Term clause in a contract

Sample clause

a managed services agreement between Copperleaf Technology and Harbourline Joinery, a fictional cabinet maker in Newcastle

1. Term. This agreement begins on the Commencement Date and continues for 24 months, unless ended earlier under clause 11. 1.1 The Commencement Date is the first business day after the Supplier notifies the Customer in writing that the Managed Environment has passed the acceptance tests in Schedule 2. 1.2 If the Commencement Date has not occurred by 30 September 2027, either party may end this agreement by written notice, and neither party owes the other anything except for Services already delivered. 2. Expiry. At the end of the Term this agreement expires without further notice, and the clauses listed in clause 14 continue to apply. 3. Interim Services. Any Services delivered between the date this agreement is signed and the Commencement Date are governed by this agreement as if the Term had already begun, and are invoiced at the rates in Schedule 1.

Sample wording, not legal advice.

Variants

What to negotiate

• What actually triggers the start date

  Suppliers want the clock running from signing, because their costs begin then. Customers want it running from go live, so they do not pay for a system they cannot use. The common settlement is a start date tied to a recorded event, such as written notice that acceptance testing passed, plus a longstop date after which either side can walk away if that event has not happened.

• Whether work before the start date is covered

  Work often begins while the contract is still with the lawyers, which leaves early deliverables governed by nothing. Suppliers want that period covered so the liability cap and the payment terms apply to it. Customers usually agree, since the alternative is an uninsured gap. A short interim services clause stating that earlier work is treated as within the term settles it in one sentence.

• Length against price certainty

  A longer term buys a better rate and costs flexibility. Customers ask for a short term with an option to extend; suppliers offer a discount for committing to two or three years. The landing point is usually an initial term at the discounted rate with a capped increase for any extension, so the customer knows what a longer commitment is worth before it makes one.

The risk of leaving it out

With no term clause the agreement runs for whatever period a court later infers from the conduct of the parties, and either side can argue it was free to walk away at any time. Notice periods, renewal deadlines, survival and price review dates all hang off the term, so leaving it out leaves several other clauses with nothing to measure from.

Start dates that depend on something happening

A conditional start date is usually the right answer and the most common source of trouble. If the term begins on go live, acceptance or the grant of a licence, the contract has to say who declares that the event happened, in what form, and by when. Written notice from one party to the other is the simplest mechanism and leaves a record in the file. The second half is a longstop: a date by which the trigger must occur, after which either party can walk away without penalty. Without it, one side can be held to an agreement that has not started and cannot be ended, sometimes for years.

Fixed, rolling and completion based terms

A fixed term ends on a stated date and suits budget cycles and defined projects. A rolling term runs until somebody gives notice, and suits services that are expected to continue, though it needs a clear notice period or it becomes a contract nobody can exit cleanly. A completion based term ends when the last deliverable is accepted, which matches how project work actually behaves but needs an acceptance mechanism and a longstop date so it cannot run forever. Most commercial agreements use a hybrid: an initial fixed period that protects the pricing, followed by a rolling period on notice.

Where it sits in a generated document

The document generator writes an agreement as numbered content, so the term normally appears as clause 1 or 2 with its start date and expiry as sub clauses, which is where a reader expects to find it. The generated text is written from the description it is given and it never prints citations, so any date or figure in a draft has to be checked against the deal before the document is used. Naming the trigger for the start date in the prompt is worth doing, because a description that only says twelve months produces a term with no trigger at all.

Documents that carry this clause

Service agreementBeacon Systems supports Harlow Freight’s IT for an initial 24 months from 1 October 2026 at $8,400 a month plus GST, with 40 hours included and $220 an hour beyond them. Twelve numbered clauses cover the services, a four level severity table, client duties, fees with a CPI adjustment, confidentiality, privacy, IP, a liability cap, termination and a three step dispute ladder.Monthly retainer agreementA studio sells a physio practice twenty four hours a month. Almost every clause exists to answer one question that ordinary contracts duck: what happens to the hours nobody used.Equipment hire agreement template with the rates in a scheduleA hire agreement is a price list, an insurance decision and a return date, and the argument is always about the day it came back. This one puts the equipment and rates in a schedule, makes the damage waiver a choice with its price, and defines late return in hours so there is nothing to interpret.Photo licence agreement covering media, territory and durationA photo licence says which images, for which uses, for how long. Everything else is detail. This one licenses twelve hotel images to the hotel that commissioned them for three years worldwide at $2,400, with a table that marks paid advertising as an extra and resale as not available at any price.

Questions people ask