Is it too late to terminate?

Over the years I have dealt with loads of cases involving clients who have had a really bad time trying to get out of a long term contract with another party. Thankfully most of the time we have been able to successfully navigate those issues and get the client what they wanted. But the common theme for many businesses is that they might have avoided that situation by carefully considering the contractual termination provisions before signing the contract.
To help other businesses avoid falling into the same traps, SLL has prepared some guidance below on what you need to look for when it comes to termination clauses, and how to manage those risks.

Where to Look

Usually, the contract you are looking at will have a specific section headed "Termination," "Cancellation," "Ending Your Contract," or something similar. This clause will typically set out all of the provisions governing contractual termination, but sometimes other sections of the contract may apply—so it is worth checking the entire document.

Keep It Rolling, Rolling, Rolling...

Know your contract duration and type. You could have a fixed-term contract or a rolling contract (i.e., no fixed or minimum term). Generally, a rolling contract offers more flexibility, but unfortunately, they are not always viable. For fixed-term contracts, make sure you are comfortable with being locked in for the specified duration and know if, when, and how you can terminate early.

Take Notice

Never overlook the required notice period and formalities for serving notice. Some contracts renew automatically for a further fixed period if notice is not given in the correct format and by a specific date—these clauses should be treated with caution. Ensure you know the process for terminating and diarise any key dates in advance.

Cause for Concern

The contract will usually set out circumstances allowing termination. If you can terminate "for convenience," this means you can terminate for any reason. Alternatively, you might only be able to terminate for specific reasons ("for cause"). Some of these reasons might be if the other party breaches the contract or becomes insolvent. Always carefully check these provisions.

Costly Cancellation

Some contracts state that you must pay cancellation charges or fees if you terminate. These may apply if you want to terminate a fixed-term contract before the fixed or minimum term, but they can also appear in other contracts. Watch out for these clauses as they can impose a significant financial burden. Certain clauses may be challenged as being unenforceable penalties, but the law in this area is not straightforward.

Let’s Make a Deal!

For certain contracts, you may be able to negotiate the termination provisions so that they better suit your business and its needs—for example, reducing a lengthy notice period or removing disproportionate cancellation charges. For contracts on a "take it or leave it" basis, having an awareness of key termination issues will allow you to determine if the contract is right for you.

Now that you know what to look for, don’t make the mistake of getting locked into long-term contracts without an exit plan.

And if you need some support reviewing contractual termination provisions, or if you are currently struggling with a termination dispute (hopefully not!), then get in touch as SLL can help.