It is common for businesses to find themselves party to a contract which no longer affords them with the benefits it once did. Many companies will enter into fixed term agreements, one example being for the supply of goods or services for a period of five years. In the future, a competitor of the supplier may offer the company who would be the customer a more favourable deal i.e. the same goods/ services for a lower price, or goods/ services of a more superior quality. It is crucial for a company’s business to be adaptive to the market, and to be able to enter into new and more favourable agreements. Thus, the customer in this scenario would wish to terminate their existing agreement at an earlier date, and be free to enter into a new and more favourable agreement.
Contract lawyers draft agreements for the supply of goods/ services and in circumstances where they act on behalf of the supplier, it could mean that the supply agreement is decidedly more favourable to the supplier. For this reason, it is advisable that any company entering into fixed term agreements instruct an experienced contract lawyer to conduct a high level analysis of the termination provisions. A commercial solicitor will be able to forewarn you of any limitations on termination in relation to a proposed agreement, and will suggest contractual amendments to clauses which you may wish to have incorporated into the agreement.
Most agreements will contain a termination clause; this will state under what circumstances the agreement can be terminated. Termination clauses can include provisions that enable a contract to be terminated with or without cause. If you wish to terminate a contract early, then this is often the first clause to review, and should be analysed thoroughly.
Common boilerplate termination clauses include the right to terminate with cause for a material or a persistent breach of the contract. However, some agreements are drafted to include a termination without cause provision, allowing one or both parties to terminate at any time, subject to notice being served on the other contracting party.
It is generally advisable for anyone wishing to terminate an agreement early, to negotiate termination provisions for inclusion in the contract. If express termination provisions are not included in the contract, then other options for terminating the contract will need to be evaluated which could pose a risk if pursued. In certain instances, it is possible to imply a termination provision in a contract, but you should take specialist legal advice on this prior to triggering any termination.
An alternative option to consider could be that, the other party may be willing for you to terminate the contract early, if you are able to find a replacement company which is willing to take over performance of the contract. However, this is subject to whether the agreement contains a restriction on assignment, which could prevent a transfer to a third party.
Summerfield Browne Solicitors are specialists in all aspects of commercial and corporate law. They have offices in London, Birmingham, Cambridge, Oxford, Northampton and Market Harborough, Leicester.
