Four Tips on How to Get Out of a Business Contract Early in the UK

You may be in an unfortunate situation where you must end a contract early. This can be challenging, and you must proceed carefully to ensure you or your organisation do not breach the contract. Furthermore, you should ensure you can conduct business with the other party in the future. This article will explore the four main avenues when considering the early termination of a business contract, so your company can properly weigh up its options.

1. Termination or Cancellation Clauses

You should review the terms of the contract. Some cancellation and termination clauses will allow your company to end the contract early under specific circumstances. For example, a typical termination clause may allow your organisation to leave the existing contract early upon payment of an ‘early termination fee’ (or ‘exit fee’). Other agreements may forego the fee if you give the other party proper notice. This notice may be approximately 14 to 30 days but will vary depending on the contract. 

2: Mutual Agreement

The contract provider may be happy to end the contract early regardless of the clauses in the written agreement. For example, it is not uncommon for a mobile phone provider to agree to end a phone contract early upon receiving complaints about the lack of reception in a particular area. They may decide that allowing you to leave the contractual relationship without extra charge now may win some goodwill. Thus, you may return to them for a mobile phone contract in the future if they improve their service.

3: Has the Other Party Breached the Contract?

If the other company breaches an essential clause in the written agreement, you may be able to argue that their breach of contract effectively ends the agreement.

This depends on several factors, including:

• how significant was the breach;
• whether the breach was intentional or unintentional;
• the importance of the clause in question; and
• whether the breach makes future performance difficult or impossible.

If the answers to the above factors are affirmative, you can most likely end the contract without paying any cancellation fee. However, you should always strongly consider legal advice before acting.

Let us consider a quick example. Your company receives £300 per month to provide another business a monthly business lunch. Unfortunately, that business failed to pay last month’s £300 and has not delivered the additional £300 required this month. Thus, your business may treat this as a breach of contract as you are incurring expenses and the client’s non-payment makes compliance difficult.

4. Force Majeure Event

A force majeure clause protects your company in the scenario that it is near impossible to perform the contract. However, it will only apply in extreme circumstances such as a natural disaster or an emergency. Furthermore, not all contracts contain force majeure clauses. Realistically, parties rarely have cause to use a force majeure clause.

Key Takeaways

Ending a business contract early can be challenging. If your business can use a termination clause, this can be helpful. However, the best solution is to explore whether the other party will be happy to negotiate an early exit. An amicable parting allows the potential to do business with that company in the future. Additionally, you can avoid legal action that may accompany ending the contract in dispute. Alternatively, you may be able to end the contract due to the other party’s breach or based on a force majeure clause. In some cases, it may be unclear whether any of the reasons above are suitable to end a contract early. In that case, you should strongly consider obtaining specialist legal advice. 

If you need help ending a commercial contract early, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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