Contract termination is a process in which the two parties involved in a contract dismiss their contractual obligations. A contract termination can happen due to many reasons such as unknown and unforeseen circumstances which have made the contract created in the past, impossible to fulfil. 

Termination of a contract dismisses all agreements made among the parties with their mutual agreement. A contract termination with mutual agreement before the end date is better than not fulfilling the contractual obligations in the end.

Ways of Contract Termination

There are various ways a contract is terminated between two or more parties. Here are three ways how a contract is terminated between two parties. 

1. Termination for Cause

As time passes, dynamics in the markets changes too. Hence sometimes a contract made in the past is irrelevant to businesses in future. In such circumstances, one of the parties requests to terminate the contract hoping that the other party accepts it. Since, it has no benefits for them currently.

2. Termination for Convenience

This way of contract termination enables parties to dismiss a contract without filing lawsuits against each other. This helps parties to end the contract without disintegrating the relationship.

Parties have to add a clause in the contract relating to the termination for convenience. Only then this method of termination is possible.

3. Termination By Mutual Agreement

This way of contract termination happens by way of a mutual agreement. This kind of termination happens when neither party see a benefit in the contract.

Consequences of Contract Termination

Contracts have legality attached to it. Breaking the terms of a contract can have serious consequences. Some of them are given below.

1. Distribution of Obligations

When termination of contract takes place, both parties ask to return the confidential assets, information or credentials they have provided to the other party. Sometimes getting it back can be difficult and may raise some heat amongst them.

2. Dispute among the Parties

It is a waste of time and resources to a party when another party refrains from their obligations. This often heats up the situation and causes dispute among the parties working together.

This heating can lead to consequences such as lawsuits, loss of business leads, etc.

3. Financial Loss

Contract termination can cause a lot of financial loss. Termination can cause parties to lose money through penalties payment, damages refund, Loss of leads and loss of contract creation prices, etc. 

Tips to Avoid Contract Termination

Here are a few tips to keep yourself insulated from the consequences of contract termination.

• Create a Detailed Contract: Poorly drafted bonds leave a lot of loopholes in the contract. These loopholes create misconceptions about the contract obligations and lead to termination in future.
• Negotiate until Satisfactory: Parties sometimes make empty promises during negotiations just to get a deal. These practices are worthless and do not lead to any good. 
• Use a Proper CLM Software: Having a proper Contract Lifecycle Management Software is very important. It will provide you with a lot of features which will further help you to manage your contracts.

Steps to Terminate a Contract Legally

1. Review the Contract: Analyse the contract and check for conditions to terminate the contract as mentioned in it.
2. Make sure you have Solid Grounds for Termination of Contract: You should have a legitimate and strong reason to terminate a contract such as, inability to comply with the contract. Look for specific clauses mentioned in it.
3. Write a Notice for Contract Termination: Write a notice to the other party. Clearly mention your intention to terminate the contract. Give a specific reason to lay off the contract and mention the date of termination. 
4. Complete the Final Obligation: Complete the final tasks as mentioned in the contract upon termination. Refund any damages if made and return any obligatory assets.
5. Take Legal Advice: If things get complicated in the process, one must take legal advice from an attorney to minimise the damages.

Conclusion

Contract termination is a grave felony in the business world given its legal consequences and losses derived by it. One must be self-aware enough to know his capabilities to cope with its obligations.