This contract tip is about drafting termination for convenience provisions.
These provisions allow a party to terminate the contract for any reason, even if there is no breach.
Many companies prefer to use this approach rather than terminate for cause.
I remember being surprised that the senior lawyers advised a client to use this approach in the face of a ton of documentation and evidence of the counterparty's unprovoked breach. I now understand the wisdom of it.
The reason many lawyers advise their clients to terminate for convenience is to avert the distraction and cost of a potential wrongful termination claim. The cost may be less than the potential litigation over whether there was a breach.
I think of it as akin to offering the counterparty an opportunity to save face during negotiations.
While less risky than termination for cause, termination for convenience is not risk-free.
Many contracts require the terminating party to pay the other party something if there is a termination for convenience. The amount to be paid is often the subject of heavy negotiation.
Vendors want to receive payment for all work performed and goods delivered, any sunk costs that can’t be recouped (such as cancellation fees), and their overhead and lost profit.
Customers want the vendor to stop work immediately, mitigate costs, and deliver any works in progress.
Where they end up depends on their negotiation.
One last point - make sure you evaluate if the early termination fee is a liquidated damage (LD). If you set a fixed payment unrelated to actual damages, it may be and you'll need to include all the other language required for LD provisions.
What other advice would you add that new lawyers should know about termination for convenience provisions?
