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Thinking of ending a contract? Here's how to do it right 

A person signing a document

Every day, a wide range of contracts are executed globally for various reasons, ranging from formal business arrangements to personal obligations. But what happens when individuals or companies change their minds and no longer find a contract suitable and wish to terminate it?Let's find out.

What is a contract, and what does it mean to get it terminated? 

A contract is a legally binding document that outlines the rights and obligations of all parties involved in an agreement. Contract termination is the legal process of ending an agreement before it's fulfilled.

In Australia, there are a few scenarios where the law may permit the end of a contract:

End by performance: When the contract is fulfilled by both parties.

End by agreement: When all parties agree to let go of the contract, even when it has not been fulfilled.

Ends in frustration: This is when one of the parties can't fulfil their commitment for a reason beyond their control.

End due to a breach: When a party is able to prove that the other party has breached the contract, the law may permit it. However, a breach of a contract doesn't automatically end a contract unless it has been explicitly mentioned,

End for convenience: A termination for convenience grants one the ability to end a contract without needing to prove a breach by the other party. However, these clauses have limitations that prevent other parties from being unfairly used.

While terminating a contract can be a tricky process to navigate, it isn't impossible. Here are some steps you can take if you want to end a contract legally:

1. Review the termination clause 

When you're sure that you want to terminate the contract, the first step to take is to review the termination clause in the document. Most contracts have a clause on what are the steps to take for either party if they wish to terminate the contract. Check what the notice period is, under what circumstances you are permitted to do it, and what penalty and consequences you should bear for it.

 2. Check if you have a solid reason not to fulfil a contract 

Contracts aren't something you wake up one day and easily decide to move on from. In order to terminate a contract, you need to present a legitimate and valid reason before the court of law. For example, let's say you are a contractor who renovates and refurbishes office spaces. Halfway through a project, you suffer severe injuries due to an accident, making it impossible for you to oversee or continue working on the project. In such a situation, the court may consider the contract frustrated, as you are medically diagnosed as incapable of fulfilling the contractual obligations.

3. Consider negotiating with other parties 

If there are no unpreventable reasons, but you want to terminate your contract because you have a change of mind, your best bet would be to explain your case to the other parties and get their consent to modify or terminate the agreement. If you're able to have open and honest communication, you may be able to come up with a mutually beneficial solution.

When a large amount of money is at stake, ending a contract can become complicated. In such situations, it's recommended to consult a lawyer to evaluate your circumstances and determine the most effective course of action and minimise the risk of further complications and disputes.

Parting thoughts 

It's essential to keep in mind that today's business environment is highly dynamic. Terminating contracts can be quite complex and have significant consequences. Before initiating termination, carefully consider all your available options and the potential impact it may have on your business and other stakeholders. Throughout the process, retain copies of all communication related to the termination, including the original contracts and any changes and revisions requested, emails or letters exchanged, and any agreements made by the other party. This documentation is crucial if legal action is necessary.

If your business regularly enters into contracts with other companies, we recommend using a comprehensive contract management solution like Zoho Contracts to manage your entire contract lifecycle. Zoho Contracts helps reduce operational costs, improve the efficiency of your legal operations, and ultimately minimise risk. Sign up for a 15-day free trial today.

Note: This article is intended only to help small business owners get a basic understanding of how to terminate contracts and should not be interpreted as legal advice for making business decisions. 

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