How can I terminate a contract with no termination clause?

Even an apparently indefinite contract can still normally be terminated on reasonable notice. But what is reasonable?

How can I terminate a contract with no termination clause?

Some contracts clearly come to an end when both parties have performed their part (e.g. I sell you a cheeseburger and you pay me the price). So no termination clause is necessary.

Ongoing contracts (e.g. often for services or regular supplies) may not have a natural end and so most will stipulate a term (after which the contract will either expire or continue depending on any agreed mechanism for extension). And normally a contract would be expected to provide for termination for breach (with or without an opportunity to remedy the breach, depending on the type of breach and what consequences it has – though note that if one of the parties is a consumer then a term permitting the other party to terminate unilaterally may be void or subject to a reasonableness test under unfair contract terms laws). Often a party may have a right to terminate due to insolvency of the other party (care is also needed with this – in the world of governing law roulette where the practice is to change the governing law without giving much thought to the effects on the validity or enforceability of the other terms, in some places – Spain is one – such clauses are void as the law prioritizes keeping contracts in place in order to give businesses a chance to regain solvency). Another cause for termination to consider is where applicable laws make the contract wholly or partially impossible to perform (this might technically be what lawyers call “frustration” but in disruptive or heavily regulated businesses where the legal environment can soon change it may make sense to agree a mechanism for this rather than dealing with it later). This type of clause needs to be alligned with any clause dealing with “force majeure” which might temporarily excuse non-performance, but not necessarily permit termination or a claim that the contract is frustrated.

But what if the contract is an ongoing one and there is no agreed termination clause? (Which is more common than you might think.)

We would first ask whether there is any good cause for termination: e.g. if there has been any breach of core obligations under the contract by one side, in which case the other party generally has rights to terminate even without this being expressly stated (though you need to be sure to avoid losing these rights by affirming the contract or accepting substandard performance). Sometimes it may be worth considering whether something in the creation of the contract gives a similar result, e.g. a mistake or duress, though these are rare, or perhaps more likely a misrepresentation that induced you to enter into the contract – in which case there may also be a right of termination (“rescission”, meaning that the contract is not just terminated but void from the beginning).

On the other hand, if we have no termination clause and no breach or other overriding cause for termination, where do we stand?

The basic position in English law is that even an apparently indefinite contract may still normally be terminated on reasonable notice. This results either from looking at the evidence of what the parties really intended (on the basis of all the available – admissible – evidence); or by implying a term (in which case the express terms need to not contradict this).

But that leaves the question: what is reasonable notice? Alas, we can’t simply say “90 days is reasonable” (or 30 or even 180). We would need to look at all the circumstances – e.g. any indications in the agreement such as timescales or cycles for deliverables, terms of any collateral or associated contracts such as any related software licence or hardware maintenance agreement, any prior contracts or course of dealing between the parties, industry standards such as model contracts provided by trade associations or simply commonly-seen clauses across the sector, but also taking in account any investments or other actions taken by the non-terminating party in reliance on the apparently continuing agreement that it would be unreasonable for them simply to be deprived of.

So the simple answer is “yes, you can terminate” – it then becomes a question of how much notice. And, though you may roll your eyes at me – in this case I have no choice but to say: “it depends”.

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