Thinking of terminating a contract?

Introduction / Step 1: Available Termination Rights / Step 2: Appropriateness of Termination / Step 3: Review the Entire Contract / Step 4: Requirements for Valid Termination / Step 5: Other Legal Considerations / Step 6: Practical Considerations / Conclusion 

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Introduction: 

Terminating a commercial contract can be a complex process that requires careful consideration of legal rights, contractual obligations, and practical implications.  

This article provides a practical step-by-step guide on what to do when considering whether to terminate a commercial contract.  

Step 1: Available Termination Rights  

1. Review the contract thoroughly to identify the termination rights available under both common law and the contract itself.
2. Look for a clause or term headed Termination and read this carefully.
3. Consider if the other party breached the contract in some way that allows termination.
4. Common law may imply a term that allows termination on reasonable notice, even if not explicitly stated in the agreement.
5. Consider whether there are any rights to terminate the contract at common law, such as in cases of repudiatory or anticipatory breach.
6. Seek advice if in doubt about anything.

Step 2: Appropriateness of Termination

1. Before proceeding with termination, explore alternative solutions such as negotiation, variation, or novation, which may provide a more suitable outcome.
2. Consider the impact of termination on the relationship with the other party and any recent communications or interactions.

Step 3: Review the Entire Contract

1. Read the entire contract, not just the termination clause, to understand the obligations, restrictions, and available remedies.
2. Consider the consequences of termination as they are provided under the contract
3. Look for other termination rights that may be hidden in different clauses, such as material breach, change of control, or conditions.

Step 4: Requirements for Valid Termination 

1. Understand the requirements for terminating the contract at common law and in accordance with contractual rights.

2. At common law, an anticipatory or repudiatory breach must be accepted by the innocent party to bring the contract to an end.
3. For contractual rights, ensure that the contract includes a specific right to terminate, the event or circumstance triggering termination has occurred, and any formal requirements are met.

Step 5: Other Legal Considerations

1. Take into account other legal considerations that may impact on a decision to terminate, such as notice provisions, termination payments, force majeure clauses, and dispute resolution obligations.
2. Check for any exclusion or limitation of liability clauses that may affect the remedies available upon termination.
3. Assess the impact of termination on related contracts, third-party rights, and any obligations under the Transfer of Undertakings (Protection of Employment) Regulations 2006.
4. Consider what implied rights might there be to bring an end to the contract.

Step 6: Practical Considerations

1. Maintain accurate contract management records to ensure compliance with notice periods and prevent automatic extensions.
2. Present termination options to relevant stakeholders and obtain clear instructions for a termination strategy.
3. Seek expert advice from a dispute resolution practitioner if necessary, especially in cases of breach or deteriorated relationships.
4. Take steps to minimize damage to reputation and goodwill that may arise from termination.
5. Consider practical steps following termination, such as returning equipment, performing handover obligations, and settling outstanding invoices.

Conclusion: 

Terminating a commercial contract requires a thorough understanding of legal rights, contractual obligations, and practical considerations.   It is always advisable to seek legal advice specific to your situation to ensure compliance with applicable laws and regulations.

See also Grounds for terminating a contract

Legal Notice: Publisher: Atkins-Shield Ltd: Company No. 11638521
Registered Office: 71-75, Shelton Street, Covent Garden, London, WC2H 9JQ 

Note: This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. The information contained in this document is intended to be for informational purposes and general interest only. 

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