Contract Termination Clauses: What You Need to Know Before Signing
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How a contract ends matters as much as how it begins. Termination clauses define the exit terms — and a bad termination clause can trap you in a costly agreement.
Types of Termination
Termination for cause allows either party to end the contract if the other party breaches a material obligation and fails to cure the breach within a specified period (usually 30 days). Termination for convenience allows either party to end the contract at any time, usually with advance written notice (30-90 days is standard). Most well-drafted contracts include both provisions.
Notice Requirements
Pay close attention to how much notice is required, how notice must be delivered (email, certified mail, or both), and when the termination becomes effective. Missing a notice deadline or using the wrong delivery method can invalidate your termination and keep you bound to the contract.
Survival Clauses
Certain obligations survive termination — confidentiality, indemnification, limitation of liability, and intellectual property provisions typically remain in effect after the contract ends. Review which sections are listed as surviving and for how long. An indefinite survival clause for indemnification means your financial exposure continues forever.
Consequences of Termination
Check what happens upon termination: are fees refunded pro-rata? Must confidential information be returned or destroyed? Are there early termination penalties? What happens to work product created during the contract? These details are often overlooked but can have significant financial and operational impact.