Notice to Terminate Contract

This notice, in letter format, can be used to exercise a right to terminate a contract. In most contracts there is a provision allowing the parties to terminate the contract with notice.

How should notice be given?

It is important to adhere strictly to the procedure for termination set out in the contract to be terminated, as the termination may be rendered wrongful if there has been any departure from the specified process. Parties should consider the following prior to issuing a termination notice:

• any notice requirements prescribing the period of time during which notice can be communicated, how it is to be communicated (ordinarily in writing) and the form of notice;
• any requirement to provide the breaching party with an opportunity to "show cause" to the "satisfaction" of the aggrieved party as to why the contract should not be terminated; and
• any requirement to provide the breaching party with an opportunity to rectify or remedy the breach; however, this will depend on whether the breach is capable of remedy (eg, a breach where time was “of the essence” will not necessarily be rectifiable).

Where the contract is silent as to the notice period, a “reasonable” period should be provided. What is “reasonable” will vary depending on the context, including the type and subject matter of the contract. For example, a simple, low-value contract would generally require less notice to be given than a complex, high-value contract.

It may be important to seek legal advice when considering these factors, in particular where the original contract is complex.

When should I terminate a contract?

Terminating a contract may be as easy as acknowledging the predicted end of a commercial relationship, or it may be a high-cost and high-stakes decision that will put a strain on all the parties to the contract. It is ultimately a commercial decision that should be made by someone who understands the company's interests thoroughly. From a legal perspective, it is important to understand:

• Whether the company has a contractual right to terminate the contract.
• The contractual obligations imposed on a party that decides to terminate the contract.
• The formal requirements imposed by the contract on the method of termination.
• The contractual obligations that survive termination.

When do I have the right to terminate a contract?

Most well-drafted commercial contracts will include provisions that stipulate when a party has a right to terminate a contract. Some of these circumstances include:

• When the other party is in breach of the contract.
  When a party considers it convenient to do so.
• When certain contractual obligations have lapsed and there is no ongoing commercial activities between the parties.
• When there is mutual consent between the parties as to the termination.
• When a certain event takes place, such as a natural disaster that prevents performance of the contract.

It is common that each "type" of termination carries unique requirements for how notice must be given.