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“Termination for convenience” explained

On Behalf of | Mar 7, 2022 | Commercial Litigation |

Securing a contract with a new business partner prompts excitement within any business in New Jersey given what such an agreement represents. Contractual work means continued stability for a company provided that they do nothing expressly forbidden by the contract’s terms.

This is no doubt why so many company representatives come to us here at Dunn Lambert, LLC Attorneys at Law are surprised when their contracted partners pull out of such agreements without apparent cause. Like most, they assume that they actually have to provide a partner with cause to invalidate a contract. Yet that is not always the case.

“Termination for Convenience”

A legal principle exists known as “termination for convenience” which does allow a company to pull out of a contract when it believes it to be in its best interest to do so. Common reasons often cited for such action include:

  • A business partner proving unwilling to renegotiate the terms of a contract
  • A company securing the capacity to provide the goods or services a contracted partner provides “in house”
  • A general breakdown in the business relationship between two companies

According to information shared by the Congressional Research Service, government agencies are automatically bestowed with the right to terminate contracts for their convenience. Private companies, however, can only exercise such a right if their partner conceded it to them during contract negotiations.

Potential compensation for contracts terminated for convenience

The first question companies subject to such a contract termination want to know is what sort of compensation might they seek. Typically they can only collect for work already done along with expenses associated with ending their service. They may be able to press for damages for breach of contract, however, if they can prove their partners initially negotiated with them in bad faith (never intending to let their agreement go to term).