As a business owner, it is likely at some point you may wish to break or end a contract. This may occur when you sign up for a product or service and later change your mind. Unfortunately, if you sign a contract, it can be difficult to get out of your obligations. This article sets out the key steps you should take to determine whether you can end a contract you no longer want to be a party to.
Can I Just Walk Away?
You may consider simply walking away from the agreement. Unfortunately, this is rarely possible. A contract is not just an agreement between two or more counterparties, it also creates legal obligations. If you break a contract and walk away from your obligations under a legally binding agreement, you will open yourself to legal action. The other party can sue for breach and potentially recover any losses they may have suffered from your breach by court order.
Just Ask to End the Contract
Before taking any drastic action, consider speaking to the other party. In many situations, the other party is fine with cancelling the agreement or changing its terms. Sometimes you just need to ask and find a way to end the contract based on mutual agreement. Before you do this, you should speak to a lawyer who can advise you on how to best approach the other party in connection with ending the contract.
Review the Contract
Assuming the other party is not happy to end the contract, your next step is to review the contract itself. This means you must review it in some detail. A cursory review will be insufficient, you need to be thorough.
You should first review the termination clauses in the contract if any. There may be two types of clauses:
- termination for convenience, and
- termination for breach.
A termination for convenience clause allows a party to end the arrangement without any particular reason. There is usually a notice period that you must comply with to terminate for convenience. Locating such a clause can be beneficial for you. It will not be too difficult for you to end the arrangement. When terminating via this clause, you must comply with any specified requirements.
A termination for breach clause allows a party to end the arrangement because the other party defaults on a term of the contract. This may allow the non-defaulting party to immediately end the contract. Additionally, they may even seek any costs associated with having to terminate. Thus, if you have this clause in your contract and the other party breaches any clause, you have an easy opportunity to end the arrangement.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
Contracts are serious documents. You should get in touch with a lawyer to go through your options, as this will save you a lot more money than if you simply walk away. Generally, they can review your contract for you and support you in each stage of the process.
If you need help ending a contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Entering a contract means you have legal obligations to meet. As such, you cannot simply walk away from the contract, breaching your obligations, without repercussions.
Generally, the two main termination clauses are (i) termination for convenience; and (ii) termination for breach of contract. The former allows you to terminate without reason provided you comply with any other requirements within the contract. The latter allows you to end the agreement where the other party has breached a term of the agreement.
We appreciate your feedback – your submission has been successfully received.
