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What is a Contract Termination Letter?

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  • Written By: M.L. Browne
  • Edited By: J.T. Gale
  • Last Modified Date: 13 November 2016
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A contract termination letter is a document that explicitly spells out the terms and conditions under which a person proposes to dissolve an existing business relationship. The terms and conditions for termination are normally approved by both parties when they first enter into whatever business relationship they create and written into the business agreement, so that when the time to end the relationship arrives there are no surprises. Business relationships covered by a contract termination letter may include, but are not limited to, vendors, independent contractors, landlords, construction companies, or employees. Contract termination letters are written by either party at the point where one or the other deems it necessary to dissolve the agreement.

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When a business relationship is beginning, there are several things that should be included in the termination clauses of the agreement, including the names of the parties who have the authority to end the relationship, all the terms and conditions under which the agreement may be ended, and what steps must be taken by either party to end the agreement. Other items include any time intervals either party requires from the notice of intention to terminate until the termination becomes effective, and any communication channels between the parties that may be employed after the termination is effective. These elements serve to protect both parties if money is owed to either one or if advance notice is required so that neither party is left without a way to make a smooth transition upon dissolution of the agreement.

For example, a contract termination clause may be included as part of a lease agreement that states explicitly why a landlord may evict a tenant, such as excessive disturbance to neighbors, damage to the property, or conducting illegal business on the premises. The same clause may also include provisions where the tenant has the right to end the contract with a 30-day notice if requests for repairs are not addressed by the landlord within a certain period of time from the date they are received. In this way, the interests of both parties are served by the clause. In this example, the tenant's contract termination letter would state the facts and dates of his reasons for vacating as well as the date the vacancy is effective, while the landlord's letter would cite violations of the tenancy terms and the date the eviction is effective.

Another important aspect of the contract termination letter is that it provides both parties with a neutral focal mechanism for communication when there are disputes and grievances underlying the decision to terminate. In some cases, there may be disagreements or consequences to the termination that could result in one or the other party resorting to litigation to resolve them. The contract termination letter spells out clearly and unambiguously why and when the relationship should be dissolved and provides both parties with a chance to explain their positions regarding the necessity for termination before making a decision to head to court.

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