A contract termination letter is a formal letter used in business settings to formally dissolve a contractual relationship between two or more entities. This document comes in handy when either of the parties wants to terminate a contract lawfully and ethically.
Furthermore, the letter outlines the reason for terminating the contract and any essential actions that need to be undertaken. This legal document is also known as;
- Termination of Contract Letter
- Termination Agreement
- Notice of Contract Termination
- Agreement to Terminate Contract
- Termination Letter
- Contract Cancellation Agreement
Table of Contents
Why should you create a contract termination letter?
When you start a working relationship, you need a contract. Similarly, you need a contract termination letter to end that relationship. Here are some legal and professional reasons for creating a contract termination letter;
- The letter enables a company’s HR or hiring position to make all communication official and legally binding.
- This document keeps professionalism while dissolving a partnership, agreement, or employment contract.
- The termination letter serves as proof in the event of future legal disputes.
When to use a letter of termination?
A contract termination letter is used in the following situations;
A contract termination letter is used when both involved parties want to terminate the agreement. They confirm this mutual decision by composing this letter.
Expiration of contract
If the agreement between parties has a specific end date or a predetermined period then a termination letter is written to inform the other party that the contract will not be renewed once it expires.
Breach of contract
If either of the parties doesn’t fulfill their obligations or breaches the terms of the contract then the other party issues a termination letter to that party.
A contract termination letter is issued if either of the parties fails to meet the agreed-upon standards or delivers unsatisfactory results.
This letter is used as a final step in case attempts to resolve a dispute or disagreement within the contract have been unsuccessful.
How do you write a contract termination letter?
Consider the following steps to write an effective termination letter;
Give relevant details
Write the complete names and mailing addresses of all involved parties.
Original contract information
Specify the date when the original contract was signed and its purpose in order to get context for the termination.
Set a termination date
Choose a specific date such as today’s date or the signing date of the termination agreement on which the contract will no longer be in effect.
State which party is providing compensation as part of the agreement. Also, specify the compensation they are providing.
Sign the letter
Leave a space for the signatures of the entities. In addition, check your state laws to determine whether witnesses are necessary for signing the letter.
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Yes, you can terminate a contract verbally. But, it would be recommended to always write a contract termination letter as you can’t prove and enforce a verbal contract.
A contract termination letter can come in handy if you are looking to terminate a contract and there is no termination clause. This way, you can avoid any potential disputes.