Cancellation: Overview, definition and example
What is cancellation?
Cancellation refers to the termination of a contract or agreement before its intended completion, either by mutual agreement, due to specific circumstances outlined in the contract, or as a result of a breach. It releases the parties from their future obligations under the contract, though certain rights or liabilities may still apply based on the terms of cancellation.
For example, a subscription agreement might allow a customer to cancel their subscription at any time by providing 30 days' notice.
Why is cancellation important?
Cancellation is important because it provides a mechanism for ending an agreement when circumstances change, the terms are no longer viable, or one party fails to uphold their obligations. Including cancellation provisions in a contract ensures that all parties understand the conditions under which the agreement can be ended and the consequences of doing so.
Clear cancellation terms help avoid disputes by defining the process, notice period, and any penalties or obligations that remain after termination.
Understanding cancellation through an example
A business signs a software-as-a-service (SaaS) agreement with a provider. The contract includes a cancellation clause allowing the business to terminate the agreement with 60 days’ written notice if the software fails to meet performance standards. This provision gives the business flexibility while protecting the provider by requiring notice and an opportunity to address any issues.
An example of a cancellation clause
Here’s how a cancellation clause might appear in a contract:
“Either Party may cancel this Agreement upon [Insert Notice Period] written notice to the other Party. In the event of cancellation, the Parties agree to fulfill all outstanding obligations incurred prior to the cancellation date, including payment of any fees due.”
Conclusion
Cancellation provisions are a critical part of contracts, offering clarity and flexibility in how agreements can be ended. By defining the conditions, process, and consequences of cancellation, these clauses help minimize disputes, protect the interests of both parties, and ensure a smooth transition when agreements need to be terminated. Properly drafted cancellation terms foster trust and accountability in contractual relationships.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.