Legal & Insurance

How to get out of a contract?

How to end the relationship or terminate the contract

You’ve entered into a contract with a client and things aren’t going so well. Either you or the client has now decided to end the relationship or terminate the contract. What do you do and How to end the relationship or terminate the contract?

In this article, I’m going to go over a few tips on how you can very gracefully terminate a relationship or a contract with your client, but also do it in a way that protects you in the future. When people first get a client, it’s all rainbows, butterflies, and unicorns. There’s so excited about this new prospect, this new job, which they don’t like to think about.

Well, what if things go wrong? What if the clients not happy with my service or what if I’m not happy with the client and they end up being a complete nightmare? It’s really important for you to think about that.

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What is the relationship is going to look like if it needs to end?

When it comes to contracts, termination can happen naturally. You might just fulfill your services, the client pays you, everybody has upheld their end of the bargain and the job just ends. That’s cool. Everybody just goes along their merry way. However, there’s always a risk that something’s going to happen. Maybe the project is going to get canceled, the client’s funding is going to get pulled, and so they can no longer hire you, or as I’ve mentioned before, maybe the client really difficult. Maybe there are certain circumstances that prevent you from carrying out your services for this client.

Because a lot of people don’t like looking very closely at termination, they kind of gloss over this section in their contracts. When review contracts, we need to focus on this because this is where the potential conflicts and problems may arise. Before we configure How to end the relationship or terminate the contract, we need to look for a few things.

 

Under what conditions can the contract be terminated?

For example, do the parties have to give a certain period of notice to the other party?

 

Who can terminate?

A lot of times, contracts that I review will talk about how a client can terminate a contract, but it does not address how the service provider can terminate the contract. So it’s better to include clauses that discuss both of those situations because sometimes you have a client might want to cancel the contract since their budgets’ been cut, their funding has been cut. If it’s the case of an event, maybe the events’ been canceled. Maybe they’re just not happy with your services. But what if you as a service provider have a nightmare client and you need to get out of the contract? Or maybe there’s an emergency situation that’s going to prevent you from fulfilling your end of the bargain?

You hope you never get divorced, but in the event that you do, you want to come to some sort of amicable agreement up-front when people are still reasonable, happy and content with each other and can think clearly. Oftentimes, when you’re in the midst of some sort of conflict or disagreement, that’s where the problems arise.

What does one party owe the other?

For example, let’s say you’re a graphic designer and the client wants to terminate the contract. Are you obligated to hand over any of the files that you’ve already worked on that they might have paid for?

Or let’s say you are an event planner. Oftentimes with folks in the event industry, because they are planning events so far in advance and it is reserving a certain date for a client. If a client cancels an event, it is very difficult for them to potentially re-book that date for another event and in the meantime, they’ve also turned away a lot of other clients and a lot of other events for that specific date.

So sometimes what we’ll put in the contract is if a client terminates a contract close to the event date, they might have to pay an increased fee in order to cancel. Because it is going to be so much harder for that event planner to re-book a new job for that date.

These are the types of issues you want to think about. They’re not the pretty stuff, but they’re really important and you’re going to thank yourself if you think about it and address them in your contracts now, rather than later when there is an issue.

 

Let’s say you have agreed to terminate the contract. What do you do next?

It’s better to have an agreement to terminate a contract signed by both parties. Wait a minute. We’re just canceling a contract, and now I’m telling you to sign another agreement? Yes.

Basically, what an agreement to terminate a contract is an agreement mentioned that “Hey, both parties are agreeing to cancel this previous contract” and we’ve also agreed that these steps are going to take place as a result of the termination.

For example:  Maybe the clients owe you a balance, or you agree to refund the client a certain sum of money, or maybe you’re going to hand over certain documents to them.

It is really important to have that stuff in writing and all the termination conditions must be there. It could be regarding owes, documents or any other important stuff. Once those obligations have taken place, then we don’t owe each other anything and we can go about your merry way.

 

What terms in the prior contract survive?

This is also a really good opportunity for you to address what terms in the prior contract survive the termination. So there are certain terms in the original contract that you may want to survive the termination of the contract such as confidentiality and indemnification. There are certain things that even though the immediate relationship has ended, you still want those obligations to continue even after the end of that relationship.

Termination of an original agreement can sometimes be a negotiating point in and of itself, and so, therefore, it’s really important to document that in writing. To get your hands on some great contract templates including service agreements, agreements to terminate a contract, head on over to the internet.

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