How to get out of a Contract

Want to get out of a Contract?

If you have a long-term contract with a supplier that you aren’t happy with, you may feel locked in until the end of the contract term. That doesn’t necessarily have to be the case. There are often legitimate ways of getting out of it early. Here are some guidelines to go by.

 

Check contract terms

The first step is to check any terms and conditions carefully. If terms weren’t sent to you until some time after the proposed start date, there may be an argument to say they don’t apply – depending on conduct.

In some cases, the agreement will simply be a series of emails, letters and conversations. In that instance there may be more leeway to be able to terminate the contract early by saying that it wasn’t for a fixed term or there was no set notice period.

If a formal contract was used, the first thing you need to do is check any termination clause. Usually an agreement for a fixed period will not allow you to terminate early without a payment. What that payment will be will depend on what clauses have been used. They might require paying the remainder of the term of the contract (irrespective of services not being provided); a liquidated damages clause (which sets a fixed amount) or there could be nothing at all. If the last is applicable, then there is an argument to be made that an early and unlawful termination of the contract would only attract the loss of profits for the remainder of the term.

Depending on the amount in dispute, no matter what your situation there is usually some scope to try and negotiate a lower amount so that the parties can both avoid the risks and costs of drawn out litigation.

 

Are they in breach of contract?

In the early part of the relationship, it can be difficult to establish breaches which are serious enough to give rise to the right to terminate. However, it is not completely impossible. As the innocent party, if the other business has failed to live up to what it promised, then you may have grounds to terminate early for what is called a “repudiatory breach”. Terminating the contract on this basis is risky and it’s important to establish that you are entitled to do so. If you end the contract without having the law and the right facts on your side, you could be the one in breach of contract and the other party could claim damages.

 

Termination under a contract term

Some contracts incorporate provisions that any material breaches must be notified to the other party, so they are given the opportunity to remedy the breach. If they remedy within that time, then it is not usually a breach that you can terminate for. However, if they fail to do that within the required timeframe, it’s likely that you can bring the agreement to an end.

 

Types of termination

There are usually two ways that the contract can be terminated. Either by way of a clause within the contract (a contractual termination) or by way of common law (that is by way of rights imposed on the parties outside the terms of the contract itself). Depending which route you choose will dictate how you handle the situation and potentially each have their own risks and rewards.

In conclusion, a contract is not always binding on the parties and there are certain ways in which it can be brought to an end – some easier than others. However, before you take any steps which could constitute a breach by you, be sure that you are in the correct factual and legal position to do so.

The content of this blog is not intended to be specific legal advice. If you require any assistance in relation to this area of law, please contact Michael Clark for a no obligation telephone consultation on 01392 288981.