Table of Contents
In Short
- You may be able to end a contract early using a termination clause, by mutual agreement, or if the other party has breached the contract.
- Consider the financial and reputational risks of ending a contract, including exit fees and potential disruption to your operations.
- Seek legal advice before acting, especially if contract terms are unclear or the situation involves complex issues.
Tips for Businesses
Before ending a contract early, review the agreement carefully and check for termination rights or breach by the other party. Where possible, negotiate a mutual exit to preserve relationships. Always get legal advice to avoid costly mistakes and ensure the termination is lawful.
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 does not breach the contract. Furthermore, ensure that you can conduct business with the other party in the future. This article will explore the four main avenues to consider when evaluating the early termination of a business contract, allowing your company to properly weigh 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 can be anywhere from 14 to 90 days but will vary depending on the contract, and in some circumstances could be longer.
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.
Depending on your commercial relationship with the other party, consider approaching them directly for a commercial discussion around termination. If you have a long-standing business relationship, a direct conversion explaining your circumstances might work in your favour for an amicable solution.
Continue reading this article below the form3. 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. Consequences of Termination
Before terminating a contract early, it is important to understand potential consequences that you might face.
Early termination may result in being required to compensate the other party for losses they suffer as a direct result of termination, including additional costs they might face for finding replacement services.
Many contracts include exit fees or early termination charges, which can sometimes be significant. However, these fees aren’t always enforceable. If an exit fee is unreasonably high compared to the actual losses the other party will suffer, it may be considered a penalty clause that the courts will not uphold.
Early termination can potentially strain important business relationships and may affect your reputation in your industry. You’ll also need to quickly find alternative suppliers or service providers, which can be disruptive and expensive. This disruption might affect your ability to serve your own customers properly.
5. 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.

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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.
Frequently Asked Questions
Yes. Sometimes your company and the other party will want to end the contract early to negotiate a better one. Ideally, your organisation will only want one contract at a time with certain companies so that it can negotiate a safe ending and immediate start of a replacement agreement.
Yes, this is possible. If the changes to the existing contract are minor, your business could simply agree to vary the terms of the original agreement with the other party. However, if the purpose of the written agreement is changing, it may be advisable (and quicker) to simply agree to a new contract.
Potentially, yes. This is only if your contract allows it or the other party agrees. Many businesses consider switching providers for better pricing or service, but exiting a contract purely for convenience without a clause in the contract that allows you to do so can be risky. Check for any early termination options in the contract. Getting legal advice can help you assess the safest route.
An exit fee is a charge that some contracts impose if you end the agreement early. This may also be known as a cancellation fee. While exit fees are typically outlined in termination clauses, they must be reasonable.
If the exit fee is disproportionate to the costs the other party incurs as a result of the termination or is designed to punish the terminating party, it could be considered an unlawful penalty. Courts generally do not enforce penalty clauses, so it is best to tread carefully when including these in your contracts.
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