Termination Agreement

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Termination Agreement

A termination agreement is a document formally expressing that every single contractual party agree towards the cancellation of a contract. This  agreement is also termed the following:

  • Termination of contract
  • Notice of cancellation of contract
  • Notice of termination of contract

When Is Termination Agreement Needed?

A contract is terminated when one party to it chooses to exercise a right to bring the contract to an end.  That right arises (1) at common law and/or (2) by the express terms of the contract.

Purpose of a Termination Agreement

A termination agreement states the obligations that survive the termination. The parties in the original contract should sign the agreement.

These agreements state that the involved parties have come to a mutual conclusion to end the contract. They might incorporate an optional mutual release of claims. A business termination agreement formally ends a business relationship. It generally includes a business and an individual or two enterprises.

Inclusions in a Termination Agreement

A termination of contract agreement happens when a contract is voided before the stipulations are fulfilled through each party. There are numerous situations that may call for a termination of a contract. The purpose of a termination of contract agreement is not always to end the partnership. It can likewise imply that the relationship or services offered have changed or that the contracted services have already been completed.

In a termination agreement, the information that is required to be comprised of are:

  • The involved parties
  • The relationship amid the contractual parties
  • The results of the termination
  • Any consequences arising from the termination

In few cases, termination agreements are mutually agreed upon amid the involved parties. These agreements are part of good business practice and should protect the best interests of all involved.

How to Draft a Termination Agreement

The process to draft this agreement is;

  • Give each party sufficient time to evaluate the original contract.
  • Check that every contract duty have been completed.
  • Provide a copy of the termination of contract agreement to both parties.
  • Continue to provide contract services until the agreement is signed.
  • Each party should sign two copies of this document, one for the signer and one for the other party.
  • File the signed termination contract with the original contract agreement.
  • Consider having the termination of contract agreement notarized.
  • Contact an attorney for complicated termination of contract agreements.

Benefits of Termination Agreement

This agreement states who is involved in the termination, the purposes for the cancellation, and how and when the termination happens. When applicable, you might also incorporate a detailed scope of severance pay. The agreement sets a date for termination. It additionally incorporates the individuals involved and the signing date of the original contract.

A notice of contract termination comprises of terms under which you could cancel the agreement. When you send a notice of contract termination, it makes a record that you provided notice towards the other contractual party regarding the termination and the date it becomes effective. This gives you proof of notice, which might be required if the other party says something different in the future.

Types of Termination Agreement

There are two types of termination: 1) termination for cause, otherwise acknowledged as termination for default; and 2) termination for convenience. 

Termination for cause – An individual’s right to terminate its contract might originate from the general principles of contract law or it might emerge out of the terms of the contract itself. A termination for cause is available only in light of a material breach of the contract by the other individual. 

Termination for convenience- This might originate only from the terms of a contract which provides for such termination, for there is no general contract principle allowing termination for convenience.

Key Terms of Termination Agreement

A Termination Letter for termination of an agreement is used by a party to let the other party know that they wish to terminate the agreement before the expiry of term of the agreement.

A letter of termination of employment, also known as an employee termination letter, pink slip, or letter to fire an employee, is created to inform an employee their job is ending and explain the reasons for the decision. 

A termination letter clearly clarifies why the termination is being commenced. The letter is a written record of the termination for both the employer as well as employee which is important if any legal action is initiated. An employment termination letter provides broad and detailed reasons for the termination for the benefit of the employee and is also essential if a terminated employee applies for unemployment compensation benefits. The types of Letters of Termination of Employment are; Layoff  Letter; Termination for Cause; Termination for Poor Performance; Termination for Poor Attendance; Termination for Not Being Able To Perform New Responsibilities

What Happens When You Violate a Termination Agreement?

An individual might wish to terminate an agreement before the expiry of its term for many reasons which consist of a breach by the other party, or shutting down a specific activity/business. The individuals might also wish to terminate an arrangement by mutual agreement if it is not working out for any reason. 

The termination of contract agreement must be customized to the party’s specific requirements. The intention is to have a clear understanding of termination amid both parties. The termination of contract agreement could prevent legal disputes, disagreements, and it could assist to set expectations going forward.

Sample of a Termination Agreement

A sample of the Termination agreement can be downloaded from below.

Download Termination Agreement Template

Termination Agreement

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