Let’s talk about termination clauses—the legal equivalent of a well-marked exit sign. If you’re in business and your contracts don’t have a clear way out, you might find yourself trapped in a deal that refuses to die (like that app membership you keep forgetting to cancel).
We’ve come across this problem more than once – a client comes to us wanting out of their agreement with a service provider but there is no mechanism to leave before the term ends. This leaves them stuck in a commercial arrangement in which they are left receiving subpar services, with no way out.
Termination clauses typically fall into two categories:
For Cause – If the other party seriously messes up (think: non-payment, breach of contract, fraud), you can terminate.
For Convenience – You can terminate for any reason with proper notice. This is ideal in long-term contracts where flexibility is key.
If your agreement is silent on termination, you might have to rely on common law principles. In Ontario, that means that: (i) you could be liable for the entire contract term if you walk away early; (ii) If the other side breaches, you’ll have to prove it was a “material” breach before you can exit; or (iii) you fight it out in court.
A termination clause is like a prenuptial agreement for your business deals—it’s there just in case things go south. Without one, you’re betting that everything will go perfectly (which, let’s be honest, is never a safe bet in business).
So, before you sign your next commercial agreement (or realistically any agreement) make sure you know how to leave before you enter.
Robin K. Mann, Associate Lawyer