Termination and Cancellation Provisions in Service Contracts
May 28, 2021
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All Good Things Must Come to an End
By Stacia Hofmann, Small Business Contracts Attorney & Certified Risk Manager
Many small businesses and freelancers provide their services on an ongoing basis for an indeterminate period of time. So long as the customer needs the services, and so long as the customer and the business are in sync and working well together, everyone benefits from the relationship.
It may be a matter of months or even years, but eventually, most business relationships come to an end and the parties go their separate ways. Sometimes it’s a natural conclusion, and other times it’s unexpected and costly…and perhaps even litigious.
As a small business attorney who frequently drafts client and customer contract templates, I believe that small business owners should, at a minimum, develop a process for transitioning clients and customers out of active status. Even better: to minimize risk and set expectations, they can plan for the conclusion of services by using termination and cancellation clauses in their contracts.
Here are some of the most popular contract options for the termination of ongoing services:
Reasonable Notice: For some small businesses, a termination clause requiring “reasonable notice” of the termination of services may be adequate. Reasonable notice provisions work best when services can be quickly and easily stopped and billing practices won’t prompt a refund for unperformed services.
Advance Notice of ____ Number of Days or Weeks: For small businesses that rely on prepayments or need time winding down services, a provision requiring the customer to provide notice a certain number of days or weeks before the cancellation becomes effective can be particularly useful.
Set Terms or Cycles: For businesses that provide irregularly scheduled services, a cancellation window during a cycle — or term — of services may make sense. In this instance, services are broken into terms of a set length (say, for example, three-month cycles), and the client can only cancel within a certain window before each term ends and a new one begins.
Cancellation for Nonpayment or Other Failure: Most businesses should seriously consider a clause explicitly allowing the business to cancel the contract for nonpayment, breach of contract, or other client failures. Types of client failures vary but can include things like the client’s failure to communicate with the business, their carelessness, or other client actions that make working with the client difficult.
Combination of Termination Provisions: Termination and cancellation contract clauses are generally quite customizable. A business may have one termination procedure that applies to the client and another that applies to the business. The business may be able to find a combination of different types of termination provisions that manage risks and benefits just right.
By using termination and cancellation clauses in their contracts, businesses can set client expectations, minimize the likelihood of a dispute, and formalize a process for the inevitable separation between the customer and the business.
Email or call me to see if Cornerpoint can help with your questions about contract templates or termination and cancellation provisions.
This blog is for informational purposes only and is not guaranteed to be correct, complete, or current. The statements on this blog are not intended to be legal advice, should not be relied upon as legal advice, and do not create an attorney-client relationship. If you have a legal question, have filed or are considering filing a lawsuit, have been sued, or have been charged with a crime, you should consult an attorney. Furthermore, statements within original blogpost articles constitute Stacia Hofmann’s opinion, and should not be construed as the opinion of any other person. Judges and other attorneys may disagree with her opinion, and laws change frequently. Neither Stacia Hofmann nor Cornerpoint Law is responsible for the content of any comments posted by visitors. Responsibility for the content of comments belongs to the commenter alone.
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