Terminating A Contract: What Do You Need To Know? (2025 Updated)

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Let’s say you’ve entered into a contract and you’re not entirely happy with how it’s affecting the running of your business in today’s dynamic 2025 environment.

Or perhaps the other party isn’t performing as originally agreed. In many cases, reliability and clear performance are critical, and any deviation can put your business at risk.

Whatever the case may be, there will eventually come a time when you need to determine if you have the right to exit, or ‘terminate’, the contract. For more context on your contractual rights, you might explore our What is a Contract? guide.

Who Can Terminate A Contract?

The rules around who can terminate a contract depend on the specifics of the agreement and the precise wording of its termination clauses. In 2025, courts continue to refine these principles to ensure fairness, so always check your contract’s details.

Depending on the contract, you might have an express clause that permits termination, or there may be various circumstances where you have an implied right to terminate. Our Contract Review and Redraft service can help clarify these terms.

Here are three of the most common scenarios in which you might be able to terminate a contract:

1. Failure To Perform An “Essential Term” Of The Contract

An “essential term” refers to a clause within the contract that contains a key requirement, without which the agreement would lose its purpose. In 2025, digital deadlines and performance benchmarks are often designated as essential terms in modern contracts.

If one party fails to perform an essential term, this usually entitles the other party to terminate the contract. It’s crucial to identify and understand what these essential terms are.

Remember, essential terms can be either express or implied.

Express terms

An express term is one that has been explicitly agreed upon by all parties. For example, a contract may state “that time is of the essence of this agreement,” meaning timely performance is critical.

If the other party fails to meet the specified time frame, you have a right to terminate the contract.

Similarly, if your contract clearly provides that a breach of a particular clause allows for termination (for instance, “in the case of a breach of clause X, either party can terminate the contract”), then that breach justifies an exit from the agreement.

Implied terms

Some terms are implied into contracts by law or necessity to give full effect to the parties’ intentions. Recent case law in 2025 reinforces that these implied terms serve to uphold the fundamental purpose of the contract.

If you can prove an implied term was breached, you may also have the right to terminate the contract.

A common example is where a term is implied to ensure that both parties receive the agreed benefit of the contract. In a contract for the sale of goods, it is generally implied that the goods will be fit for purpose. For more details on consumer guarantees, see our article How Can Your Business Comply With Consumer Guarantees?.

2. Failure To Perform An Intermediate Term Of A Contract

It is also possible to terminate a contract if the other party breaches a non-essential, or intermediate, term. In such cases, you must demonstrate that the breach substantially undermines the core purpose of the contract.

Though not classified as an essential term, the impact of the breach might leave you substantially deprived of the intended benefits. For a comprehensive overview of breach implications, check out our What Makes a Contract Legally Binding? article.

3. Unwillingness To Continue With The Performance Of The Contract

You may also terminate a contract if the other party demonstrates an unwillingness to perform their remaining obligations. This can become evident if they begin to act in a manner that deviates significantly from the agreed terms.

If it’s clear that the other party no longer intends to be bound by the contract, you could have the right to terminate—even before the contract is fully executed.

Such scenarios rely on the overall conduct of the parties rather than a strict contractual clause. It is always wise to seek legal advice before acting on perceived unwillingness, as misinterpretation might inadvertently give rise to further termination rights.

What Is The Outcome Of Contract Termination?

Typically, your contract will spell out the process for termination, including any required notice periods and notification methods. Many agreements now incorporate provisions for digital notifications or online mediation, reflecting the streamlined processes of 2025.

Once terminated, you are generally relieved of any future obligations under the contract; however, you may still need to settle any work that was completed prior to termination. This is particularly relevant in projects with staged deliverables.

If disputes arise post-termination, alternative dispute resolution processes, such as mediation, are increasingly common. For more on handling post-termination issues, review our Deed of Termination services.

What To Take Away…

It is crucial to understand when you may have the right to terminate a contract. Whether a party has failed to meet an essential or intermediate term, or shows an unwillingness to continue performance, you could have valid grounds to exit the agreement.

Contract termination is a complex area – particularly for startups or small business owners. A well-drafted contract that clearly outlines termination rights and processes not only protects your business but also mitigates future legal headaches. Our Company Set-Up page offers further guidance on ensuring your business contracts are robust and current.

As the legal landscape evolves in 2025, regularly reviewing and updating your contracts is more important than ever. Seeking professional advice can help you understand your rights and avoid costly disputes down the track. For further information on contract maintenance, visit our Legal Requirements for Starting a Business guide.

If you need a contract for your business – or if you believe you may have the right to terminate an existing agreement – get in touch. We’re here to answer your questions and help you navigate your legal obligations confidently!

Esha Kumar

Esha is a law graduate at Sprintlaw from the University of Sydney. She has gained experience in public relations, boutique law firms and different roles at Sprintlaw to channel her passion for helping businesses get their legals sorted.

Tomoyuki Hachigo

Tomo is the co-founder of Sprintlaw and a commercial lawyer with a broad range of legal experience. Before starting Sprintlaw, he was an M&A lawyer at a top-tier law firm advising businesses of all sizes from large corporates to startups.