At some point in your professional career, you’ll likely need to get out of a contract. These can include employment contracts, purchase and sale agreements, sale of a business agreements, distributorship agreements or shareholders agreements, among others.
The first course of action is always to speak directly to the other party involved to see if there is a way to amicably part ways. Unfortunately, if the relationship has become acrimonious, that might not be an option.
At this point, you’ll need to look at the fine print of your contract to see if there is any way to terminate the agreement without facing legal consequences.
To help you know what to look for, Caravel lawyer, Michael Fitzgerald, has outlined five tips that may help you get out of a contract without getting sued:
- Be proactive
Much like our health, when it comes to legal agreements, prevention is better than cure. This means negotiating a termination clause that benefits you in a legal agreement is preferable to signing a contract and then trying to find a way to get out of it afterwards.
A well-drafted contract will have a whole set of provisions dealing with termination. These provisions will entitle you to terminate an agreement for various reasons, for example, if the other party goes bankrupt or if the other party fails to meet their obligations outlined in the contract. Or it may say something as simple as either party can terminate this contract if they give 30/60/90 days’ notice.
[Read our blog post: 6 essential elements for a legally binding contract]
Negotiating these termination clauses before you sign an agreement will alleviate a lot of stress and headaches if you need to get out of a contract down the road.
- Look for an escape hatch
If your legal agreement is in writing, one of the first things to do is read through it and identify any possible escape hatch. An escape hatch is essentially a termination clause which allows you to walk away from the agreement.
This may be something like the term of the contract. For example, if it’s a fixed-term agreement, you may just have to wait it out until the contract period ends (although this could be months or years, depending on how the contract terms are defined). However, there may also be a clause that states you may terminate with X days’ notice.
- Determine if there has been a breach of contract by the other party
Another way you may be able to get out of contract is if the other party has significantly breached the terms of your agreement. If you believe they have done something that could be considered a serious breach of contract, then you can assess whether you have the right not to perform your end of the agreement.
[Read our blog post: Why every corporation needs a shareholders agreement]
However, there is a legal risk with this approach. The breach by the other party must be substantial and has to constitute something that denies you the benefit of the contract. So if the breach of contract you allege doesn’t stand up to legal scrutiny, you could be sued by the other party for damages, or they could compel you to perform your obligations by getting a court order.
With this approach, the best thing to do is consult a lawyer before asserting that you have the right not to perform. You’ll want to speak to a lawyer and get their legal opinion about whether that other side’s breach is significant enough to warrant breaking the contract.
- Review all the conditions in your contracts
Legal contracts often come with conditions that one party must comply with before the other party is obliged to perform their part of the deal. For example, with the sale of a business, the contract will be conditional upon the purchaser being satisfied after an inspection of the property to ensure it’s in proper condition.
That’s why it’s always important to review a contract to see if there are any conditions in the agreement that have not been met and may allow you to get out of the agreement.
- Consider termination for convenience
If a contract doesn’t outline a specific termination clause, sometimes the court will imply a right to terminate on the part of both parties. The idea is that even if a contract does not define its conditions for termination, it should not be assumed that a contract is perpetual.
In the past, there was a presumption that contracts have an indefinite term. But today, for certain contracts without termination clauses, it’s fair to imply a right to terminate on reasonable notice – depending on the circumstances.
[Read our blog post: What you need to know about arbitration clauses in contracts]
For example, some types of contracts, such as some personal services agreements (which depend upon mutual trust between the contracting parties), if the professional relationship deteriorates between the two parties, there may be an implied right to terminate with reasonable notice.
Getting legal guidance from the experts
Getting out of a contract without facing legal repercussions can be tricky, especially if you don’t fully understand the terms of the contract you signed. The best way to ensure you minimize risk while exiting an agreement is to speak with a lawyer.
If you need help clarifying your rights and responsibilities in a contract, we can help. The team at Caravel is made up of 85 qualified and experienced lawyers, including those specializing in contract law. Get in touch with our team today to find out more.
The information provided in this article is not intended to be legal advice. Many factors unknown to us may affect the applicability of this content to your particular circumstances.