When you sign a contract, the general expectation is that neither party tries to get out of it early. However, circumstances change and may lead to an agreement no longer working for you. In this case, you may wish to end the agreement before the agreed termination date. 

In order to end a contract early, it’s important to navigate through your options carefully or you might find yourself facing legal consequences and even earning a bad reputation. Keep reading to find out the safest path for getting out of a contract. 

What Is A Contract?

A contract is a legally binding agreement. Contracts can either be verbal or non-verbal,  however, we always recommend having them in writing. In essence, contracts are a promise to perform or deliver something in exchange for something else. 

Types of contract we commonly enter into include sales contracts, employment agreements, service agreements and confidentiality agreements.  

What Makes A Contract Legally Binding?

In order for a contract to be legally binding, it must satisfy all the elements of a contract. They are as follows: 

  • Offer and acceptance – the contract must contain a proposal which is met with active reception to this offer
  • Consideration – all parties must gain something of value from the contract 
  • Intention to be legally bound – parties to the contract must be aware of the binding nature of the agreement 
  • Legality – the contract cannot be based on anything illegal
  • Capacity – all parties signing the contract must have the ability to fully comprehend the contract i.e a language barrier or clouded state of mind will mean a person does not have capacity

How To Get Out Of A Contract

If you’d like to end a contractual agreement you’ve entered into, your options will depend on your situation. 

Generally contracts can end by any of the following ways:

  • Performing your obligations under the contract as agreed
  • Both parties agreeing to end the contract (mutual agreement)
  • Enacting a termination clause
  • Breach of contract

A breach of contract means that one party did not fulfil their obligations as agreed under the contract, or did not comply with a requirement in the agreement. 

Can You End A Fixed Term Contract Early?

A fixed term contract is an agreement with a specific end date. For example, an individual has been hired by a company for a limited period of time to complete a certain task for them. This is known as a fixed term contract. 

Fixed term contracts can be ended early, however, it requires some consideration of the options available to you. It’s not recommended to simply stop fulfilling your contractual obligations as this could allow the other party to take legal action against you (this would constitute a breach of contract!). 

Rather, try to end the contract on mutual and agreeable terms. You may want to speak to a lawyer who can talk you through your best options here – chat to our expert lawyers today

What Is A Deed Of Termination?

A Deed of Termination is a document that is signed by all parties to a contract when they want to end the agreement prior to the expiration date. In a way, it’s an agreement to state a previous agreement has been officially ended by both parties. 

If there are matters that need to be wrapped up first such as payments, duties, confidentiality matters or liabilities, a Deed of Termination will address this. 

Deed Of Mutual Termination

As a business owner, you may provide a service to your clients which requires a contract in place. However, things don’t always go to plan and sometimes people want to get out of contracts they signed. 

In order to maintain a positive relationship with the community and provide your clients with flexibility (contracts should not feel like a jail sentence), you can provide your clients with a deed of mutual termination. 

This agreement signifies that both parties to the contract have a mutual agreement to end it prior to the termination date and they no longer need to fulfil their obligations to one another.

Example 
Maria is moving away and, as a result, she will not be able to attend her local gym. Her contract involves a one year membership, which is charged on a monthly basis. 

After approaching her gym and explaining the situation, they agree to terminate the rest of the membership as long as Maria signs a deed of termination.

The agreement allows Maria to stop paying the gym’s monthly fee prior to her one year contract ending and preventing further use of the gym’s services. 

What Happens After You Terminate A Contract?

After you terminate a contract, the agreement ceases to exist. Therefore, you do not have to fulfil your obligation to the other party and you cannot expect them to perform their contractual obligations. 

However, this is only the case where the agreement has been terminated validly. In the case of a breach, legal action can be taken and the courts may need to be involved. 

Landing yourself in the court is the last thing you want, so it’s best to chat to a lawyer who can review your documents and ensure you can avoid this situation from the outset. 

Other Ways A Contract Can Be Ended

There are a number of other situations that can arise which could warrant the end of a contract. We’ve listed some common ones down below.

Force Majeure 

Force majeure refers to a major event or circumstances that stops the parties from performing their contractual obligations. A force majeure event is something significant, external and unforceable to the parties, such as war, terrorist attack or natural disasters. 

When a force majeure is enacted, it means the parties cannot attend to their promises under the agreement. 

Example
Jay was set to fly from Sydney to Adelaide for an employment opportunity. However, the outbreak of a global pandemic caused all flights to be cancelled, meaning Jay could not make it to Adelaide in time.

A force majeure clause in Jay’s contract allows for an exception due to the pandemic. 

Force majeure is something that requires a ‘trigger’ event. In some cases, depending on the type of contract you’ve drafted, a force majeure can trigger a boilerplate clause, which often helps parties and courts interpret the terms of an agreement where its terms are in dispute. 

These are some of the many ways you can ensure your contracts are secure, safe and enforceable – our contract lawyers can review your documents to ensure they are strong and prepare you for any unfavourable situations. 

Unfair Contract Terms

The Australian Consumer Law (ACL) strictly prohibits unfair terms in contracts. A contract term is considered unfair if it:

  • Promotes a significant imbalance in power between the parties
  • It is not reasonably necessary to fulfil the terms of the contract 
  • The terms are unclear and ambiguous, leaving too much room for interpretation 
  • The term can cause harm to one of the parties to the contract 

If the terms of a contract are unfair, you have the right to pursue termination of the contract or parts of the contract on this basis. 

Breach Of Contract

If one party breaches the contract, then it can be grounds to terminate the contract. The most common example of this is an employment contract, where an employee breaches their employment agreement. 

The employer is likely able to terminate their employment contract, effectively ending the employee’s right to work there and the employers obligations towards them.

Key Takeaways

Contracts can be tricky and getting out of one will depend highly on your individual circumstances. We recommend talking to a legal professional if you ever find yourself needing to get out of a contract. 

To summarise what we’ve discussed: 

  • Contracts are legally binding agreement
  • It’s possible to get out of a contract early, however, it’s important to consider all other possible options first 
  • Once a contract has been ended, parties are no longer required to fulfil their promises according to the contract 
  • An amicable way to get out of a contract is to have both parties sign a deed of termination 
  • Contracts can also end due to frustration, the enactment of force majeure, unfair contract terms and a breach of contract 

If you would like a consultation on how to get out of a contract, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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