In the life cycle of a business, the management has to reach agreements with various parties — including suppliers and service providers — for seamless business operations. These parties may decide to part ways after a while when things don’t work out or when you no longer need the other party’s services. During such times, a contract termination letter can come in handy, signifying the end of the business relationship.
Legal Templates lets you create a notice of termination of a contract within minutes to end any legally binding business agreements.
What is a Notice of Contract Termination?
A notice of contract termination is a formal letter that informs a party or various parties that a business wishes to terminate an agreement they’d previously entered into. This document states when the business relationship between the parties will end, creating a record that can be used if either party makes any claims. A notice of contract termination can also be referred to as a:
- Contract termination letter
- Notice of cancellation of contract
- Notice of termination of contract
When to Use a Notice of Contract Termination?
A contract termination letter can be used to terminate a business agreement for various reasons, including:
- Lapse of contract duration
- Breach of contract terms
- Fraud or misrepresentation
- Failure to perform obligations
A notice of cancellation of a contract doesn’t always signify a disagreement between two parties. It may serve as a courtesy to thank the involved parties for their contributions during the contract period. For instance, the company may draft this formal letter if they don’t intend to renew an individual’s employment contract once they have fulfilled their purpose.
An employer or business may also terminate a contract if the other party lied or committed fraud when entering into the contract. For instance, the management of a company may issue a contract termination letter if they discover a general contractor lied about being licensed, bonded, and insured when signing a construction contract.
How to Write a Termination of Contract Letter?
Drafting a contract termination letter is simple. You can create your letter using our customizable contract termination letter template to cut ties with others in your industry. Always remember to be concise and professional when writing a contract termination letter.
Here are the crucial steps you should take when drafting an effective letter:
1. Look Into the Specifics of the Original Contract
It’s important to thoroughly probe the terms of the initial contract before drafting a notice of contract termination. Familiarize yourself with the clauses regarding how to end the contract.
2. Address the Letter to the Right Person/Entity
Notifying the right individual or company that their services or products are no longer required from a particular date is critical. This helps to prevent misinterpretations that may lead to disputes. Remember to address the other party using their full name.
3. Include Terms Related to Contract Termination
A well-drafted contract should have exit terms stipulating how involved parties can opt-out of a business agreement. Similarly, a contract termination letter should clearly explain why you are ending a firm’s or person’s contract. You should include the termination clause found within the original contract in your notice of cancellation of the contract.
4. Describe the Next steps — If Any
During the termination of a contract, there may be other things that you may have to factor in, such as any benefits or compensation owed to the terminated party. Information from the original contract may support any obligations that you or the other party must fulfill during termination. For instance, a contract termination letter sample may include a clause stating a supplier must clear all outstanding purchase orders before the termination date.
You are also at liberty to list any materials that the other party should send or return, such as IDs and company phones. Make sure you use a bullet list for clarity.
5. Offer to Connect
When drafting a contract termination letter, there should be a point person that the other party can reach out to in case they have any inquiries. Add the name, job title, and email address or phone number of the contact person to make this transition easier for all involved parties.
6. Thank the Recipient
Be it a company or individual, it’s important to thank them for their contribution. Use a polite tone to appreciate them for taking the time to read the letter.
Before sending a notice of termination of a contract, make sure you proofread it to avoid any errors or omissions.
Create your contract termination letter today using our contract termination letter template.
Contract Termination Letter Sample
Here’s a sample of a contract termination letter that you can use to end a business relationship:
Notice of Contract Termination
Re: _____________________________ [Title of Contract]
Dated: _______________, 20_____ [Date of Contract]
This letter serves as notification of termination of the aforementioned contract, effective on _______________, 20_____.
This notification complies with the minimum notice period required by our agreement.
All outstanding requirements of the contract should be fulfilled by the parties prior to termination, unless otherwise agreed upon in writing.
The reason(s) for this termination is/are: ___________________________________________________
Please confirm receipt of this letter. If you have any questions or need anything further, I can be reached via phone at ______________ or via email ______________.
Your collaboration and cooperation is greatly appreciated.
Tips To Consider When Writing a Notice of Contract Termination
A written agreement between two or more parties is considered a contract. It creates a business relationship between entities by setting obligations, expectations, rewards, and consequences. If such an agreement comes to an end, all parties should be able to exit the business relationship amicably.
As a business owner, there are certain best practices you should adopt when drafting contract termination letters. These practices make the entire process of ending a business relationship formal and respectful for all involved parties. Remember, terminating a contract in an unprofessional manner may hurt your brand’s reputation.
Here are several crucial pointers that you should consider when drafting a notice of contract termination:
- Stick to the point when drafting the letter
- Use a courteous and professional tone — avoid harsh or offensive words
- Include the date of termination
- Seal the letter before handing it over to the recipient
- Take into account legal agreements, like NDAs
- Focus on diplomacy — if possible, a termination shouldn’t be abrupt since this may hurt future business relationships
- Make sure the responsible party understands why you are terminating the business contract
- Review the facts of the original contract — make sure you don’t violate any state or federal laws
- Before handing over the letter, add your handwritten signature