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Who can end a contract for convenience?

| Jul 4, 2021 | Blog, Business Litigation

Entering into a new business contract represents an important moment in the lifecycle of your business in California. Such an agreement represents both stability and security (due to the assumption that your new partner cannot end your agreement without cause).

Yet is that assumption valid? The common school of thought is that a contracted partner needs a legitimate reason to prematurely end a contract (with the reason typically being a grievance). A legal principle exists, however, known as “termination for convenience,” which essentially allows your partner to walk away from your contract simply if it believes it to be in its best interest to do so.

Public agencies vs. private companies

The question then becomes who might exercise this right. According to information shared by the Congressional Research Service, public agencies automatically have the right to end contracts for convenience. You (and others) typically view contracts with such entities as extremely reliable given their stability (and indeed they often are). Yet assuming the risk of a public agency walking away from a contract at any time may be the price paid for the promise of such stability.

Private companies, however, can only end a contract with you for convenience if you afforded them that right during contract negotiations. Some may question why you would even consider conceding such a right. That may, however, be an attractive option to offer to lure in the business of a renowned business partner.

Damages for breach of contract?

Should your contracted partner end your agreement early, what damages may you collect (if any)? You can collect any expenses already accrued in executing the contract (as well as the costs required to end your service early). Damages for breach of contract may only be an option if you can show your partner originally negotiated your agreement in bad faith.