Early Termination Contract: Everything You Need to Know
Early termination contract refers to the dissolution of a contract before the term of that contract has concluded.3 min read updated on February 01, 2023
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 circumstance 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 reimbursement 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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