How Can I Terminate a Business Contract in England?

In the day-to-day running of your business, contractual relationships will inevitably deteriorate. Consequently, you may want to terminate your obligations under that agreement. Generally, you can terminate a business contract if:

• a party breaches an essential term of the contract; 
• an event activates a termination clause;
• another party made a misrepresentation regarding the contract;
• you and the other party mutually agree to end the contract; or
• an unforeseen event frustrates your ability to perform your obligations under the contract. 

This article will explain how you can terminate a business contract in England. 

How Does Contract Termination Work?

Once a contract terminates, you can no longer enforce it. This means that any party to the agreement no longer has to fulfil their contractual obligations. For example, if you cancel a service contract, the service provider no longer has to provide their services. Nor do you have to pay for those services. In this sense, contract termination severs the business relationship between two parties. 

When Can You Terminate a Business Contract

You can terminate a contract if:

• someone breaches an essential term of the contract; 
• an event triggers a severance clause;
• you or the other party to the contract has made a misrepresentation;
• both parties reach a mutual  agreement to cancel the contract; or
• an event frustrates the performance of your obligations under the contract.

Breach of Contract

A breach is the most common ground that gives rise to contract termination. The clearest example of a breach is failing to perform a contractual obligation. If you or another party breaches an obligation under the contract, the party who suffers a loss may have grounds to cancel the contract. 

In saying that, a breach may not always warrant the cancellation of a contract. For a breach to amount to contract termination, it can fall into either of the following events. 

If you or another party fall foul of your obligations under a contract, you can be liable to the other parties to the agreement for damages. 

Severance Clauses

A contract can terminate via a severance clause. Business owners often include severance clauses in their contracts to allow either party to cancel the contract in the future.  Nevertheless, severance clauses often include additional obligations when terminating the contract, such as performing some sort of action or paying their business partners.

One good example of a severance clause is when a consumer wants to terminate a mobile phone contract early by paying off the outstanding balance due on that contract. If there is a severance clause in your contract, you should read the clause carefully to ensure you fulfil your obligations before terminating the contract. 

Misrepresentation

Misrepresentations occur when a person entering a contract provides other parties with false information. Businesses rely heavily on their partners to provide accurate commercial information that might be integral to the performance of a contract. If a person falsifies or lies about any information that harms your business’  ability to perform its day-to-day operations, you could terminate the contract and claim damages. 

Some common forms of misrepresentation include when a person: 

• falsifies information that is integral to the performance of a contractual obligation; 
• lies about who they are or does not fully disclose the nature of their business; 
• knowingly incorporates a mistake into the terms of a contract; and
• coerces you into signing a contract, otherwise known as undue influence.

If you think your contract contains some misrepresentation, you should speak with a lawyer to determine whether you can terminate the contract. 

Mutual Agreement

There may come a time when you and your business partners have reached a stage in your relationship where you no longer want to be bound by a contractual arrangement. For example, your business might no longer need to continue paying for a specific service. Consequently, contracting parties can make a mutual agreement to terminate the contract. However, to do so, you must have the written consent of each party to the original contract.

Frustration

Frustration is a legal principle that allows parties to terminate a contract if an unforeseen event inhibits their ability to perform their contractual obligations. However, contract frustration is not as simple as saying your obligations under the contract are difficult to complete because of an event outside of your control. 

In any event, you should seek legal advice before terminating a contract based on frustration. 

Key Takeaways

You can terminate a business contract if:

• a party breaches an essential term of the contract; 
• an event activates a termination clause;
• another party made a misrepresentation regarding the contract;
• you and the other party mutually agreed to end the contract; or
• an unforeseen event frustrates your ability to perform your obligations under the contract. 

When it comes to terminating a contract, you should seek legal advice to avoid committing a breach. If you wrongfully terminate a contract, you can be liable to pay damages to the other party. 

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

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