Tips for Terminating Unprofitable Contracts

In today's unstable economic climate, all businesses should continually be looking at ways in which they can save money. One way to cut costs that often goes under the radar is the review of existing commercial 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 and maintenance or your own terms for supplying customers, a periodic review of your existing contacts /agreements could save you hundreds or even thousands of pounds.

If you find that you are under a contractual agreement that is too costly or no longer meets your business objectives, you may decide that it is in the business' best interests to terminate the contract. Our tips for terminating a contract are as follows:

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 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 from a commercial contracts solicitor before terminating any contract.

If you wrongly 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.

Rachael Jenner
Farleys