A termination of contract agreement occurs when a contract is voided before the stipulations are fulfilled by each party. There are many situations that might call for a termination of a contract.

Understanding the Termination of Contract

Although many people focus on the implementation of a contract, the termination period is just as important. Terminating a contract often arises from a change in partnership or the specific services included. Coming to a termination of contract agreement as a dual-decision can initiate a clean break.

The purpose of a termination of contract agreement is not always to end the partnership. It could also imply that the relationship or services offered have changed or that the contracted services have already been completed. Ending the contract might also open up the discussion for evaluating the services that have been provided so far.

In order to legally end a contract, a physical release agreement should be created by a legal representative. This document ensures that each aspect of the original contract is understood. It prevents confusion and can protect each party from future legal disputes involving a breach of contract. Otherwise, it can be difficult to prove a verbal termination of contract agreement.

It is important to keep in mind that a contract is the most important legal document if a dispute does come up. However, having access to a drafted document that shows both parties agreed to prematurely terminating the contract can help the legal case.

Important Steps in a Termination of Contract Agreement

It is important to complete the following steps before signing a termination of contract agreement.

  • Give each party sufficient time to evaluate the original contract.
  • Check that all contract duties have been completed.
  • Provide a copy of the termination of contract agreement to both parties.
  • Continue to provide contract services until the termination agreement is signed.
  • Each party should sign two copies of the termination document, one for the signer and one for the other party.
  • File the signed termination contract with the original contract agreement.
  • Consider having the termination of contract agreement notarized.
  • Contact an attorney for complicated termination of contract agreements.

Understanding the Termination of Contract Agreement

Most termination of contract agreements should include the following components:

  • Introduction: Includes the legal name of both parties and the intended contract termination date. The contract names should match the names on the original contract.
  • Recitals: Lists the original contract date, the specific clause that allows you to terminate the agreement, and a copy of the original contract.
  • Section 1: Termination: Lists the reason for the termination of contract agreement. Includes any terms that will continue after the termination agreement, including any confidentiality requirements.
  • Section 2: Mutual Release of Liability: Agrees that from the begin date of the termination agreement, no liabilities are owed. Each party agrees that there are no uncompleted liabilities or fees. This is one of the most important parts of the contract.
  • Section 3: Return of Goods: Agrees that each party will return items that belong to the other party. This part of the contract will not apply to every contract situation and is optional.
  • Section 4: Confidential Information: Reviews the terms of confidentiality and ensures they fully protect your information. This part of the termination contract also does not apply to everyone and is optional.
  • Section 5: Non-Disparagement: Agrees that each party will not act in a way that damages the other's reputation. This section is optional.
  • Section 6: Covenant Not to Sue: Agrees that neither party will sue based on the original contract agreement.
  • Section 7: Governing Law: If the original contract does not include an agreement of the governing law of the contract, this section allows one to be added.
  • Section 8: Counterparts/Electronic Signatures: Agrees that all counterparts of the termination of contract agreement, including electronic signatures, are considered the same termination contract piece.
  • Section 9: Severability: Ensures the termination of contract agreement is viewed as an entirety.
  • Section 10: Entire Agreement: Agrees that the contract is a mutual agreement.
  • Section 11: Authority: Agrees that the parties signing the termination of contract agreement have the authority to do so.
  • Section 12: Headings: Notes that the headings in the contract are only to organize and are not terms of the contract agreement.

The termination of contract agreement should be customized to your specific needs. The goal is to have a clear understanding of termination between both parties. The termination of contract agreement can prevent legal disputes, disagreements, and it can help to set expectations going forward.

If you need help with a termination of contract agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.