When terminating a contract early, the circumstances at that time and the content of the contract will be critical to understanding how this might be done as Commercial Law specialist Mitchell Zadow explains.
In the current economic environment, businesses and individuals are under increasing financial pressure. Perhaps you have entered into a contract that you no longer want to be bound to. That will be possible, sometimes – but often it will not.
Unless the contract is terminated early, it will usually come to an end only in the following circumstances:
- When the contract includes a fixed duration or expiry date (but be careful that it does not automatically renew); or
- When the parties have completed their obligations to each other.
To terminate a contract early, the circumstances at that time and the content of the contract will be critical to understanding how this might be done. When claiming that a contract is terminated early, it is essential that you ensure you have a solid legal basis for doing so, as terminating a contract invalidly could be deemed a repudiation of the contract (discussed further below), which might give the other party the right to make a wrongful termination claim for damages from you.
Terminating a contract
The most common ways a contract can be terminated early include:
1. Express terms of the contract that allow for the contract to be terminated early.
Most contracts include clauses that allow for early termination. However, termination clauses can differ significantly. Some contracts allow either party to terminate the contract, while other contracts allow only one party to terminate. Further, some clauses allow a party to end the contract “for convenience” or “without cause”, meaning that they do not need to justify their decision. However, some contracts only allow for early termination if certain events occur, such as a breach of the contract by the other party.
2. Subsequent agreement
The parties to the contract can agree to end the contract early via a subsequent agreement where they agree to release the other from the original contract. This can be possible even if the contract does not include a termination clause. However, all parties to the contract must agree.
If one of the parties to the contract shows an unwillingness or inability to complete their contractual obligations, the other party may be able to argue that the contract has been repudiated and, accordingly, that the contract is brought to an end. However, care should be taken if you are trying to end a contract on this basis, as you could be liable to a wrongful termination claim if you do not have a proper legal basis.
The contract could be considered abandoned if it is clear from the conduct of all the parties that they do not intend to fulfil the contract. Again, care should be taken when trying to end a contract on this basis.
How Can Sharrock Pitman Legal Help?
When considering your position in relation to a contract, consider obtaining legal advice prior to taking any action. There might be several options available to you, which could help ensure you terminate the contract safely and with less risk of a claim by the other party.
Our Accredited Specialist Commercial Law team has been helping business owners and managers for over fifty years. Our team has experience in assisting businesses across a wide range of industries including retail, hospitality, manufacturing, health and medical practices, construction and real estate.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.