Term and Termination - A Translation


One of the more clear-cut, "no-duh" contract clauses is the Term of the Agreement clause. Simply put the "Term" of the contract spells out how long the parties intend their agreement to last and should be included in every agreement. 

Being able to clearly identify the duration of a given agreement is essential information to properly managing your deal portfolio. Once the deal is inked ensure that you note the date the agreement ends with some appropriate appropriate reminders that the end is near. This helps you to begin the process of evaluating the deal with enough lead time to make decisions about renewal, renegotiation or shopping around for a new business partner. 

In addition, many Term clauses include "auto-renew" or "evergreen" clauses which allow for the contract to keep renewing unless terminated by one of the parties. The deadlines for terminating auto-renewals is often 60-90 days prior to the actual date the contract renews. If you have the appropriate reminders in place, you greatly reduce the risk of unwittingly continuing an unwanted partnership.


This is your exit strategy, that is, how the parties can end their contractual relationship. Generally, you can boil down most types of termination to "for-cause" and "not-for-cause" clauses. 

In the case of "for-cause" termination clauses there can be a wide variety of reasons for ending the agreement. What happens if one of the parties is acquired by a third party? What if one of the parties enters bankruptcy? What if one of the parties breaches a material term of the agreement (such as failing to pay!)? "For-Cause" termination clauses allow you to exit a partnership that isn't working as planned and accounts for some foreseeable events that would make a continued partnership unfavorable.

"Not-for-cause" clauses allow one or both of the parties to wind up the agreement for any reason or no reason at all. Needless to say, that gives the party with the right to terminate without cause some serious power over the relationship. If you are in the position of having a partner with this power, be sure to negotiate a transition period into that decision so that you have enough time to change gears in case your partner decides to terminate early. 

Many business and strategic decisions drive the length of the term and the exit strategies available to either party when entering into an agreement. Just remember - The value of your business (and your life) is the sum total of its deals!