Primary Blocks

Termination Block

This guide explains the different parts that make up a termination block.



The termination block details when a party can terminate the contract. When considering that the WCC data shows that termination if the 5th most negotiated term, it is important that you have a good understanding of the different parts making up the termination block. Let’s dive in!

FREE Quick Reference Guide

Termination provisions in tech contracts quick reference guide


Termination for cause

Termination for cause refers to the legal right of one party to end a contractual agreement due to a significant breach or failure by the other party involved. 

Generally, in cases where a breach of the agreement can be resolved, the defaulting party is given a specified time to remedy the breach. For example, if a software development company misses a deadline for delivering a product, they might be granted an additional 30 days to complete the work. If the defaulting party fails to remedy the breach within the given time, the aggrieved party can then terminate the agreement.

In situations where a breach cannot be remedied, the aggrieved party may have the right to terminate the agreement immediately. For example, if a company discovers that a vendor has provided counterfeit products, this breach may be considered irreparable, and the company could terminate the contract right away.

Agreements can also be terminated for other causes specified in the contract. One such example could be if a change in laws or regulations makes it impossible for one party to fulfill their obligations. Suppose a new regulation bans the use of certain software (for example a banned AI product) in SaaS products. In that case, a supplier who can no longer provide the chemical may have their contract terminated due to the change in regulations.

Contracting parties generally have the freedom to negotiate termination for cause clauses to suit their specific needs. For instance, if a company enters into an agreement with a business to gain access to a key employee’s expertise, they may agree that the contract can be terminated for cause if that employee leaves the business. This ensures that the company retains the right to end the agreement if they no longer benefit from the expertise they initially sought.

Termination for convenience

Termination for convenience, also known as no-fault termination, allows one party to end an agreement even if the other party hasn’t breached it. Essentially, the party can terminate the contract for any reason or no reason at all. For example, a company may decide to terminate a IT Management Contract simply because they want to switch to cloud services, not because the IT company failed to perform its duties.

When a party wishes to terminate an agreement under the termination for convenience provisions, a reasonable notice period should be provided, depending on the services involved and the ease of finding a replacement provider. For instance, if a Customer decides to terminate a contract with a Provider, they should give sufficient notice so that the supplier can find new clients, and the Customer can secure a new supplier.

In practice, people often mention termination penalties, which can be problematic due to potential legal limits on such penalties. Instead, the negotiated amount should be considered a charge or fee payable by the terminating party, which is distinct from liquidated damages. This termination fee is not due to a breach of the agreement but rather the decision to end the contract early.

Negotiating termination fees is a crucial aspect of contract discussions. When parties agree on the terms of a contract, they usually have a specific contract duration in mind. If a contract is terminated for convenience, the termination fee should adequately compensate the party who may have agreed to reduced rates based on the contract’s length. For example, a software development company that agreed to lower rates for a two-year contract might expect a higher termination fee if the client decides to end the agreement after only one year for reasons unrelated to the developer’s performance.

Post termination provisions

When an agreement is terminated, there are typically several actions and obligations that both parties need to fulfill to ensure a smooth exit. These obligations, which survive the termination, help maintain a positive relationship between the parties, avoid misunderstandings, and protect each party’s interests. Some common examples include:

  1. Returning materials: All materials provided by either party to the other under the agreement must be returned within a specified time frame, such as 30 days after termination. This might include proprietary information, software, equipment, or any other resources exchanged during the contract period. For instance, if a company had provided a consultant with access to sensitive financial data, the consultant would be required to return or destroy all copies of this information upon termination.

  2. Settling outstanding fees: Any fees or payments due under the agreement should be settled promptly upon termination. This could include outstanding invoices for work completed or payment for any pre-agreed termination fees. For example, if a software development company had completed work on a project but had not yet been paid, the client would be required to pay the outstanding balance upon termination of the agreement.

In addition to these obligations, it’s often helpful to clarify the specific effects of termination to minimize potential disputes or confusion. These might include:

  1. License termination: All licenses granted under the agreement are typically terminated upon the contract’s end. For instance, if a software company had provided a client with a temporary license to use a particular program, that license would be revoked upon termination, and the client would no longer have the right to use the software.

  2. Confidentiality obligations: The termination of an agreement may not necessarily release either party from their obligation to protect any confidential information shared during the contract period. For example, a terminated employee may still be bound by a non-disclosure agreement, preventing them from sharing sensitive company information with competitors or the public.

By outlining these obligations and effects explicitly in the contract, both parties can better understand their responsibilities upon termination and ensure a more amicable and professional conclusion to their business relationship.

Termination assistance

In some transactions, termination assistance provisions may not be necessary. However, for transactions involving the outsourcing of critical business operations, negotiating termination assistance provisions becomes crucial to ensure a smooth transition when the agreement is terminated. This is particularly important in the context of technology-related contracts, where the integration of services and products can be complex.

For example, if a company outsources its IT infrastructure management to a service provider, disentangling the services upon termination may involve intricate processes and require a well-thought-out exit plan. Ideally, this exit plan should be prepared before the agreement’s termination, as part of good contract management practices.

The contents of the exit plan will vary depending on the industry and the specific services and products provided. Some examples of items to include in the exit plan for tech-related contracts are:

  1. Transition tasks: Clearly outline the tasks to be performed by both parties in connection with the termination assistance, such as data migration, employee training, or decommissioning of hardware.

  2. Timeline: Establish a schedule for performing the tasks under the exit plan, ensuring that all parties have adequate time to complete their responsibilities.

  3. Intellectual property rights: Specify the license or ownership rights of both parties concerning software or other intellectual property, including any necessary rights to be transferred or granted during the transition period.

  4. Service documentation: Provide a detailed description and documentation of the services, service levels, fees, and access requirements needed to transition the service provided under the agreement to a new provider or back to the client.

  5. Confidentiality: Clarify the right to pass confidential product or service information on to other providers while maintaining appropriate safeguards to protect sensitive information.

  6. Wind-down terms: Define the specific wind-down terms applicable to each stage of the termination assistance, including how volume changes will affect the provisioning of the services.

Additionally, it’s essential to address the implications of terminating the agreement under force majeure provisions and whether the termination assistance provisions still apply in such cases.

If the termination is due to a material breach by the client, such as non-payment, ensure that the service provider has the right to require additional terms to guarantee compliance before providing any termination assistance. This could include assurances of payment or other security measures to protect the provider’s interests during the transition period.

Important considerations

World Commerce and Contracting Principles

World Commerce and Contracting provides the following principles relating to termination assistance-

  1. Termination rights and obligations, including high-level principles for Termination Assistance, should be addressed in the contract so that the entire life cycle of services and/or the relationship – from start to finish – is addressed in a comprehensive manner and so that the customer does not perceive that its key operations may be placed in jeopardy at the end of the relationship.
  2. The extent of Termination Assistance that is appropriate will vary based on the type of services being provided and the environment in which they are provided (e.g., business process outsourcer, multi-supplier environment) during the service term.
  3. The goal of Termination Assistance is to secure customer business continuity by making any transition as seamless as possible for both supplier and customer. The assistance should enable the customer to take over the services directly or obtain them through a replacement third-party in an orderly fashion.
  4. Supplier should be able to recover any of its physical assets that were on the customer’s premises following the completion of the termination services, unless the parties agree that title to them passes to the customer (with any applicable payment as agreed).
  5. The contract (or Exit Plan) must clearly specify if there are any assets (e.g., intellectual property, confidential information, personal data or personnel) that were transferred by one party to the other during the course of the contract or were created by the supplier during the relationship that must be returned to the customer or supplier, as the case may be, during the Exit Plan. This may be particularly critical to the customer if its ongoing operations are dependent on return of data that it owns and for which there is no internal back-up.
  6. Any information, personnel, licenses, and/or customer-specific equipment that the parties agree will be given to customer as part of Termination Assistance may also have to be provided to customer’s replacement supplier. The supplier has a right to require that appropriate confidentiality safeguards be put in place with the new supplier before any confidential information is handed over. The disclosure obligation to the new supplier should be limited to the specific items that are necessary for continued services.

Example clause

1.          TERMINATION

1.1           Material breach:

(a)         If a Party is in material breach of this Agreement and such breach is:

(i)           capable of being rectified, and the defaulting Party fails to rectify the breach within 30 days after the aggrieved Party provides a written notice requiring the defaulting Party to rectify the breach, then the aggrieved Party can terminate this Agreement with immediate effect and claim damages from the defaulting Party; or

(ii)         not capable of being rectified, the aggrieved Party can terminate this Agreement immediately and claim damages from the defaulting Party.

(b)         Unless otherwise provided in the Agreement, the relief stipulated above will not limit the aggrieved Party s rights. The aggrieved Party will have all available rights in terms of applicable law.

1.2          Material adverse regulatory change: The Developer may terminate this Agreement in whole, but not in part, in the event of a change in the regulatory environment applicable to the Developer that the change has a materially adverse effect on the Developer s ability to fulfil their obligations under this Agreement. The termination right under 1.2 can be exercised by giving at least [] months' prior written notice to the Client. If the Developer exercises their termination right in 1.2, the Developer must pay the Client a termination fee equal to []% of the remaining value of the Agreement on the date the Agreement terminates.

1.3          Additional termination rights: This Agreement may be terminated by:

(a)         a Party immediately, without advanced notice, if the other Party is deemed unable or admits their inability to pay their debts as they become due;

(b)         a Party immediately, without advanced notice, if the other Party suspends making payments on any of their debts;

(c)          a Party immediately, without advanced notice, if the other Party commences negotiations with their creditors to reschedule their indebtedness because of actual or anticipated financial difficulties; or

(d)         a Party immediately, without advanced notice, if the other Party is found guilty corrupt activities under applicable laws.

1.4         Termination for convenience: A Party can terminate this Agreement for any reason and no reason before the end of the term of the Agreement by providing [] (the Termination Notice Period ) written notice to the other Party. The Party terminating the Agreement under 1.4 must pay the other Party all amounts due up to the last day of the Termination Notice Period, with an amount equal to []% of the value of the Agreement s remainder.

Ninja holding a laptop explaining tech contracts

Interested in our Contract Builder?

Table of Contents

Master contracts now
Elevate your career!

Try for free. No credit card required.

Elevate your legal game with ContractNinja.

Form part of the spearhead movement of shaping the global standard for tech contracts.