Term and termination: Overview, definition, and example
What is term and termination in a contract?
The term and termination section of a contract defines the duration of the agreement (the term) and specifies the conditions or events under which the contract may be ended (termination). The term outlines how long the contract remains in effect, while the termination provisions address how and when the parties can end the agreement, whether by mutual agreement, breach, or expiration.
For example, a service agreement might state that the term is one year, with the option for either party to terminate with 30 days’ notice.
Why is term and termination important?
The term and termination section is important because it provides clarity on the duration of the agreement and establishes fair and transparent conditions for ending the relationship. This protects both parties from misunderstandings about how long their obligations last and the consequences of ending the agreement.
For SMBs, this section ensures flexibility, minimizes risk, and protects against abrupt or unfair contract termination, supporting smoother business relationships.
Understanding term and termination through an example
Imagine a lease agreement where the term is defined as follows:
- “The term of this Agreement shall commence on January 1, 2025, and continue for a period of 12 months, unless earlier terminated in accordance with the provisions below.”
The termination clause might specify:
- “Either Party may terminate this Agreement by providing 60 days’ written notice to the other Party. In the event of non-payment, the Landlord may terminate the Agreement immediately upon written notice to the Tenant.”
This provides clear terms for how long the lease lasts and the conditions under which it can be ended.
An example of a term and termination clause
Here’s how a term and termination clause might appear in a contract:
“Term: This Agreement shall commence on the Effective Date and shall continue for a period of three (3) years, unless earlier terminated as provided herein. Termination: Either Party may terminate this Agreement upon 30 days’ prior written notice to the other Party. Additionally, this Agreement may be terminated immediately: (a) by either Party in the event of a material breach by the other Party, provided such breach is not cured within 15 days of written notice; or (b) by mutual written agreement of the Parties.”
Conclusion
The term and termination section provides critical structure and flexibility to contracts by defining their duration and establishing the conditions under which they can end. This ensures clarity, protects the parties’ rights, and helps avoid disputes about how and when the agreement concludes.
For SMBs, including a clear and balanced term and termination clause in contracts is vital for managing expectations, reducing risk, and ensuring smooth transitions if the agreement ends. These provisions are essential for creating stable and enforceable business 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.