Mutual termination agreement

In the universe of contracts, the principle of symmetry dictates that to bring it to a close you must fulfill the same conditions as upon execution. Contracts, being the product of the will of two or more parties, can be revoked by their unanimous consent, a process facilitated through a termination agreement.

The termination agreement proves particularly useful for contracts with continuous performance, where parties fulfill their obligations at regular intervals (e.g., monthly). Typically established for a specific duration, parties use a termination agreement to prematurely end the contract.

A termination agreement might also be used to terminate contracts under which parties undertake one time obligations, either before performance begins or if the parties decide to reverse the contractual effects and to return to how there where before signing.

What motivates parties to terminate a contract? 

The reasons fluctuate, but generally revolve around broad factors such as:

• the contract is no longer relevant to the parties due to changes in their business evolution.
• the contract has become too burdensome for at least one party.
• the rendered performances did not yield anticipated results, prompting the search for more advantageous alternatives.
• external circumstances hinder the parties’ ability to cooperate effectively.
• one party faces an unforeseen situation, preventing constructive contract execution.

The termination agreement is applicable across industries and to all types of contracts. There are limited exceptions where parties are prohibited from mutually terminating a contract, explicitly outlined by law and usually related to public procurement.

In multi-party contracts, unanimous agreement is required for termination. Failure to secure consensus results in either the entire contract persisting or termination applying only to certain parties while remaining in force for others. In cases where parties harbor no disputes, the termination agreement can be used in its standard form. If the parties have mutual claims, a settlement agreement might be more suitable.