Tips for terminating unprofitable contracts

Circumstances change and what was once an affordable or even profitable agreement could potentially now be unjustifiable in terms of cost. Be it a purchase/outsourcing contract with a supplier, such as facilities management, logistics, IT support/maintenance or your own terms for supplying customers, a periodic review of your existing agreements could save you thousands of pounds.

If you find that you have contractual obligations that are too costly or which no longer meet your business objectives, you may decide that it is in the business’ best interests to terminate the contract. If you find yourself in this position, the following may be worth consideration:

(1) If you are relying on the other party having breached the contract to terminate, be careful that you do not waive your right to rely on the breach by allowing them to remedy the breach or by leaving it too long before you terminate.

(2) Check the contract carefully to see if you need to follow any procedural requirements such as serving notice of termination, time periods, form of notice etc.

(3) Document your grounds for termination clearly. If there is any doubt as to whether the breach is “material”, carefully note the impact of the breach on the business.

Legal advice should always be sought before terminating any contract. If you terminate a contract without a valid right to do so then you may be giving the other party a right to sue you for damages, or affirm the contract and insist on continued performance.

Ian Liddle
Farleys Solicitors