4 Considerations to Take Before Terminating a Contract


In the business world, the term contract has a broad scope. It can be an employment contract or business partnership contract. Whatever it may be, a contract between two or more parties should establish a good relationship and should be built on trustworthiness. If you are a business person, terminating a contract with your business partner is the last thing that you want to happen. However, there will always be a small chance that a dispute between the parties may arise due to disagreements and misunderstanding. Oftentimes, these can result in contract termination or cancellation. If there is a chance that the parties involved can still work out their differences, then do it instead of throwing all your efforts and hard work in establishing your business. But if you think that there is no more chance of patching things up, then terminating the business contract may be the best solution.

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Important Considerations to Keep in Mind Before Terminating a Business Contract

In the case of disputes, the contracting parties are left with a few actionable options that often are riskier than just deciding to end the contract for default. That is why most businesses, especially those belonging to the construction and design industry, have termination clauses in the contract stating various options on how the contracting parties shall terminate their contractual relationship if things will not work out as planned. Although the most common and acceptable action taken by contracting parties is to just abandon the project, there are some instances that the termination clause written in the contract is vague in details. Unclear termination clause can often make the situation even more complicated and the level of its objectivity can be challenging enough to accomplish by the parties involved.

On the other hand, terminating the contract of another party can cost you a lot of money, as well as delayed completion of a project. So if you think that there is no enough basis for termination, you might be exposed to loss of profit and face a potential lawsuit due to wrongful termination. That is why it extremely important to keep in mind these considerations before terminating a contract:

1. Supporting Documents

Before you decide to end the contract of another contractor, make sure you have enough documents and pieces of evidence to support your claims. Such documents should include notices to the original contractor that contains specific defaults that provide him with an opportunity to resolve the issue.

2. Consider the Money Lost Due to Delay

When you end your agreement with another contractor, there will be major delays in the completion of your project. Take for example that you have decided to terminate the contract between you and the supplier. If you do not have another supplier to take the place of the original contractor, the target date for your project completion will be delayed because you will have to invite other contractors to submit their bid proposals to you, and not to mention that it would take a couple more days to carefully and thoroughly review their bids. Just imagine the amount of money you have lost each day because of the delay.

3. Cost of Litigation

If you are finally decided to push contract termination of the other party, make sure that you have listed, understood, and decided that your reason for termination are substantial enough to substantial enough defeat any wrongful termination claims.

4. Advantages vs. Disadvantages

Business experts recommend to carefully evaluate whether the advantages outweigh the disadvantages before terminating the contract or replacing the original contractor with a new one. If you think that the outcome of the analysis is ambiguous, then it would be a wise idea to find other viable options to termination.

5. Contract Requirements

If your mind is already made up on terminating the contract of the other party, make sure that you have reviewed and adhered to the contract requirements for either partial or full cancellation of the contract.

Tips for Writing a Contract Termination Letter

We all know that writing a termination letter of any kind is never an easy task. Although you can just go ahead and write down the letter and send it to the recipient, there are a couple of things that you need to consider when writing a termination letter.

Keep a Professional Tone

Since all termination letter bears bad news, it is always important to observe a polite and professional tone. It is never advisable to use overly emotional tone, such as anger and/or contempt against the recipient of the letter.

Use a Formal Language

A termination letter should be considered as a standard business document that should use a formal language. Avoid using harsh and insulting words as it does not only affect the reputation of your company but it can also be used as a substantial ground for a justified lawsuit.

Contains Justifiable Reasons for Termination

The termination letter should carefully and thoroughly explain the reasons why you have decided to end the contract of the other party. However, you do not have to provide too much information.

Termination of Contract Template

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Mutual Termination of Contract Template

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Termination of Contract Agreement Template

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Termination of Cleaning Services Contract Template

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Sample Contract Termination Letter Templates that You Can Download and Use as Reference

Contract Termination Letter Template

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Sample Termination Agreement Between Company & Employee Format

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Letter of Vendor Termination of Contract Template

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Sample Partner Termination Letter Template Word Format

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Standard Termination Letter Template

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Sample Contract Termination Letter Due to Poor Performance

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Affidavit of Domestic Partnership Letter Template PDF

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Example of Work Termination Letter

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Partnership Contract Termination Letter Template Printable

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Final Thoughts

No matter what the circumstances are, keep in mind these considerations making a fair and informed decision before ending one’s contract. Ass a professional business person, your decisions should be based on a healthy dose of diligence and evaluation, and not just from temporary strong and negative emotions and pride. You may also want to check out our collection on free termination letter templates and legal contract templates before you leave this article. You can download these amazing templates without the cost and they are yours for free. You can have it as your reference in writing a contract termination letter. So what you are waiting for? Download them now!


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