When entering into any commercial contract, most parties focus on the deal — the terms of performance, payment, and delivery. However, equally important is the question: “What happens if things go wrong?” That’s where termination clauses come in.

Termination provisions form a crucial part of any well-drafted agreement. They are the legal “exit routes” that define how and when a party can bring the contract to an end. Whether you’re a supplier, service provider, or customer, understanding termination clauses helps you manage risk and avoid unintended consequences.

Why Termination Clauses Matter

Without a clear termination clause, your ability to end a contract is restricted. You may be left relying on uncertain and often limited common law rights. By contrast, a well-drafted termination clause provides certainty, predictability, and strategic control over your commercial relationships.

Key Types of Termination Rights

Termination for Convenience

This allows a party to terminate the contract without cause, usually by giving a specified period of written notice (e.g., 30 or 90 days). This clause is valuable when market conditions shift, budgets change, or a different opportunity arises that is preferable to your business.

Important considerations:

· Does the right apply to one or both parties?

· Are there any notice period requirements or limitations?

· Are there any associated costs or penalties?

Termination for Cause (Breach of Contract)

This allows termination if the other party commits a material breach of the contractual terms.. Sometimes the clause includes a remedy period, giving the breaching party time to fix the issue before termination arises.

Key drafting points:

· Clearly define what constitutes a “material breach”.

· Consider including specific examples (e.g., non-payment, failure to deliver services).

· Include a remedy period (e.g., 14 or 30 days) for breaches that can be remedied.

Termination for Insolvency

Most contracts will include a right to terminate if the other party becomes insolvent or enters into administration or liquidation.

Please Note: Following changes under the Corporate Insolvency and Governance Act 2020, suppliers of goods and services are now restricted from terminating contracts solely due to insolvency events, unless certain exceptions apply. This means suppliers must take extra care in how insolvency termination rights are drafted and exercised.

Termination for Force Majeure or Frustration

A force majeure clause may allow termination if extraordinary events (e.g., natural disasters, war, or pandemics) prevent contractual performance. Alternatively, under the common law doctrine of frustration, a contract may be terminated if performance becomes impossible — though this is a high threshold and rarely successful.

Practical Considerations

Notice Requirements

Termination often requires formal written notice in accordance with the contract’s notice clause. Failing to comply with notice provisions — including method and timing — can render a termination ineffective or even amount to a breach of contract.

Consequences of Termination

The termination provisions should clearly address factors such as:

· What happens to accrued rights and obligations?

· Is there a right to receive payment for work done up to the termination date?

· Are there any post-termination obligations (e.g., return of confidential information, IP rights, or transition assistance)?

Surviving Clauses

Certain provisions should continue after termination — for example, confidentiality, indemnities, and dispute resolution clauses. This will need to be carefully drafted to ensure survival.

Risks of Wrongful Termination

Exercising termination rights improperly may itself amount to a repudiatory breach. This could entitle the other party to claim damages or refuse further performance.

Before terminating a contract, seek legal advice to ensure:

· You have the right to terminate.

· You follow the contractual process correctly.

· You understand the commercial and legal consequences.

Berry Smith’s Bottom Line

Termination clauses are not just formalities — they are vital risk management tools in every commercial contract. By giving careful attention to how, when, and on what grounds a contract can be ended, businesses can protect themselves, stay flexible, and respond effectively to change.

Whether you are negotiating a new contract or need a review of an existing one, our experienced commercial law team can help you assess your termination rights and options.

Get in touch with us today to discuss how your contracts can be strengthened with the right exit strategy on 02920 345511 or at commercial@berrysmith.com.