How to Get Out of a Contract – Transcript

[Intro Music] I love you, but I’m not your lawyer. This is for your educational purposes only and does not constitute legal advice. You should not act, or refrain from acting, on the basis of this content without first consulting a lawyer.

Annette

You’ve entered into a contract with a client and things aren’t going so well. Either you or the client have now decided to end the relationship or terminate the contract. What do you do? 

In this episode, I’m going to go over a few tips on how you can very gracefully terminate a relationship with your client, but also do it in a way that protects you in the future. 

When people first get a client, it’s all rainbows, butterflies, and unicorns. They are so excited about this new prospect, this new job, that they don’t like to think about – well, what if things go wrong? 

What if the clients not happy with my services or what if I’m not happy with the client and they end up being a complete nightmare? 

It’s really important for you to think about. What is the relationship going to look like if it needs to end? 

Now, when it comes to contracts, termination can happen naturally, right? You might just fulfill your services, the client pays you, everybody has upheld their end of the bargain, and the job just ends. That’s cool. Everybody just goes along their merry way. 

However, there’s always a risk that something’s going to happen. Maybe the project is going to get cancelled. The clients funding is going to get pulled, and so they can no longer hire you, or as I’ve mentioned before, maybe the client’s really difficult. Maybe there are certain circumstances that prevent you from carrying out your services for this client. 

Because a lot of people don’t like looking very closely at termination, they kind of gloss over this section in their contracts. When I review contracts, I actually like to focus in on this because this is where the potential conflict and problems may arise. 

So I like to look for a few things. The first is I want to look for under what conditions can the contract be terminated? For example, do the parties have to give a certain period of notice to the other party? 

Also, who can terminate? Now, a lot of times, contracts that I review will talk about how a client can terminate a contract, but it does not address how the service provider can terminate the contract. So I like to include clauses that discuss both of those situations, because sometimes you have a client who might want to cancel the contract because maybe their budgets’ been cut, their funding has been cut. If it’s the case of an event, maybe the event’s been cancelled. Maybe they’re just not happy with your services. 

But what if you as a service provider have a nightmare client and you, for some reason, need to get out of the contract? Or maybe there’s an emergency situation that’s going to prevent you from fulfilling your end of the bargain? So I like to have a plan in place for all of those. It’s kind of like a pre-nup right? You hope you never get divorced, but in the event that you do, you want to come to some sort of amicable agreement up-front when people are still you know, reasonable and happy and content with each other and can think clearly. Oftentimes, when you’re in the midst of some sort of conflict or disagreement, that’s where the problems arise, that’s where, you know, difficult personalities might come up, and so you want to have that thought about and thought through and documented when there is no issue. 

So that’s one thing we want to think about is okay what are the circumstances under which both parties can terminate? Does the contract address that? Also, you want to think about, in the event of termination, what does one party owe the other? So for example, let’s say you’re a graphic designer and the client wants to terminate the contract. Are you obligated to hand over any of the files that you’ve already worked on that they might have paid for? 

Or let’s say you are an event planner. Oftentimes with folks in the event industry, because they are planning events so far in advance and it is, you know, they’re reserving a certain date for a client, if a client cancels an event, it’s very difficult for them to potentially re-book that date for another event, and in the meantime, they’ve also turned away a lot of other clients, and a lot of other events for that specific date. So sometimes what we’ll put in the contract is if a client terminates a contract close to the event date, they might have to pay an increased fee in order to cancel because it’s going to be so much harder for that event planner to re-book a new job for that date. 

So these are the types of issues you want to think about. They’re not the pretty stuff, but they’re really, really important, and you’re going to thank yourself if you think about it and address them in your contracts now, rather than later when there is an issue. 

So let’s say you guys have agreed to terminate the contract. What do you do next? Well, I love having an agreement to terminate a contract signed by both parties. So you’re like wait a minute. We’re just canceling a contract, and now you’re telling us to sign another agreement? Yeah, basically what an agreement to terminate a contract is an agreement that  both parties are agreeing to cancel this previous contract and we’ve also agreed that these steps are going to take place as a result of the termination. So for example, maybe the client owes you a balance, or you agree to refund the client a certain sum of money, or maybe you know, you’re going to hand over certain documents to them and whatnot. So it’s really important to have that stuff in writing, and to also just indicate that, hey this is all we’re going to owe each other. We’re going to agree to you know, whether I’m going to refund you money or whether it’s you’re going to pay me a balance or hand over certain documents. Once those obligations have taken place, then we don’t owe each other anything and we can go about our merry way. 

This is also a really good opportunity for you to address what terms in the prior contract survive the termination of the contract. So there are certain terms in the original contract that you may want to survive the termination of the contract, meaning things like confidentiality, things like indemnification, right? There are certain things that even though the immediate relationship has ended, you still want those obligations to continue, even after the end of that relationship. Termination of an original agreement can sometimes be a negotiating point in and of itself, and so therefore it’s really important to document that in writing. Now, to get your hands on some great contract templates, including service agreements, agreements to terminate a contract, head on over to YourLegalBFF.com, where you can find a whole bunch of templates for you to use in your business. 

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