Terminating a contract: when and how?

Termination is possible in case of an attributable shortcoming of the other party. The consequences are far-reaching: the contract is terminated retroactively. Unjustified termination can lead to liability for the damage suffered by the other party.

When can you terminate a contract?

Contract termination is a far-reaching measure that is only possible under strict conditions. You must be able to demonstrate that the other party is seriously failing.

Conditions for termination:

• ✓ attributable shortcoming of the other party;
• ✓ sufficiently serious shortcoming;
• ✓ valid notice of default (unless this is not required);
• ✓ expiration of the set remedy period.

The notice of default for termination

In most cases, you must first send a notice of default before you can proceed to termination. In this you give the other party a last chance to still perform.

Content of the notice of default:

• ✓ clear description of the shortcoming;
• ✓ concrete remedy period;
• ✓ announcement of termination if remedy fails;
• ✓ mention of possible damage claim.

Termination without notice of default

In certain situations you can proceed directly to termination without first sending a notice of default.

When is no notice of default required?

• ✓ performance has become permanently impossible;
• ✓ other party explicitly refuses to perform;
• ✓ circumstances show that notice of default is pointless;
• ✓ a fatal deadline has been agreed.

Consequences of termination

The consequences of contract termination are far-reaching. The contract is terminated retroactively and both parties must undo what they have already received.

Legal consequences:

• ✓ contract ends retroactively;
• ✓ obligation to undo performances;
• ✓ right to damages continues to exist;
• ✓ any penalty clauses can be invoked;
• ✓ warranties and liabilities do not automatically expire.

Risks of unjustified termination

Unjustified termination can lead to liability for the damage suffered by the other party. You can yourself fall into default and become liable for damages.

Risks you run:

• ✓ becoming liable for damages to the other party;
• ✓ compensation for lost profits;
• ✓ payment of contractual penalties;
• ✓ reputational damage;
• ✓ loss of delivery certainty.

Alternative solutions

Termination is not always the best solution. Sometimes there are better alternatives that are less drastic.

Alternatives to termination:

• ✓ enforce performance through court;
• ✓ negotiate contract adjustment;
• ✓ suspension of own obligations;
• ✓ claim damages without termination;
• ✓ mediation or arbitration.