Term and termination clauses in a contract

The lifecycle these clauses cover

The term clause fixes the start date and the length, and the auto renewal clause decides what happens at the end of it, which is the single most common source of an unwanted extra year. Termination for cause and termination for convenience are the two exits, one available when the other side has done something wrong and one available simply because you want to leave. Between a breach and an exit sits the cure period, the window in which the defaulting party can fix the problem. Insolvency gets its own clause because insolvency law limits what a contract can do about it.

What happens after the exit

Four clauses deal with the aftermath, and they are the ones most often missing from a short agreement. Notice of termination sets the form and the period, because a valid reason delivered the wrong way is not a valid termination. Effect of termination says what each party must do on the last day, from final invoices to returning property. Survival names the clauses that outlive the contract, typically confidentiality, indemnities and limitations of liability. Transition assistance covers a handover to a replacement supplier, which nobody will agree to cheaply once the relationship has already broken down.

Choosing which ones you need

A short fixed term engagement needs a term clause, a notice clause and a survival clause and little else. A rolling service contract needs the auto renewal and termination for convenience pair, and a termination fee clause if the supplier is carrying setup costs it expects to recover over time. Anything with a handover risk needs transition assistance written while both sides still want the deal. Cooling off is different again, because it is usually imposed by consumer law rather than agreed, and the page says which sales it applies to.

Every page in this collection

• Auto renewal clause

  The clause itself is ordinary commercial practice. What draws regulator attention is the combination of a long renewal term, a narrow window to say no, and a customer who was never told the window had opened.

• Consequences of termination clause

  Termination rights get all the attention in a review, and the clause that says what actually happens afterwards is often three lines long. That is where the equipment, the data and the last invoice are decided.

• Cooling off period clause

  Two different things travel under the same name. One is a statutory right that exists whether or not the contract mentions it, and the other is a commercial promise the supplier chose to make.

• Cure period clause

  One fixed period for every kind of failure is the usual drafting, and it is almost always wrong. A confidentiality leak cannot be cured in ten days, and a missing report does not need ten days.

• Early termination fee clause

  A fee that recovers what the supplier actually lost is ordinary commercial drafting. A fee equal to every remaining month is the version that gets tested against the penalty doctrine and the unfair contract terms rules.

• Survival clause

  The clauses that matter most after a relationship ends are the ones nobody reads while it is running. A survival list is a short paragraph that decides which of them still exist the day after the notice takes effect.

• Term clause in a contract

  Most disputes about a term clause are not about its length. They are about the day it started, because a start date tied to an event nobody recorded turns every later deadline into guesswork.

• Termination for cause clause

  The word material is doing most of the work in this clause, and most contracts never define it. Naming three or four failures that always count turns a judgement call into something both sides can check against the document.

• Termination for convenience clause

  Ending a contract for cause means proving a breach and surviving the argument about whether it was serious enough. A convenience right skips that entirely, and the price of it is agreed up front rather than fought over later.

• Termination for insolvency clause

  This is the clause most likely to say one thing and do another in Australia, because a statutory stay has limited when it can be used since July 2018. Knowing which processes it still bites on is the difference between a clean exit and a void notice.

• Termination notice clause

  Most failed terminations are failures of process rather than of substance. The right was there, the notice went to the wrong address or the wrong person, and the agreement kept running.

• Transition assistance clause

  The value of this clause is entirely in whether it exists before the relationship goes wrong. Nobody negotiates generous exit help on the day they receive a termination notice.