To terminate or not to terminate?
Contract | Practical considerations before termination
There are a multitude of reasons why businesses need or want to terminate a commercial contract. It may be a failure to pay or provide services, substandard performance or change in the business structure. It may also simply be that there are now better options available in the marketplace.
But can you, and should you, terminate the contract?
Before you take any steps, careful consideration of your legal rights to terminate and the consequential commercial impact on your business should be undertaken.
Steps you take in an attempt to terminate a contract, if done incorrectly, may expose your business to substantial costs and time in dealing with disputes about valid termination. For example, in certain circumstances, if you assert that the other party has terminated the contract, this assertion may be used against you by the other party to claim that you have in fact terminated. This may lead to different consequences for your business than you initially contemplated.
A few of the things you will need to consider are as follows:
1. Is your contract in writing, verbal or a mixture of both?
2. What are the terms and conditions of the contract?
3. Are there express contractual termination rights? If so, what is the process to be undertaken?
4. Does your business have statutory or common law rights for termination?
5. Can you negotiate a mutual agreement to terminate?
Whilst there may be different legal options for termination, all will be dependant on the type of and terms of the contract.
Commercial considerations can include the financial cost to terminate or establish a new contract, business disruption and any cross referral or mutual benefit you may be getting from the existing contract.
As experienced risk managers we can assist you with assessing the best option, legally and commercially, for your business. Our commercial consultants and lawyers work collaboratively to provide you with a cost effective and tailored solution.
Suzie Carroll is Legal Counsel for TSM Advisory.