Importance Of Termination Clause In A Contract

A business contract typically includes such attributes as termination clauses and confidentiality provisions. Such agreements are invoked in all industries and many of the contractual clauses are used across most sectors. In fact, there are various clauses likely to make appearances in nearly every contract draft. Commercial contracts, most notably, have a certain set of standards and conditions. Various clauses in a contract serve to protect your business from miscommunication and lawsuits, providing legal safeguards that your business may not otherwise receive.

You may also come across contract clauses that you review and notice the same subjects repeated, but are worded in a different manner. Such subject matter within the provisions are important but the specific wording does not matter. It is important to consider adding such clauses in all agreements that your business agrees to, although you may think certain clauses are not necessary.  When the required clauses are not added in a proper manner it generally results in a contractual dispute thereby leading to business litigation.

There are many ways to avoid contractual disputes, but the top of the list is to have someone who can read and interpret contracts like a business attorney who is qualified to tell you what the contract says and perhaps most importantly how to terminate it if you are not satisfied with what is being provided.

Important Tips To Consider When Dealing With Business Contracts

  • Do not accept a contract that requires that you show “cause” or “breach” to terminate, especially with regard to management or important ongoing services.
  • Beware of contracts that automatically rollover if “not terminated within [a certain number of days] prior to (or before) the expiration date. In these contracts, if you miss the opportunity to give notice of termination within a particular period of time (sometimes a very limited period each year), you can be committed for another period of time (usually a whole year, but sometimes less or more).
  • Demand a clause in the contract that allows for 60 or less days’ notice of termination, without cause! An automatic rollover is not bad if there is a way to terminate the contract within 30 or 60 days if you are unhappy with the services.

When you are handed a contract by a vendor, it is likely the contract is favorable to the vendor, not you, and the terms are negotiable.  If you are looking at a contract for construction services, especially extensive and costly services, look for a termination clause that is based on some reasonable measure, such as phases or buildings or a measure of fencing, etc. A contractor who is savvy should offer some reasonable termination provisions.

Having to show cause or breach to get out of a contract or suffer extensive losses before you can jump ship is not beneficial. Forcing parties to continue to work together when the relationship has gone south can be highly unproductive. Having to buy out a contract term can be very expensive. Firing someone or some company and hiring another while still under contract with the first creates two contract disputes to deal with. Don’t make these mistakes.

Treat contracts with care and respect and understand the legal ramifications. In the eyes of the law, you cannot ignore contractual obligations and requirements.

Share this Article

About the Author

I have practicing since 1998 representing New York clients. I represent clients in a variety of practice areas, including personal injury, car accidents, slip and fall cases, general business law, real estate, bankruptcy and debt management or settlement.