A contract should outline how and when the parties can leave their contractual obligations. In some cases, this will include a ‘termination for convenience’ right. This allows one party, or all parties, in a contract to leave their contractual obligations without cause. A termination for convenience right will generally only be available to parties who agree to it in their contract. It will also be limited to specific terms in the contract. This article will outline what a termination for convenience right is and what to be aware of if this option to terminate is in your contract.
What is a Termination for Convenience Right?
A termination for convenience right can provide flexibility when entering a contract because it allows one, or each party, in a contract to leave their contractual obligations for any reason. The terminating party can end the contract without proving breach or any other justifying circumstance.
A termination for convenience clause may state that “Either party may terminate this contract at any time by providing 30 days’ notice to the other party.” Such a clause is very common for subscription services, such as Netflix, where subscribers can terminate the contract at any time and for any reason, subject to a requirement to pay out the fees for the remainder of the month.
Common Law Right of Termination
The law recognises specific events that will result in the termination of a contract even if the parties do not expressly agree to them. These include:
- a breach of an essential term or condition;
- a serious breach of a non-essential term; or
- if one party demonstrates an intention to no longer be bound by the contract.
A termination for convenience right is not a common law right. Therefore, for a party to use it, they must expressly provide for it in the contract. If such a clause does not exist, it will not be available to the parties.
Continue reading this article below the formNotice Period
A termination for convenience clause should outline the process required to effect termination.
The clause should include:
- the accepted form of notice, such as in writing;
- to whom or where a party should send notice of termination; and
- how long after notice is given the termination comes into force.
Note that sometimes, if a party does not terminate the contract in a specific period, it automatically renews for another term. If you deliver a service, you will probably try to negotiate a notice period that is as long as possible. This can allow you to secure other work during the notice period.
Exclusive Right to Terminate for Convenience
Some contracts may include an exclusive right to terminate for convenience. This is where only one party in the contract has the right to terminate for convenience.
In the 2018 case between the Australian Competition and Consumer Commission (ACCC) and Servcorp Limited, the Federal Court found that certain terms used in Servcorp’s contracts were unfair. Among these was a term empowering Servcorp to unilaterally terminate many contracts for convenience without compensating the other party.
You should seek advice before negotiating or entering a contract with an exclusive right to terminate for convenience.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Key Takeaways
A termination for convenience right can provide great flexibility when entering a contract. However, it must be expressly included in a contract for it to be an available termination right. Even if the contract includes this clause, it may be unenforceable if it is unfair.
If you need help with contract termination clauses, 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
The notice period is a specified period of time in an agreement that a party must give to the other party before ending the contract.
An exclusive right of termination allows one party to terminate a contract for convenience. The other party does not have this same right. Accordingly, such clauses risk being unenforceable as they may be unfair.
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