Business owners often find themselves in a situation where they want to get out of a contract. It could be that the service or agreement is no longer valuable or that the contract auto-renewed and the business owner wasn’t interested in renewing (contract management can help with this common issue). It also could be that the agreement is no longer in the best interest of the business. Whatever the reason, getting out of a signed contract may not be that easy.
In general, everyone should be careful when signing contracts, but of course, situations will arise where people want out. You can’t get out of a contract because you changed your mind and want to cancel it. There has to be a legally acceptable reason to void or get out of the contract. Sometimes contracts can be voided because they don’t meet certain legal requirements, or, they may have been invalid from the start due to fraud, misrepresentation or mistake. Whatever the case may be, if a business is looking to get out of an agreement, here are some possible options to consider.
Review The Agreement
The first thing a business should do when looking to get out of a contract is to review the document. Carefully review the language, what does it say about termination, notices to end the agreement or any rights there might be to end the contract early. There may be a loophole or escape clause that lets the agreement be terminated at any time. There may not be anything in the contract that allows for any early termination, but it’s worth checking.
Is There A Breach?
Check to see if the other party to the contract is in breach of the obligations in the agreement. Typically, a breach happens when one of the parties refuses to do what was agreed upon, does something they weren’t supposed to, or prevents the other party from doing what they are supposed to do under the contract. Businesses looking to get out a contract should be on the lookout for material breaches, which means the other party failed to perform a core obligation under the contract. A good example would be, a business that hires an accounting firm to manage its books and file its taxes, except the business’s accounts are never reconciled and the taxes are never filed. If a material breach is found, a business can use that as a way to try and end a contract early.
Try To Negotiate With The Other Party
If there doesn’t appear to be any breach of the contract and there is no early termination language in the agreement, reach out to the other party and see if a mutual agreement can be reached to terminate the contract early. This can be a very successful strategy for businesses when they are looking to end a contract early. Oftentimes the contract is with another small business, the owners understand that situations arise where contracts sometimes need to be canceled. The other party may be open to ending the agreement for a fee, or for no fee, which is often a better deal than dealing with an issue where a dispute arises and both sides end up being out time and money looking for a resolution. Propose a few options that might work for both sides and see if an agreement can be reached.
Fraud, Misrepresentation, or Mistake
Was there fraud, misrepresentation, or a mistake made when the contract was entered into? If there was, then that can be used as an option to end the agreement. Contracts depend on clear expectations, defined terms, and transparency that spells out all of the details of the agreement. If a business entered into an agreement and was misled about the quality, quantity, or specifications of services or products then that may be a situation where fraud, misrepresentation, or mistake comes into play and the business can use that as a means to end the contract early.
Contracts are an unavoidable part of life for businesses. It’s important to understand what’s in them, what the options are, and how they can be terminated. Simply having a general understanding of a contract's obligations can go a long way in preventing disputes and saving time and money.
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