Be Careful When Granting the Power to Terminate a Contract Early

November 14th, 2008 by


It seems quite often you see contracts that contain provisions similar to the following:

Either party may cancel this contract at any time by giving the other party 60 days written notice.

This always sounds like a good idea when you discuss it. Basically it is the back-out provision, if things are going badly, you can get out before it gets worse. While this may be appropriate in some cases, in many cases it ends up destroying the entire reason for the contract.

The point of most contracts is to set a series of provisions out defining what each party is responsible for. Most of the value comes from the fact that both parties know they are tied to each other for a certain amount of time as long as both parties live up to their end. If you provide a get out of jail free card, with one of these provisions, then you do not have a 1, 2 or 3 year contract, all you really have is a self renewing 60 day contract.

There is nothing wrong with 60 day self renewing contracts, if that is what both parties want, but more often then not, when these provisions are used it is not the case.

Always be sure that what you contract for is what you intend. As my father always said to me “Say what you mean, and mean what you say.”