How to terminate a contract legally (UK): termination by notice and termination for breach

How do you terminate a contract legally? There are many ways to end a contract, but the two you will use most often are termination by notice and termination for breach. Whichever applies, the starting point is always the same: read the contract, find the termination section, and follow it exactly.

How to terminate a contract: check the terms

First things first, check the contents of the contract. Usually a contract will stipulate several different ways in which it can be terminated, and it is important to identify which one is applicable to you. A contract might, for example, be terminated:

• by notice, where one party tells the other it wants to end the contract;
• by a breach committed by the other party;
• by some other specified event occurring, for example reaching the end of the contract term.

The termination section is the part of the contract that most people never read until they want out, and it is often where the detail that catches you lives. If you are in any doubt about which route applies, or what it requires, seek professional advice from a contract review solicitor before you act. Terminating wrongly can leave you in breach yourself.

Termination by notice: how it works

Termination by notice is when one of the parties gives notice to the other that they want to terminate the contract. It sounds simple, but there are usually formalities that must be met, and the contract sets them. Three questions need answering.

• How much notice must be given? Usually it is around 30 days, but the contract may say something different. The notice period starts running only once notice has been validly given.
• When can you use the option to terminate by notice? Some contracts only allow termination by notice after an initial period. For example, you may have to wait until 12 months of the contract length have expired before you can terminate by notice at all. If you serve notice too early, it may not be effective.
• How must the notice be delivered, and to whom? The contract may require notice by email, by letter, or both, and may specify the address or the person it must go to. Sending it to the wrong place or in the wrong form can invalidate it.

If you want to terminate by notice, review the contents of the contract carefully, and especially the termination section, to make sure you do it in a valid way. In my experience the most common mistakes are serving notice before the contract allows it and sending it by a method the contract does not recognise.

Terminating a contract for breach

The second main way to terminate a contract is because of a breach by the other party. If the other party commits a very important breach of the contract, it may give you the right to terminate the contract accordingly. Not every breach will do; it has to be a serious one, and the contract may define what counts. A late invoice payment by a few days is unlikely to justify ending a long-term supply contract, whereas a persistent failure to deliver at all may well do.

Sometimes the written agreement will specify that you must first give the breaching party the possibility of remedying the breach, meaning putting right what they have done wrong, within a specified amount of time. Fifteen days is a common example. If your contract contains a provision like that, you cannot simply terminate on the spot. The process is:

• Serve a notice to rectify. Send the breaching party a written notice identifying the breach and requiring them to rectify it.
• State the consequence. Make clear in the notice that if they do not rectify the breach within the specified period, for example 15 days, you intend to terminate the contract.
• Wait for the period to run. If the breach is fixed in time, the contract continues. If it is not, you can then terminate in reliance on the breach.

The difference between a material breach that justifies termination and a lesser breach that does not is important, and I cover it, along with the remedies available to you, in breach of contract remedies.

Next steps

Before you try to end any contract, pull out the termination clause and work out which route it gives you: notice, breach or some other trigger. Then follow the formalities to the letter, including notice periods, timing, method of delivery and any remedy period. If the other side has breached, document the breach and serve a proper notice to rectify before terminating. If anything is unclear, have a commercial solicitor check the clause and the notice before you send it.