How to Create a Termination Letter

In business, there may come a time when you need to terminate a contract. Whether it's due to mutual agreement or unforeseen circumstances, knowing how to terminate a contract when needed is a must.

Let's break down how this may be done:

Understanding Contract Termination

First, know that terminating a contract isn't necessarily a bad thing. Sometimes, the relationship has come to a conclusion or impasse, and the agreement no longer serves its purpose. 

And in cases where the decision to end is mutual and you've already verbally expressed to each other that your business is done, sending the termination letter is often just a legal formality.

But whether things are tense or amicable, it's best to formally terminate the contract so both parties are aware of when their responsibilities begin and end.

Checking the Contract

To start, look for a termination clause that outlines how and when the contract may be terminated. And if neither party has breached the contract (i.e. did something they were not supposed to do), check whether you can terminate without case.

Without cause means that you can terminate the agreement for any reason or no reason.

It looks something like this:

Either party may terminate this Agreement for any reason upon thirty (30) days prior written notice to the other party.

It's a helpful clause to have when you need to terminate without specifying a specific reason. 

Of course, this goes both ways those. If written this way, the other party can also cancel the contract with prior notice. 

Create the Termination Letter

Now it's time to draft a termination letter.

This letter should include the following:

• Effective Date of the original contract
• Names of the parties involved
• Name of the contract being terminated ("Service Agreement")
• Note the fact the contract is being terminated
• Effective Date of the termination

Give Proper Notice

Find the notice clause next. This clause tells you how to give notice.

For instance, if you're required to give 30 days notice, can you do so by mail or overnight delivery?

Depending on the clause, it may state that certified mail, overnight mail or even email are options.

Once you've determined the allowable method, that is the way you must deliver notice and within the time frame specified.

Perhaps you will give notice on Jan 1st to end the contract on Feb 1st and you overnight your termination notice on Dec 30th so that it arrives in time to give exactly 30 days notice.

Many clauses require certified mail with return receipt but either way, just make sure you follow the method allowed.

And even if email is not selected, you can always send notice by email too so both formal and informal notice has been given.

Those are some quick tips! If you want to watch my video on the topic, click below. And for even more detailed tips on this process and other common legal situations, get Legally Good Club.

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This blog posting is provided for general informational and educational purposes only and is not provided for specific, individual legal, financial or tax advice.