Over the course of your life you are bound to enter into more agreements than you’d probably care to think about. These agreements may be printed or electronic, express or tacit, written or verbal. When entering into an agreement, how often do you ask, “How will this end?” Probably not often. Yet it’s an important consideration. The best time to consider the end of an agreement is not at its end, but actually at its beginning. And the best way to agree on a contract’s termination conditions is in writing.
There are various methods of deciding when an agreement will terminate. The methodology chosen will depend on the parties’ preferences, as well as the purpose and nature of the contract. Here are some of the more common approaches.
- Completion of a task: An agreement can end on the completion of the tasks or services that brought about the agreement. For example, a painter completes the paint job on your office building.
- On written notice: A popular method of terminating an agreement is on notice. A party wanting to end the agreement may provide the other party with a written notice of termination in 30 days / 60 days / 90 days or such other notice period that was agreed to in the contract. For example, you may have a Bookkeeping Agreement with your accountant that will continue to operate until you provide 60 days’ written notice terminating their services.
- After a fixed duration: Some contracts are entered into for a pre-determined period of time. The agreement will then end on the date that the contract says it will end. For example, a 12-month lease agreement. The question arises – what happens when this fixed period is up? That depends on the wording of the contract, and also depends on whether the Consumer Protection Act applies. The parties could decide that the agreement terminates automatically after the fixed period. Or the agreement may renew automatically if neither party has expressly cancelled. And if the contract is governed by the CPA (such as most residential lease agreements) then the agreement may continue in operation after the fixed period, until it is terminated in writing.
- In perpetuity: Very rarely one comes across a contract that expressly states that it operates in perpetuity. In other words, the contract will never expire. Some countries have banned contracts that are in perpetuity because they’re considered to be against public policy. A notorious example of such contracts in South Africa are the various vacation club points agreements that abound. Indeed, amongst the many legal questions over these agreements one possible argument is that the ‘in perpetuity’ nature of them is contra bonus mores, or against public policy, which should therefore invalidate the agreement. It’s also important to note that the Consumer Protection Act prohibits contracts longer than two years unless the supplier can show a significant benefit to the consumer in entering a longer contract. Nonetheless, if a contract is lawfully entered into in perpetuity then such a contract could be terminated either by consent between the parties, alternatively if one party breaches the contract.
- Contracts in terms of the CPA: if you have a contract that is governed by the Consumer Protection Act, the consumer is entitled to cancel the contract on 20 business days’ notice. But beware: this isn’t a ‘get out of a jail free’ card. If your contract is for a fixed period then you may be required to pay a reasonable cancellation penalty for terminating early. And if you’ve been given substantial value the penalty could be rather steep. For example, if you’ve received a new cellphone with your 24-month contract and then decide to cancel two months into the contract you could find yourself having to pay for that “free” cellphone you were given.
- Breach: regardless what the duration of the contract is stated to be, a breach of the contract can give rise to a right to terminate. Usually this entails giving the defaulting party a breach notice, demanding that they remedy the breach within a pre-defined or reasonable time period. If they don’t remedy the breach then the aggrieved party may be entitled to cancel the agreement. But note the word “may”. The right to cancel depends on both the terms of the contract and the nature of the alleged breach.
So, if you’re stuck in a contract that you want to get out of, read your agreement carefully. And make sure to issue your termination notice strictly in accordance with the terms of your agreement. Better still, consult with an attorney before proceeding to terminate the agreement. If you don’t follow the right procedure you might find that you’re the one in breach of the contract.
Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.