In the present economic climate, it is frequently the case that businesses review their contractual commitments for costs savings.
Perhaps an agreement entered into some time ago has become unprofitable or your business is in difficulties complying with its terms as a result of changes in personnel. Alternatively, your business may be dealing with a public body which wants to get out of a binding commitment to you as a result of the budget cuts.
But how easy is it to get out of a contract and could terminating an agreement be a false economy?
Below are ten top tips when considering how to bring a contract to an end listed in increasing potential cost:
Most contracts state how long they run for. Check for a clear end date. If a date is not stated, it is likely that the agreement can be terminated on reasonable notice.
1. What is the term of the agreement?
Most contracts state how long they run for. Check for a clear end date. If a date is not stated, it is likely that the agreement can be terminated on reasonable notice.
2. Can notice be served to bring the contract to an end earlier?
Some contracts allow one party to give the other a set period of notice to terminate the contract. This may be in addition to the natural expiry of the contract.
3. Has an event occurred which allows termination?
Contracts may state events which can lead to termination such as one party entering into a form of insolvency or performance targets not having been met.
4. Has there been a breach of the agreement by the other party?
Consider the express terms of the agreement and any implied terms to ascertain whether the other party is in breach and what the contract says should happen in the event of such a breach.
5. Do I need to give the other party a chance to remedy the breach?
Usually this is the case and the right to terminate only occurs if the other party has failed to remedy their breach within a specified time.
6. Is the breach of the agreement sufficiently serious?
This depends on what the contract says and whether there has been a breach of an important term of the contract which is normally a requirement.
7. When did the breach occur?
Ordinarily, you must terminate quickly after the breach has been committed or the right to terminate could be lost.
8. Can the agreement be renegotiated?
If your negotiating position is good, try and agree fresh terms.
9. Can I throw money at the problem?
If your negotiating position is poor, a cash offer to terminate early may be a possibility.
10. Shall I just terminate and be in breach myself?
If all of the above fails, this is your only option but you will be in breach for bringing the contract to an end early. This can potentially result in a claim against the business for loss of profits by the other party.
Bringing a contract to an end is an important legal step and advice should be taken before serving any notice of termination.
Jonathan Mortimer is a partner and Head of Dispute Resolution at Raworths Solicitors. If you need any help on dispute resolution issues, contact Raworths, telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate HG1 1HF. Alternatively you can email Jonathan - jonathan.mortimer@raworths.co.uk
