Early termination contract refers to the dissolution of a contract before the term of that contract has concluded.3 min read
Updated October 23, 2020:
Early Termination Contract Overview
Early termination contract refers to the dissolution of a contract before the term of that contract has concluded. This will usually occur due to breach of contract, which involves a party failing to uphold the terms of the contract they signed. Some contracts may also have clauses allowing for early termination to be pursued by one of the parties. Early termination can have wide-reaching effects for both parties involved, both in their immediate business dealing and in their overall business reputation, so such action should generally be avoided, if possible.
How to Terminate a Contract Legally
If you would like to terminate a contract you are in without taking an action that would be construed as a breach of contract, you have the following options for achieving release from the contract legally:
- Use a termination clause. If your contract has a termination clause, you can follow the steps stipulated in it to release yourself from the contract. Generally, a termination clause will stipulate that due notice of termination must be given in writing for termination to be acceptable. There may also be an early termination fee that must be paid.
- Claim the contract is impossible. If it can be argued that the terms of the contract are impossible to fulfill, then you may be released from the obligations of the contract. An argument for impossibility will only be acceptable if that circ*mstance is due to either the acts of the other party in the contract or an act of nature; you cannot gain release due to your own acts causing completion impossibility.
- Claim frustration of purpose. Frustration of purpose refers to the reason for a contract’s existence going away, and if this occurs, you may be able to terminate your contract. For example, if you sublease your apartment to travel overseas but political tensions make such traveling impossible, you might be able to cancel your sublease contract because the reason for having it went away.
- Identify a breach of contract. If the other party has committed a breach of contract and you can identify it, then you will be able to terminate your contract.
- Negotiate termination. It may be possible to take your desire to terminate the contract to the other party and convince them to allow you to dissolve the contract. You may have to offer some compensation for this, including a cancellation fee or the reimbursem*nt of funds already received during the course of the contract. You may also offer to take up the contract again some time in the future, once the reason for your desire or need to terminate the contract has passed.
How to Handle a Breach of Contract
Aside from legal termination, breach of contract is the other means by which a contract may be terminated, and this means, on the other hand, is not legal. If a breach of contract has been made against you, options for response are as follows:
- Pursue mitigation. If material exchange is involved in your contract, full recovery of any materials lost should be allowed if contract breach occurs. You should be able to mitigate, or lessen, the damages caused by contract breach by demanding replacement services or goods, which are known as cover. If cover costs the same or less than the amount of the original contract, then damages may not be entitled to you. If cover exceeds costs, then damages might be awarded.
- File a lawsuit. Bringing your grievance against a breaching party to a court of law with a legal case is another option. If you take this route, you should be sure you have a copy of the contract that was broken and that you can identify specifically how it was broken, as well as the specific damages you suffered because of the break. A lawsuit should be filed as soon as possible since many states have statutes of limitations concerning such suits.
- Consider Alternative Dispute Resolution (ADR). ADR is a way for parties to resolve a breach of contract dispute without a costly, lengthy, or otherwise inconvenient court case. ADR will involve bringing in a neutral, third-party mediator to resolve the dispute, often with negotiated input from both parties.
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FAQs
You may have to offer some compensation for this, including a cancellation fee or the reimbursem*nt of funds already received during the course of the contract. You may also offer to take up the contract again some time in the future, once the reason for your desire or need to terminate the contract has passed.
What to consider when terminating a contract? ›
Parties should seek advice at an early stage and formulate a view as to whether they wish to terminate the contract or continue with their contractual relationship. If a party wishes to terminate a contract, consideration must be given to how the parties conducted themselves after that right of termination arose.
Can you terminate a contract at any time? ›
The Right to Terminate a Contract
Typically, there may be an express or implied right to terminate the contract, allowing a party to cease the agreement under a termination clause before the agreed end date. Usually, termination clauses link to causes like a breach of contract and insolvency.
What are the 5 ways a contract can be terminated? ›
Discharge by agreement
- Release. Where one party has fully performed their obligations under a contract but the other party has some obligations outstanding, the contract may be discharged at any time before breach by release by deed. ...
- Rescission by agreement. ...
- Contractual termination. ...
- Variation. ...
- Waiver. ...
- Financial difficulty.
Contracts of employment may be terminated in a number of ways including: agreement, dismissal, repudiation and frustration.
Is there a difference between Cancelling a contract and terminating a contract? ›
Specifically, the parties may terminate a contract upon an agreement or the contract may automatically terminate when the parties fulfill their obligations without any breach or damage. Meanwhile, the cancellation of a contract mostly is a result of the parties' breach of the contract.
Is it bad to end a contract early? ›
Early termination can have wide-reaching effects for both parties involved, both in their immediate business dealing and in their overall business reputation, so such action should generally be avoided, if possible.
Is it OK to leave a contract early? ›
In most cases, yes, you can quit a contract job. Your contract likely dictates whether you need to give notice to your employer before quitting your contract job, and may outline what could happen if you fail to do so. If necessary, ask a legal professional to look at your contract and explain the terms to you.
What is an example of an early termination fee? ›
For example, if you have a $500 early termination clause, you'll pay $500 for canceling your contract earlier than the expiration date. It doesn't matter if you cancel after one month or 24 months; the fee is always the same.
In what 4 ways can a contract end or be terminated? ›
- Termination of contract for breach.
- Termination of contract by performance.
- Termination of contract by agreement.
- Termination of contract by frustration or force majeure.
To walk away from a contract, you must elect to terminate the contract based on that breach or repudiation. You should communicate this to the other party as soon as you find out about their breach or repudiation.
When can a contract be legally terminated? ›
Fraud or a mistake: If the contract was formed under circ*mstances that include fraud, the contract can be terminated. Illegality: If the main subject of the contract becomes illegal because of a new law, the contract may become illegal and, therefore, must be legally terminated.
How can I get out of a contract without paying? ›
You can often negotiate an end to the contract by explaining to the other contractual party your reasons for wanting to sever the agreement in a letter or an in-person meeting. Provide specific reasons why you need to get out of the contract and make recommendations that present a mutually agreeable resolution.
What are my cancellation rights? ›
A consumer who has purchased your goods via an online platform has the right to cancel the contract and claim a refund without giving any reason or justification and without incurring any liability (unless exceptions apply) within 14 calendar days of receiving the goods.
Is termination of contract same as fired? ›
Is Getting Terminated the Same as Getting Fired? You are terminated from your employment if you are fired. The reason for your termination depends and your employer should let you know why they let you go.
Do you need consideration to terminate a contract? ›
Variations to Terminate
As such it must be supported by fresh consideration to be legally binding. So, where both parties have performance obligations (ie executory consideration) outstanding under a contract, an agreement to discharge one another from further performance will usually be fresh consideration.
