all parties. In instances like these, being able to terminate contract agreements successfully is of the utmost importance.

But when should you seek to terminate your contract, and what are some of the common reasons for doing so that you may find yourself experiencing?

Although everyone's individual situation will vary, some reasons for ending a contract include:

  • An impossibility of performance : Sometimes, contract termination is the result of one party in the agreement being unable to perform their duties. For example, if you've enlisted the help of an independent contractor who has recently been hospitalized for a severe illness, they would be unable to complete their duties, making it possible to end the contract as a result. Additionally, a contract may be terminated if there is an event outside of both parties' control that impacts their ability to fulfill their duties.
  • Termination by mutual agreement : If there is a situation where you and the signing party agree that the contact is no longer working or relevant to use between the two of you, you can end the contract through mutual agreement, which is often one of the most desirable ways to terminate a contract.
  • Termination by breach of contract : When written correctly and thoroughly, a contract will provide both parties with a comprehensive list of duties expected by both parties, which, if not carried out, can result in the termination of the contract. If someone on the other end of your contract has not fulfilled their duties, check to make sure that you have included provisions regarding termination as a result of a breach of contract.
  • Termination by rescission : Whether intentionally or by mistake, it's possible for someone to misrepresent themselves or the assets or services included in the contractual agreement. When this happens, you can rescind the contract as those who signed did not accurately portray themselves as the authority they were.
  • Termination as a result of completion : Finally, if the contract has been completed either because the date at the end of the contract has been reached or the terms and conditions have been fulfilled, it's automatically considered terminated, and there is nothing that you have to do on your end (unless the terms and conditions were not met and there is something that needs to be legally contested).

No matter what your reason may be for wanting to terminate the contract, you can use this list to better determine where your cause may lie and whether or not it's possible to cancel the contract based on those reasons.

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How to Terminate Your Contract Agreement

Once you have found cause for termination, the next step to take is to figure out how you can go about legally terminating the contract.

The most important thing to remember as a small business owner is that you need to include a section within the document that outlines why termination may be necessary and the process for successfully terminating the contract. Without these clauses, it can be more difficult to go about ending the contract with the other party.

To help you get started and see what type of language is expected in small business agreements, here is a list of excellent sample termination clauses that you may be able to use in your own contracts.

Termination of a contract will often fall under one of two categories: termination for cause or termination for convenience. Termination for cause includes reasons such as the other party being in breach of contract (you'll be able to find plenty of cause-based reasons in the list provided in the previous section). Meanwhile, termination for convenience may happen when both parties simply decide to end the contract and are able to reach a formal agreement.

To better understand these reasons behind termination, here is an article outlining termination for cause, and here is another one describing termination for convenience.

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Once you have identified the reason for termination and are sure that you can move forward with terminating the contract legally, the next step is to send a notice to the other party. This notice should provide them with a detailed explanation as to why the contract is being terminated and provide them with the exact information in the contract that details reasons for termination as well as outlines the section that they have specifically breached. This guarantees that you are protected as they have been made aware of which actions have resulted in termination.

If, instead, you're terminating a contract with the other party, you'll want to draft a termination agreement that both parties can sign to indicate that an agreement to terminate has been reached.

If everything is done right, you should be able to break off the contract with limited repercussions for either party, although litigation may ensue if there are damages incurred because of a failure to perform, for example.

Before you seek to terminate a contract, make sure that you have the legal grounds to do so and that the guidelines set forth in your contract regarding termination can be legally enforced in a court of law. Otherwise, there may be consequences for attempting to end your contract that create further issues for your small business. When it comes to drafting contracts, being detail oriented and creating ironclad documents for both parties to sign is vital to the health and wellness of your business.

What If I Don't Have a Termination Clause in My Contract?

If you're a relatively new business owner, you may have made the mistake of not including a termination clause in your contract. But does that mean that you're unable to terminate the contract as a result? Not exactly. Although it can be more complicated to try to terminate the contract without a detailed termination clause, it's not impossible.

One course of action that you can try to take is to revise the contract to include a termination clause. Of course, it's important to note that taking action after a contract is written to follow through on termination offers its own unique set of problems to be wary of.

The best course of action to take, whether you have a termination clause included in your contract or not, is to enlist the help of a contract lawyer. A contract lawyer can help you draft up notices, write new contracts that include the exact clauses you need to protect yourself and the signee, and figure out the next steps when it comes to taking action on termination clauses. With this type of support, you can confidently navigate any further signings and terminations you need to make in your business.

Here is a guide further discussing the role of contract lawyers and how they can help you with your contracts.

Making the choice to terminate contract agreements is a decision that requires multiple steps, starting with contract creation and sometimes reaching litigation. As such, ensuring that you have the information you need beforehand and reaching out to professionals that can help you every step along the way can make the process simpler. Whether you're currently thinking of terminating a contract or anticipating dealing with this process in the future, use the guide above to learn more about why you may end a contract, how you can start the process, and additional considerations you need to take to keep yourself protected.

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