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Business relationships; when they’re good, they’re great, reaping financial rewards and mutual benefits for all parties involved. But what about when they’re sour, and what was once a productive working relationship becomes a burden? As we approach the end of the financial year, now is the time to take stock of your existing contracts and consider how do you go about terminating contractual relationships?
Absent a mutual agreement between the parties to walk away, or an intervening event that renders the contract undeliverable, your first port of call is always your contract – that document will usually set out any pre-existing termination rights and the steps required to execute it. Where that’s the case, it’s crucial that these steps are followed to letter; make sure you comply with any and all notice periods and/or dispute resolution requirements. Choosing to end a contractual relationship whilst ignoring the contract has considerable risk. A failure to end the relationship properly may invalidate your termination, render you in breach of your contract and leave you open to a claim for damages.
But what if your contract doesn’t deal with your particular issue or dispute, or worse, has no termination provisions at all? Are you locked in? Absolutely not; there are myriad ways to terminate a contract and many of these won’t appear in your written terms and conditions. First, consider whether there has been a breach – has the other party failed or refused to perform an obligation? Second, how serious was that breach? If the other party has failed to perform a fundamental obligation (i.e. pay), or an intermediary obligation with sufficiently serious consequences, then you will likely have a right to terminate and walk away. But this right is limited and you need to act quickly and with care. Delays, equivocation or a failure to exercise a right to termination could mean that you lose that opportunity altogether.
If you’re stuck in a contract you’d rather not be in and you are unsure about your termination rights, we recommend seeking professional advice sooner rather than later. When it’s done right, termination can ensure all parties are free to walk away, released from all further obligations and sometimes with the benefit of compensation. Often, termination can be as simple as serving a written notice, and getting early advice on your options can help you avoid drawn out disputes or costly negotiations.
