The Ins and Outs of Contract Termination
Contract termination is a straightforward concept, referring to the process of ending an agreement between two parties. In the context of business, this usually involves the termination of an agreement between an employer and an employee. Contract termination can be done in two ways: by mutual agreement or with one-sided notice by one of the parties.
There are various reasons for contract termination; the most common of which are when the party that has terminated the contract is unhappy with the other party’s failure to uphold their end of the deal, or when there is a mutual decision between both parties to terminate the contract. When there is a failure to uphold one’s side of the deal, the contract can be legally terminated after it is proven that there has been a violence of the contract.
Contract termination has some significant legal implications if either side fails to comply. According to civil law, when this failure happens the aggrieved party can have recourse to the appropriate remedy in contract law.
One of the misunderstandings surrounding contract termination is how it’s legally interpreted. For example , many people think that when a contract is terminated, the contract is void. But there is more to it than that.
If a contract is void, it is deemed invalid right from the beginning and therefore has no legal effect. However, a valid contract can be terminated by any of the parties.
The termination of a contract, when related to employment, is viewed as the most difficult area of contract law because employees are in the weaker role. Terminating an employment contract means the employee will be left with no source of income but the employer on the other hand still has other sources of income (like their salary).
There are a number of reasons why a contract of employment could be terminated:
While business-to-business contracts tend to be well documented and cover the required provisions for termination, the same cannot be said of employment contracts. It therefore becomes necessary for the employer to observe the proper procedure when terminating a contract of employment.
Critical Elements of a Termination Letter
Beyond the purpose of notifying the affected party, such notices must be in accordance with the parties’ agreement. Thus, the contract or agreement governing the relationship between the parties should contain the requirements for proper notification and termination of the contract. The termination letter should include the date, to whom the letter is being sent (the other party and/or its representative), when the notice is effective, and the reason for the termination, typically citing the specific clause(s) of the contract that invoke the right to terminate.
Steps to Create a Termination Letter
Once you’ve organized your thoughts on the contract being ended, confirming the need, then the next step is to outline your termination letter to ensure that you’re getting everything down on paper in an organized, logical manner. It’s very difficult to pick and choose what you want to include in a termination letter, so to work effectively, you need to have a plan of action.
The steps for drafting a termination letter are outlined below in their order of presentation.
- Header – This is self explanatory, and it includes the return address for you (and identification of who you are) and an addressee address for the other party to the contract (or legally any third party).
- Opening – The opening includes a subject line like "Termination of Contract" and an opening line such as "Dear [Name of party],"
- Informational – In the first paragraph you can state the purpose of the letter, such as "[This is to confirm that I am terminating the contract dated [date] between myself and [name]" or "This is a formal notice of cancellation of [your contract name] under the following circumstances … or "Pursuant to [name the specific contract clause] you are hereby authorized to end the contract between us for [your specific reason(s)]."
- Historical – In the second paragraph you may also want to provide some background information, like when was the contract formed and the reasons for why it’s getting terminated.
- Details – In the next paragraphs you should list the details of the termination, such as any time frames involved, whether the contract needs to be dissolved by a specific date or what is going to happen to any property involved with the contract.
- The request – The next paragraph is always the most important part because this tells them what you want from the letter! You may be asking for the forms to fill out, you may be requesting confirmation of how the contract will be terminated and/or your contract’s termination date, but regardless of what you’re asking, the request needs to be made without demand.
- Confirmation – The next paragraph should speak directly to what you are going to do in relation to the contract being cancelled, such as "I will be returning [property, etc.] to your possession" and "please fill out and return all of the necessary forms," or "keep me in the loop on the status of this contract termination."
Template and Format Examples
When preparing a contract termination letter, it can be extremely useful to have some sample templates and formats as a guide. For instance, you could use the following basic template, which could be easily adjusted to fit the specific circumstances:
[Date]
[Your Name]
[Your Address]
[Your City, State Zip Code]
[Your Company Letterhead, if applicable]
[Name of Recipient of Letter, usually a Company]
[Address of Company]
[City, State ZIP Code]
Re: Termination of Contract
Dear [Person’s Name]:
This letter is in regard to the [name of contract] made between us on [date of contract]. This letter serves as formal notice that I/We am/are terminating the contract as of [date of termination].
Should you have any questions about this matter, please do not hesitate to contact me.
Sincerely,
[Sign the above letter]
To Whom it may concern:
[Typed Name Here]
While this is a general example, it would be possible to apply the same basic outline to employment contracts as well, where a two-week notice might be warranted. In that case, the template could be modified as follows:
[Date]
[Your Name]
[Your Address]
[Your City, State Zip Code]
[Your Company Letterhead, if applicable]
[Name of Company]
[Company Address]
[City, State ZIP Code]
Re: Resignation
Dear [Name of Your Supervisor or HR Manager]:
This letter serves as formal notice of my resignation from [name of Company or Contract] as of [date]. I request that my last paycheck be mailed to [street address] or delivered to me at my home address, noted above.
I appreciate the opportunity to have worked at [Company or Contract Name] for the past [duration that you have been employed or associated with them].
Sincerely,
[Sign the above letter]
To Whom it may concern:
[Typed Name Here]
A termination letter can also be best understood in its outcome, such as the relief that is required. If this is a rental situation, it may provide for a pro-rated refund of a security deposit. Or if it is an employment situation, the amount of severance time may be addressed. It helps to cover all of the details, so it is suggested that it list specific requirements for how the request will be carried out. When the recipient receives the correspondence, he or she can make adjustments to his or her plans as needed.
Another option could be to end a contract due to a breach, such as not being paid on time, or failing to execute the contract according to expectations. The contract would address this situation but there are many agreements that do not mention what happens in the event of a breach, so a termination letter could remedy this situation. In that case, it could be a good idea to send a letter that states the terms of the contract, explains the breach briefly, and asks how the termination should be carried out.
Exporting to PDF: Significance and Method
Many people use word processing applications to prepare business documents, but it is not always the most secure format. One of the simplest ways to securely preserve a document for future reference is to convert it to a portable document format (PDF). A PDF locks in the formatting and contents of the document. Therefore, when creating a contract termination letter, or a document of any other kind that may need to be referenced in the future, it is always safest to create a PDF file of your correspondence.
Creating a PDF file is typically as simple as selecting a command from the print menu in Word or other word processing software. Simply select print, choose the PDF printer that has been installed, and click print . Many programs will then ask for the file name and location of the outputted PDF file and will generate a PDF file in the chosen location.
There are many tools available to perform the conversion for you. In addition to the built-in options, most modern browsers have the option to save a webpage as a PDF to automatically convert a webpage to a PDF document. Most email applications also offer a similar option to save an email to a PDF. Large files can often be split into multiple exportations to avoid issues with maximum file size limits of email applications. Initiating a screen capture is also an option, however, this can lead to a less-than-ideal output due to differences between monitors. Converting from within a word processing application is likely to provide the best output results.
Legal and Professional Guidance
Considerations and Advice for Legal Professionals and Others
When communicating the termination of a contract, it is in the best interest of the initiator to be sure to follow the applicable laws that govern contracts. This is particularly true for a business where there are likely to be statutes in the books that force certain procedures to take place before any given type of contract can be terminated. For example, an employment contract will likely require the expert employee to be given some brief notice that could be calculated by the employee’s hire date and would serve to let him or her know that the company is indeed making a transition hiring someone new and that he or she is invited to move on if they wish.
There are numerous aspects that factor into terminating a lease for an apartment as well, including ensuring that everything is properly cleaned up and repaired, the bills are paid and the tenants are properly notified of the termination so as to avoid any legal issues with personal property left behind or damage done by a poorly mannered former renter. While situations like these may seem banal and even tedious, it is the responsibility of the individual handling the termination to ensure that all parties receive proper notice, are provided enough time to respond and can vacate or wrap up affairs with the knowledge that the person terminating the contract is following procedure to protect the interests of both parties involved.
When a legal situation arises involving the contract termination, it is critical to point out that the lawyer for the initiator almost always must be consulted to make sure that the client is not missing any steps or failing to provide the right words or parameters to solidify the termination and terminate the agreement in such a way as to not trigger a lawsuit against the original party.
Termination Letter Pitfalls
Common Mistakes to Avoid When Creating a Contract Termination Letter PDF
Inexperienced individuals are more likely to make errors in their letters once they leave out the vital information. They also often use the wrong type of language. Below are some common errors and ways to correct them.
Not paying attention to the contract terms
If an agreement or contract is not written correctly , then it will usually be terminated without notice. A good termination letter will be drafted according to the terms of the contract. For example, it should give enough notice as required by the contract.
Being vague
A letter that just states the obvious without going into detail is considered vague. An example would be stating, "I’m terminating our contract." Instead, it is better to outline the reasons for the termination.