Most commercial contracts will contain provisions governing termination. Such provisions will often be dependent on certain events occurring (for example, insolvency of one of the parties or one of the parties committing a breach of the contractual terms). However, many contracts will contain a provision permitting termination when notice is given, which could be very short or in cases of long-standing commercial relationships could be 12 months or more.
Whilst such provisions appear simple, it is important to ensure that the correct process is followed, as there is otherwise a risk that the notice might be held to be invalid. Whether a notice is valid generally requires precise observance of the conditions specified within the contract.
It is important to check the whole of the contract when serving notice. Often, the precise requirements for a notice will not be set out in the termination clause itself. Contracts will usually contain a specific “notices” section explaining how notices overall should be sent. Unless the termination provision contains its own procedure, then the general notice provisions should be followed.
Particular issues to look out for are:
Does the contract require that notice be given in a particular form?
Most contracts will require that notice is given in writing. Even if the contract does not expressly do so, it would generally be preferable for a written record of the termination to be sent.
Some contracts will also specify a precise method by which service should be given. For example, a notice may need to be served by registered post only. If so, it is important that requirement is followed.
What time-scales do I need to follow?
Some contracts will be for a set time and will then extend automatically unless valid notice is given. For example, a contract may renew yearly unless notice is given 3 months before the anniversary of its commencement. In these contracts, it is of course vitally important that notice is given in time. A failure to give the requisite notice, even if only a day or two later than the 3 month requirement, is likely to mean that you are contractually bound for a further year.
A particular issue to consider will be the time at which notice is deemed served. This is not necessarily the date on which the notice is sent. Usually, it will be the date on which the notice is received. Often, if service by email or fax is acceptable, then service by that method will be taken as occurring on the same day. However, both the termination and notice provisions should be closely checked in advance to ensure that notice is being given within time.
What if the contract is silent on termination?
If a contract contains no termination provision, then a party will be required to give reasonable notice of termination. This can be a difficult judgement for a terminating party to make, especially as they may often be keen to bring the relationship to a swift end. There are no set rules which enable a party to calculate what notice would be “reasonable”.
Three key factors which a court may consider in assessing whether reasonable notice has been given are:
- The length of relationship – generally, the longer the relationship the greater the notice period a court will expect to be given;
- The importance of the contract to the party’s business – if one party is heavily reliant on the contract, then a court may expect a longer notice period to be given;
- Extent of investment into the contractual arrangement – if a party has had to make substantial initial investment, which has not yet been recouped, a court may consider a longer notice period is required.
Whilst it is important that notice provisions are correctly followed, there is case-law which can sometimes permit small failures to be regarded as insufficient to prevent termination occurring. These exceptions are rare but, if you are concerned that a notice may be invalid or are unsure about the notice period within your contract, it is important to obtain legal advice.