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This document may be used by one party to a commercial contract, in order to terminate (bring to an end) that contract. The document is designed for use where the existing contract is governed by the laws of England and Wales and where the agreement is a commercial agreement. The parties to the contract will both, therefore, be acting in the course of business and each party will either be a private company or a Limited Liability Partnership.
The notice is designed for use where one party relies upon a right to terminate the contract and wishes to exercise this right (where both parties are in agreement that the agreement should be terminated, the document 'Agreement to Terminate a Contract' should be used). It is possible to use the notice where:
(1). the sender is alleging that the contract has been breached; OR
(2). where the sender is terminating the contract out of convenience and in accordance with a provision in the contract which permits them to do so.
It is important to note that, where a contract has been breached, it is often a contractual requirement that a formal breach notice is sent to that party before the agreement may be terminated. The contract should be checked to confirm whether there is a contractual requirement to do so prior to termination.
The notice will set out the legal basis (ground) which entitles the sender to terminate the contract. The two grounds which may be used are explained further below.
(1) Contractual termination right
A contract may contain a clause which permits a party to terminate the agreement, either by convenience (without a specific reason) or where there has been a breach by the other party. There may be requirements as part of this right that an opportunity should be provided to remedy any breach prior to termination. This information would ordinarily be set out within a formal breach notice. The contract should be checked to confirm whether there is any such requirement.
(2) Repudiation - common law termination right
A repudiatory breach is a breach which provides the innocent party with the right to treat the contract as being disregarded. For a breach to be considered repudiatory, the breach must be of a core aspect of the contract and must have substantially deprived the sender of the benefit that the contract was intended to provide. This could apply where:
(a) there has been a breach of a condition
Where a term of a contract is a condition, any breach (no matter how small) can trigger the right to termination. Identifying whether a term is a condition is a matter of interpretation. For example, this could include a situation where 'time is of the essence' in relation to the performance of the obligation within the condition, meaning that there is a contractual requirement for the performance of an obligation to be within a specific timeframe. There are also certain statutory provisions which imply conditions into contracts.
(b) there has been a serious breach of an intermediate term which goes to the root of the contract
An intermediate term is not a condition (as above) or a warranty (a minor term taking the form of an assurance or promise). It is therefore somewhere in between the two. A contract may only be terminated as a result of a breach to a intermediate term where that breach is sufficiently serious and goes to the root of the contract, and deprives the party of the full benefit it was due to receive under the contract.
Other factors to consider
It is important for the sender of the notice to remember that, once the termination has been communicated to the recipient, it cannot be undone. It is also important that the sender ensures that they are terminating the contract on a correct legal basis, as they may otherwise risk the recipient claiming damages from them for wrongful termination. Furthermore, it is important to select the correct legal basis for termination as this will impact the nature and type of remedy which may be claimed. Where the sender is unsure, it may be necessary to seek specialist advice.
It should be noted that this notice serves to terminate the agreement only, and does not address in full any remedies which may be required. Any future claims against the recipient in respect of the breach should be pursued by the sender in accordance with the correct Pre-Action Protocol which may require sending a letter before claim.
How to use this document
The document should be completed with the correct factual information. It is important to check the existing contract carefully to confirm whether there are any specific methods and requirements regarding the service of notices under the agreement. The existing contract should be attached to the schedule marked 'Schedule 1', and any existing breach notice should be attached to the schedule marked 'Schedule 2'.
Once the document has been completed, it should be signed by an authorised representative of the sender. Usually, this will be a director (where the sender is a company) or a member (where the sender is an LLP). The notice should then be sent in accordance with any requirements of the contract. The notice can be adjusted to include any relevant notice period which may apply or, where appropriate, for the contract to be terminated with immediate effect.
The parties should ensure that they complete all steps which may be required of them upon the termination of the contract, in accordance with any contractual termination requirements. There is an option to refer to any such requirements within the notice.
Once the contract has been terminated, the sender may wish to consider further action in order to obtain remedies in respect of the breach, which may require sending a letter before claim.
The overall relevant rights and obligations within a contract will be determined in accordance with the general principles and rules of contract law.
The contractual right to terminate will be determined in accordance with the interpretation of the contractual terms.
The common law right to terminate a contract has been developed through case law.
The statutory rights relevant to a contract will depend upon the nature of the contract. For example, contracts relating to the sale of goods will have terms implied by the Sale of Goods Act 1979.
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