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Despite best intentions, sometimes you need to exit a contract early. Whether you are looking to get out of a rental lease, a business arrangement or a lengthy mobile phone contract, you should first consider the best option to break your agreement. A contract is a binding agreement entered into between two or more parties. This agreement sets out the individual rights of the parties and the obligations to which they will be legally bound. This article will explain three ways to get out of your contractual obligations.

First Step to Get Out of a Contract

The first step is to review the termination and cancellation clauses in your contract. These should set out what you need to do to end the arrangement and any consequences of doing so, for example, payment of a cancellation fee.

If your agreement does not include any guidance on early termination, there are other ways you can release yourself. This article outlines the three most common ways you can release yourself from contractual obligations by:

  • performance;
  • agreement; and
  • breach.

Discharge by Performance

You can discharge your liability under a contract by performing your obligations. The court will take a strict approach when determining whether a party has performed their duties. Performance must precisely follow what is written in the contract. It will be important to determine whether the parties’ obligations under the contract are dependent, independent or concurrent.

Dependant Obligations

You can be discharged from your contract if the other party does not perform their end of the bargain. For example, as an employer, you will not be required to pay a contractor where they do not complete their work.

Independent Obligations

If the parties’ obligations are independent of each other, each party will be required to perform their duties irrespective of what the other party does. For example, even if a landlord does not repair damage to the premises, the tenant must still pay the rent.

Concurrent Obligations

Concurrent obligations arise where performance by a party is a pre-condition for the other party to perform. For example, in a sale of goods, it is often a pre-condition that you have to pay before you receive the goods. 

The courts will ultimately look at the contract drafting to determine whether the parties’ obligations are dependent, independent or concurrent.

Discharge by Agreement

The parties to a contract can, at any time, agree to terminate the contract or vary it. Termination or variation can result in the release of contractual obligations. The parties can agree to:

  • discharge an existing contract and replace it with another agreement;
  • discharge part of a contract;
  • vary the terms contained in their contract; or
  • discharge the entirety of an existing contract.

Discharge by Breach

If a party does not perform one of their contractual obligations, they will be in breach of the contract. In certain circumstances, a breach of contract may entitle the innocent party to terminate the agreement. Once a contract has been terminated, you may be able to release yourself from contractual obligations. 

EXCEPTION: Even if a contract has been terminated, you cannot release yourself from contractual obligations which are expressly stated in the contract as surviving termination or expiry, using words such as “This clause will survive termination or expiry of this agreement.“ This is common for restraint of trade clauses, confidentiality and liability provisions. These will continue after the contract has ended.

Types of Contractual Terms

However, not every breach of contract will result in the termination of the contract. There are three general categories contractual terms can be classified into the following, each with varying consequences in the case of a breach:

Conditions

These are terms that go to the heart of the contract. They are of such importance that the innocent party would not have entered into the contract unless they were certain of its performance.

Warranties

These are not as important as conditions, and a breach of a warranty will not lead to the termination of the contract.

Intermediate Terms

Breaching an intermediate term will only result in the termination of a contract if the breach is sufficiently severe. 

For example, if you are a distributor and fail to provide the products that a customer orders, this could be a breach of the condition of your contract. However, if you supply products to a customer not of the expected quality, this may be a breach of warranty. 

For all types of contractual breach, conditions, warranties or intermediate terms, the innocent party will be entitled to seek damages. However, only the breach of a condition will result in the contract termination. 

Checklist of Things to Consider

If you want to end your contract early, here are some things to consider. 

  1. What does your contract say? In particular, review the termination and cancellation clauses. Certain provisions may also survive termination.
  2. Are there any penalties if you leave early? For example, a cancellation fee.
  3. Have you fulfilled all of your obligations? If your obligations are independent of the other party’s, then you may be able to discharge your liability under a contract by performing your obligations under it.  
  4. Has the other party fulfilled all of its obligations? If not and their obligations were conditions (that is, they were fundamental to you agreeing to enter into the agreement), you may be discharged from your obligations.
  5. Does the other party agree to end the contract? Often the other party will be happy to agree to early termination if the arrangement is not working out. You could also offer them an incentive to agree, such as a first right to refuse your subsequent supply arrangement for the same goods or a monetary sum. 

Key Takeaways

If you want to get out of a contract early, first check the terms and conditions to see if there are any consequences. If not, you can consider discharging your obligations by performing what is required of you or by mutual agreement with the other party. You may also be released if the other party has breached the contract. If you are unsure whether you are, or have been, discharged from your contractual obligations, you must seek expert legal advice. If you have any questions about your position, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is discharge by performance?

This is when you discharge your liability under a contract by performing your obligations. This performance must precisely follow what is written in the contract.

What is discharge by agreement?

This is when parties to a contract agree to terminate the contract or vary it in some way. Termination or variation can result in the release of contractual obligations.

What is discharge by breach?

This occurs when a party does not perform one of their contractual obligations, making them in breach of the contract. Sometimes a breach of contract may entitle the innocent party to terminate the agreement. After this occurs, you may be able to release yourself from contractual obligations. 

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