How to Terminate a Contract by Mutual Consent

Dec 4, 2019
Reading Time: 3 minutes
Written by Taeisha Dou

Mutual consent is one of 5 main ways a contract can end. Some are rather hostile and require legal intervention, while others can be more civilised. Mutual consent is one such civilised method. It’s name is rather straight forward. This means parties thus come to an agreement to end the contract before the works are either commenced or completed. One party can also decide to end the other parties obligations before completion. If one party has breached the contract, the other party can also choose not to take up any consequences under some conditions. This is essentially also a termination from mutual consent.

Check your terms

To find out if you want to perform a termination through mutual consent, check over the terms in your contract carefully. Some contracts may include a clause that says it will end automatically after a fixed period. Some contracts can even be rescinded without consent from the other party. So if you prefer to change something in the contract rather than terminate completely, consider this option. If your contract is due to end soon under a fixed period, you may want to hang in until that time.

If you don’t have a formal contract, you may have something more simple like a service agreement. You should check through this document in the same way.

Notice period

Some contracts may require a certain amount of time to give notice before termination. This information should be in the contract as well. If there is no mention of notice, it is still good practice to notify the other party of your intentions. This can avoid unnecessary aggravation from the other party and keep the relationship professional.

This must always be done in writing. While you can certainly call the other party over the phone and discuss things beforehand, notices of any nature should be in writing. In the event you need to go to court for any reason, having detailed records is always ideal.

Draft the letter

Now after deciding that you wish to terminate the contract and have thoroughly checked the termination clause in your contract, you are ready to draft the letter. As this is a formal notice letter, it’s important to spend some time writing it well. Don’t rush through it as you could accidentally breach the contract instead of mutually terminating it

Proper company letter heads are required here, clearly stating your company name, address and ABN number. Stating that you wish to terminate through mutual consent is crucial too. Lastly, you must provide a list of why you wish to terminate. It’s not enough to just tell them you want to end the contract. Both parties have invested a lot of time and money into the contracts and into negotiations for the job. Thus to maintain professionalism and ensure you are in keeping with the law, this step is essential.

The last thing to include is to request a response in regards to the notice. You may be happy with just a phone call, but also clearly state that you would like a response in writing as well.

To make sure your notice letter does not breach the contract or break any laws, it is always helpful to have a lawyer review it.

Send the letter

Of course the last step is to send the letter to the other party. The other party can either agree and thus the contract is mutually terminated, or perhaps can offer to discuss further. If they are extremely disgruntled, prepare for potential dispute resolution options.

Conclusion

To conclude, mutual consent to terminate a contract is one of the preferred ways to terminate by far. It involves agreement between both parties, no legal costs and professionalism. However, you should first consider if terminate is necessary, as rescission may be possible. If it is necessary, just be sure to keep it legally correct and provide plenty of notice to the other party.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

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