Deal School

Deal School: Term and Termination

September 11, 2023

What’s the difference between a three-year agreement and a 23 year agreement? And yes, it’s a trick question.

The answer is, “none”, if the agreement is like many or even most in connection with services deals. That’s because the real term of the agreement isn’t its so-called “term”, it’s something else. In fact, very often, the real term of the agreement is contained in a separate, and sometimes distant in terms of section numbering, provision. What I’m referring to is a provision that allows one or both parties to terminate the arrangement without cause.

As a result, the true term of a three-year agreement with a 60 day without cause termination provision is exactly the same as the term of a 23 year agreement with a 60 day without cause termination provision: a rolling 60 days.

Of course, “without cause” cuts both ways. One is that you want out of the contract early, so you exercise your without cause rights. But the other is that your contracting partner wants you out of the deal and they want you out quickly, or at least as quickly as the without cause notice provision, 60 days in our example. You can brag all you want to your partners that you pulled one over on the hospital CEO when you talked her into that 35-year exclusive contract. Just don’t mention the 60 days without cause termination provision, because that’s the true term of the deal.

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