Contracts are integral in business and are utilized to solidify formal relationships and arrangements with other entities. They include agreements with suppliers, contractors, service providers, etc. They will typically have a pre-determined end date and thus have a validity period during which both parties are destined to fulfill their contractual obligations or face the associated consequences. However, these agreements can be terminated before the end date without legal consequences through a termination letter as long as there is a valid reason.
A contract termination letter is a formal correspondence stating that one party intends to terminate an existing business agreement for specific reasons. It must indicate the specific agreement being terminated, cite the clause(s) that enable the process, and the subsequent steps after it has ended. It serves as a formal notice of intent to end the contract and can be used as admissible evidence of when the termination process was initiated. Since not all agreements end due to disputes or disappointment, it can be used to thank the other party for their services and strengthen the existing professional relationship.
Alternative names of a letter terminating a contract are:
- Notice of contract termination
- Notice of cancellation of the contract
This article discusses the purpose of a contract termination letter and how to write one. It also provides tips and a sample to help you write a professional and effective notice when ending business contracts.Â
Download Free Templates
Given below are the contract termination letter templates:
When to Use a Notice of Contract Termination?Â
Business contracts can be terminated for diverse reasons. Some instances when you can end them are when it has expired, and services are no longer needed from the other party. Also, it can be done when the agreement is no longer mutually beneficial. They are also discontinued when a party is dissatisfied, for example, due to a breach of contract, fraud, misrepresentation of information, or poor service delivery. For example, a shipping company can discontinue a contract with a manufacturer after learning the shipped products contain illegal substances.
A termination letter is used when documentation such as official notice of intent to discontinue the contract is required as due diligence. Also, it must be used if the agreement specifies that it must be in writing. It is also used when you want to extend courtesy to the other party as the duration of the agreement lapses to mark the end of a successful business engagement.
Writing a Contract Termination Letter in 5 Easy Steps
How you structure and format documents is crucial in the professional domain. So you must be critical of how you relay your message in a termination letter to ensure your intention is effectively conveyed and professionalism is observed. Additionally, you must review the contract at hand before writing it. Familiarize yourself with the provisions and clauses that will guide the process.
Below is a guide on drafting a professional letter for terminating a contract and the essential information you must include:
Specify the date
The letter is meant to terminate a specific contract. So, the first thing to do is specify which contract is being terminated. The date is an effective identifier that lets the recipient know what you refer to. You should also specify the effective date of termination.
For example:
This letter concerns the 2-Year Packaging Services Contract dated Jan 10, 2022. This is the official notification of the termination of the specified contract, effective April 25, 2023.
Include terms related to the process
Next, cite the contractual terms being referenced when undertaking the termination process. Typically, each business contract will have clauses in anticipation of such cases. After citing the terms, explain why you are writing to the recipient. The explanation does not have to be long, but it should be comprehensible.
For example:
This notification has been sent in compliance with Section 10: Termination Clause of the aforementioned contract. The minimum notice period requirement of 60 days has been fulfilled. This results from the recently passed bill prohibiting plastic packaging in our industry. We intend to comply with this regulation and thus have resorted to alternative packaging.
Describe the next steps
After stating the reasons for the termination, the letter must state the next steps that will be taken to finalize the process. Clauses in the agreement or the situation at hand may direct which steps will be taken. The next steps may involve fulfilling purchase orders, compensation, submission of documents, or sending/returning materials such as company vehicles, IDs, etc. They must be outlined in bullet points.
For instance:
We intend to settle any outstanding invoices as per the payment terms outlined in the contract. However, we request that you send us an acknowledgment receipt attesting to the termination of the contract and a confirmation letter verifying receipt of this notification.
Provide an offer to connect
The next step is to inform the recipient that they can contact your company with any queries. It is best to specify the point person by providing their name and contact details, such as a phone number and email address. Most recipients will appreciate this gesture as it shows your commitment to making the process smooth.
This section can be represented in the format shown:
Should a more engaging meeting be required, we encourage you to contact Shawn Hassle via phone at (202) 555-555 or email at [email protected] to make arrangements.
Thank the recipient
Lastly, you can appreciate the recipient in the letter. Extending your courtesy is a sign of professionalism and lets them know they are appreciated for their services and for taking the time to read the letter. Appreciation can go a long way in strengthening the professional relationship established with the recipient.
For example:
Thank you for your continued cooperation in these unfortunate circumstances.
Business Contract Termination Letter Template
Dear [Name of recipient],
Kindly accept this as a notification of intent to terminate the contract dated [date of contract]. It will be effective from [date of termination].
This letter has been prepared in reference to [contract terms of termination or associated clause]. It has been issued within the required notice period of [specify the notice period and mention specific protocols or requirements that have been fulfilled]. The termination is due to [specify the reason for ending the contract].
We hope to [mention the next steps you or the recipient will undertake to complete the termination]. Should you have any inquiries regarding the process, kindly contact [name of point person] via phone [phone number] or email [email].
Thank you for being a valuable partner.
Yours Sincerely,
[Name]
[Title]
[Company Name]
Business Contract Termination Letter Sample
Dear Doe,
We are sending this letter as the official notice of termination of the Contract dated August 8, 2022. This will be effective from March 8, 2023.
This letter is being sent per the provision of Chapter XI: Termination Clause – Requirements of the Contract. We regret to terminate the contract before its expiration date. However, with the recent persistent delays in the delivery of our shipment, we have no choice but to move on in the interest of our stakeholders and customers.
We request that you fulfill any orders made in February as per the contract and send the associated invoices. We shall remit any outstanding debt before the effective end date.
For inquiries, contact Jack Holgate (PR Manager) via (202) 888-8220 or at [email protected].
Thank you for your cooperation and understanding.
Essential Tips for Writing a Professional Business Contract Termination Letter
To create an excellent letter to terminate an existing contract, you must consider different aspects such as format, tone, structure, etc. These elements can influence how it will be received and its effectiveness. Below are tips to improve its quality.
- You should use a formal/professional, empathic, and courteous tone. Regardless of the reasons for the termination, do not be combative or angry.
- It is important to show remorse and be objective throughout the letter. This allows the other party to make amends, resolve differences or renegotiate the contract to continue the relationship. This can be helpful for instances where you do not want to lose a specific business partner.
- The information included in it should be specific and factual. So, mention specific dates, clauses, people, etc., to avoid confusion and misunderstandings. Businesses typically have to deal with piles of documentation, so make it easier for them to know what your letter is about.
- You should proofread it before submitting it. Remove errors and include missing information to ensure your message is delivered effectively. Address the recipient correctly by their full name. This ensures it gets to the correct person in the organization.
- The letter should comply with existing agreements such as NDAs and state and federal laws. This is to avoid being sued for violating the other party’s rights or entitlements.
- Use a template because it can expedite the writing process. They are pre-made documents to guide you on what information to include in the letter when terminating contracts.
- Avoid including unnecessary information. It should be short and, at most, a page long. For example, do not enlist too many reasons for the termination. Note that the letter can be used in legal proceedings if you include statements and admissions that can be utilized against you in a lawsuit. However, it can be detailed if you intend to use it to claim damages resulting from violating contractual terms.
- If you are sending a physical letter, ensure it is sealed since it is courteous to ensure the recipient is the first to learn of the termination.
- It should be sent in good time (within the specified notice period). This ensures the recipient has enough time to take the necessary actions. It also shows diplomacy, which is needed to protect business relationships.
- You should sign it to attest that you have read and agree to its contents.
Bottom Line
Business contracts can be terminated prematurely. However, this is typically followed by certain consequences, such as penalties and compensation, especially if the right procedure is not observed. A termination letter is often part of any correct discontinuation process. It is sent as notice to the other party stating the date, reasons for termination, and the next steps in the process.
You can use templates to terminate contracts professionally. They are tools to help you reduce the time and effort used to create the letter from scratch. Also, they guide you on which information to include; this way, no important details are omitted or forgotten.