During the course of their lifetime, most businesses will want to take steps to terminate certain commercial contracts they have entered into for a multitude of reasons. However, without proper consideration of the terms of the contract, how and when to terminate and the consequences of termination, disputes can arise which may result in a claim for breach of contract against the terminating party.
Therefore, it is important that before giving notice to terminate, businesses take the following steps when seeking to navigate an exit from a commercial contract, so as to minimise the risk of disputes arising:
- Carry out a detailed review of the terms of the contract in its entirety. Aside from the termination clause, there may be other standard terms and conditions which apply.
- Check each procedural requirement for termination under the contract. For example, what is the notice period? Is there a specified date as being the earliest date that you can give notice to terminate? Is there a deadline by which you are to give notice? On what grounds are you contractually entitled to terminate?
- Check what are the consequences of termination (financial or otherwise) under the contract. For example, are there any exit fees? Is there a penalty fee for early termination? Are there any other terms in the contract that survive contractual termination (for example confidentiality clauses or restrictive covenants)? How will these surviving terms impact your business?
In addition to the above, if your business is seeking to terminate the contract on grounds of repudiatory breach (a breach so serious that the contract could not be honoured in good faith after this breach), this can be a lengthy and technical process, which is likely to require the advice of a Solicitor.
Furthermore, before taking any steps to terminate, the business must consider its overall commercial relationship with the other contracting party. Have the parties entered into multiple contracts and the terminating business seeks to only terminate one specific contract? Would termination potentially damage a wider commercial relationship?
Should you have any concerns about your right to terminate a commercial contract, the procedure you need to follow, the grounds you can seek to rely upon and/or the consequences of terminating, then please do not hesitate to contact MMW’s Commercial Disputes Team on 020 90 2000 50 and one of our specialist Solicitors will be happy to assist.