Contract Clauses: Termination for convenience

A termination for convenience clause allows the benefiting party to terminate the contract for any reason. A termination for convenience clause removes the need to wait for a breach, repudiation, frustration, or some other stated termination trigger.

In Good faith

One unsettled issue is whether a party relying on the termination for convenience cause must act in good faith. Even where there is a duty to act in good faith, the scope of that duty is difficult to define.

A duty to act in good faith has been interpreted to include an obligation to cooperate in achieving contractual objectives, to comply with honest standards of conduct, and to comply with standards of conduct that are reasonable having regard to the interests of the parties. A duty of good faith does not require a party to act against its own interests.

In some circumstances a contract will specifically state whether the parties have a duty of good faith but where a contract is silent on the matter, the term may be implied where:

  • it is reasonable and equitable;
  • it is necessary to give business efficacy to a contract;
  • it is so obvious it goes without saying;
  • it is capable of clear expression; and
  • it does not contradict the express terms.

Where a termination for convenience clause is missing

The absence of a termination for convenience clause may mean that the parties need to rely on common law in order to terminate a contract. At common law, there must be a breach of an essential term, a sufficiently serious breach of an intermediate term, repudiation, or frustration for a right to terminate to arise. A termination for convenience clause gives the parties greater certainty in their ability to terminate the contract for any reason.

Drafting considerations

A termination for convenience clause should be clear and unambiguous. The consequences of termination in reliance on such a clause should be set out. Finally, the potential operation of an implied duty to act in good faith should be considered.

Who to Contact for More Information

Please get in touch if you have any questions on the above.