Termination clauses are essential and necessary to any contract. There are several methods for which a contract may be ended, such as a dated expiry, breach of contract, a contract that becomes void, a discharge by agreement, a release, performance related issues resulting in the end of a contract, a termination due to an event of force majeure, or a rescission, amongst others.
As much as most contracts include a termination clause, it is always advisable to ensure that there is one and that it is convenient for both parties, to make sure no major harms and damages are caused by such termination. Sometimes in the rush and excitement to sign a business deal, many don’t focus on termination provisions in these commercial contracts and this is often because they don’t anticipate the need to end a contract early due to the rush of the moment. However, one needs to ensure there are exit routes in the contract itself, that is why it is important to have suitable termination clauses.
Termination clauses in a contract allows parties to cease an agreement without breaching the contract under ‘early termination’ and ‘mutual termination’. The parties involved can avoid a dispute between them by allowing a termination clause in an agreement to trigger. Two types of termination clauses include:
- Termination for convenience
- Termination for cause
For obvious reasons, incorrect use of the termination clause can also result in a legal conflict. In other words, termination clauses set the terms and conditions surrounding the cancellation of a contract and will address who may cancel the contract and for what reason/s. Negotiating these terms carefully will ultimately safeguard you and your business. Possibly, breach of contracts, including early termination can result in penalties, depending on how the contract was negotiated and concluded. A termination clause could also be a resolutive condition, one which terminates the obligation of the contract upon a specific condition listed in the contract.
A good lawyer will be able to advise of sector specific termination clauses during the drafting of contracts to ensure they are fit for the specific deal. To note is that exit clauses, (also known as escape clauses), in a contract allow one party to leave the agreement without having to follow through on their obligations. When you want to cancel a contract, it is important to carefully consider if you have the grounds to do so because failure to check the contractual terms could be an expensive mistake. Always get advice from a lawyer for a solid termination clause in a contract to avoid costly mistakes.
Article written by Ms Charlene Sciberras, B.A. (Hons), guest writer, is a marketing and business administration specialist with a special focus on corporate, accounting, and legal matters.
Sciberras Advocates founded by Dr Adrian Sciberras, is a law firm based in Malta. The firm prides itself to be multi-disciplinary, innovative and flexible in order to meet the changing times and any challenges in the local and international legal scenario. No matter what private or corporate complex demands are called for, Sciberras Advocates offers practical and cost-effective legal solutions to achieve your desired results. You may reach Sciberras Advocates by phone on +35627795222 or via email on [email protected].