Terminating a business contract: how to end it safely
Poorly handling the end of a contract can cost as much as poorly drafting one. Knowing the correct way to terminate protects the company from penalties and lawsuits.
Ways to end a contract
- Mutual termination (distrato): a consensual ending, formalized by agreement between the parties;
- Termination for breach: when one party fails to perform its obligations;
- Unilateral termination (notice): ending the contract at the will of one party, where the contract permits it.
Precautions before terminating
Before ending a contract, it is essential to check the termination clauses, notice periods, any penalties and outstanding obligations. A termination carried out without observing the contract may give rise to liability and claims for losses and damages.
To document is to protect
Recording the termination in writing, settling outstanding matters and obtaining a mutual release avoids future claims. A well-executed mutual termination ends the relationship safely for both sides.
Frequently asked questions
Can I terminate a contract at any time?
It depends on what was agreed. Some contracts allow termination on prior notice; others only allow termination for breach or at the end of the term. The wording must be reviewed.
Does terminating a contract trigger a penalty?
It may, if there is a penalty clause or if the termination is improper. That is why it is important to analyze the conditions before ending the contract.
Need guidance on this topic?
This article is informational. For guidance on your specific case, talk to our team.