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Introduction to this document

Notice to terminate contract

To terminate a contract, you will need to notify the other party. Use our model notice to terminate as a guide.

Lockdown effect

Unfortunately, many business contracts are having to be suspended or terminated as a result of the coronavirus pandemic. Our model is based on terminating or suspending for this reason after the parties have been in contact with one another, and agreeing to terminate or suspend their contract, parting on good terms. The notice should reflect the agreement made between the parties, e.g. you may have agreed to waive the notice period or leave any outstanding monies owing on the account for the time being. You can adapt the model to include what you have agreed.

Check the terms

It is important to check to the terms of the contract in question and follow any termination/notice procedure. This ensures that you are entitled to terminate/suspend and have done so properly so you do not continue to incur liability under the contract. Things to watch out for include:

- circumstances in which termination/suspension is permitted

- the correct procedure to follow

- notice requirements; and

- any period of notice required.

Some contracts set out a particular format for the notice, in which case this should be used.

If the contract does not cover your proposed course of action, for example if it does not provide for a suspension, the terms can be varied with the agreement of all the parties. If you need to vary the terms, set out the variation in writing (following any variation procedure specified in the contract) and that both parties sign it (see our guidance on Using Presigned Signature Clauses for how to ensure that signatures exchanged electronically form a valid contract).

Termination on insolvency

Termination on insolvency provisions are common in contracts, but have been banned as one of the measures introduced to help companies survive the coronavirus pandemic. The idea is to prevent suppliers of essential goods and services, such as utilities, from being able to terminate a contract because their customer is in financial difficulties, which could cause those difficulties to spiral out of control. The ban (in section 233B of the Insolvency Act 1986, added by the Corporate Insolvency and Governance Act 2020) applies where a company enters a formal insolvency procedure on or after 26 June 2020, even if the contract had already been agreed by then.

There is a temporary exception to the ban for small company suppliers, where the company they supply entered an insolvency procedure between 26 June 2020 and 30 March 2021. Unless this small company exception can be relied on, termination on insolvency clauses cannot now be invoked, regardless of the terms of the contract.