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Discussion of Alternative Contract Termination Provisions

When a San Diego business signs a contract, almost always there is some provision or clause in the contract that relates to its termination. This is particularly true with any contract that relates to an ongoing obligation such as a supply contract, a commercial lease, etc. It is important to pay close attention to these termination provisions since they often define the scope of your obligations. If you are presented with a business contract to sign, you should have a good San Diego corporate lawyer review and provide advice before signing. First, a good corporate lawyer can help you fully understand what you are signing. Second, a good corporate lawyer can help with alternatives if you want something different. Here is a quick discussion of alternative termination provisions.

“For Cause” Terminations

In general, contracts have terms — one-year, five-years, or until “completion.” Beyond that, most standard contracts have a “for-cause” termination provision. It might read something like this:

“TERMINATION — If either party breaches any provision of this agreement, the non-breaching party shall have the right to terminate this agreement.”

Many times, the right to terminate is conditioned upon sending some sort of written notice and giving the breaching party some time to “cure” the breach — usually 30 days. This makes commercial and common sense because sometimes a breach is accidental or based on a temporary problem that can be resolved. Plus, a notice requirement provides a sort of “grace period” for performance — such as payment — that might be a day or two late. If the breach is cured, then the contract and business relationship can continue uninterrupted. Additionally, many times, the right to terminate itself must be made with some sort of written notice and, often, any termination is not effective until the written notice is sent or received. Such notices become legal requirements. Failure to give the specified notice becomes a breach of the contract and can have large impacts on any breach of contract litigation that is subsequently filed.

The tricky part of “for cause” terminations, of course, is defining what is a “breach” of the agreement. This is the most common cause of contract litigation. One helpful tip is to add the word “material” so that termination is only allowed for a “material breach.”

One additional note: termination provisions can distinguish between certain types of breaches and, therefore, can also distinguish whether notice is required and how quickly termination can be made depending on the breach.

“For Convenience” Terminations

Depending on the situation, parties may want a completely open-type business relationship. In which case, the agreement can have a “for convenience” termination clause that reads something like this:

“TERMINATION: This agreement may be terminated by either party for convenience, for any reason or for no reason provided that the terminating party provides advance written thirty (30) notice. Termination shall be effective after the expiration of the thirty (30) notice period.”

The advantage here is flexibility and lack of risk. The disadvantage is unreliability.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named “Best of the Bar” by the San Diego Business Journal for four years running and can make sure your business contracts fit the needs of your business. Mr. Leonard can be reached at (858) 483-9200 or via email.

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Schedule a Consultation: 858.483.9200