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What is “termination for convenience?”

| Feb 18, 2021 | Business Law |

Many observers in Florida may gauge the health of your company by the contracts you have with business partners. A contract represents a seemingly ironclad guarantee of continued operations and incoming revenue due to the assumption that as long as your business meets its mandates, your partner cannot walk away from the arrangement. Yet is that truly the case?

The general school of thought surrounding contract law is that in order for a partner to end an agreement prematurely, you have to give them cause to do so. A legal principle exists, however, known as “termination for convenience,” which essentially allows a company bound by a contract to terminate it when it believes it to be in its best interest to do so. Should your business partner lawfully invoke this privilege, you will want to know what sort of compensation you can collect.

Who can terminate contracts for convenience?

First and foremost, however, you should know whether your partner has the lawful right to terminate your contract for convenience. Unless you already conceded that right to it during initial contract negotiations, the only way your partner can cite convenience when ending your agreement is if they inherently have that right. According to the Congressional Research Service, only government agencies automatically have to right to walk away from contracts for their convenience.

What can your company collect?

If and when your business partner ends your contract for convenience, you can typically only collect money for whatever goods and/or services your company rendered up to that point. You may also seek compensation for expenses associated with ending your services (such as covering costs for wasted resources or early termination fees for equipment leases). Damages for breach of contract are only available to you if you can prove your partner initially negotiated your contract in bad faith (never intending to fulfill its terms).