Contract Drafting Negotiation

Have You Forgotten This Contract Termination Provision?

June 27, 2022

As I dictate this, I’m headed to meet someone and I’m thinking about contract term and termination.

Now, I know that’s probably not what you regularly think about on your way to a meeting, but I think about it all the time.

In fact, I know a lot of you think about it from time to time, because I hear things like, “well, I got a seven-year term on my agreement, not a five year term.” I rarely hear someone add, “on the other hand, it’s got a 30-day termination provision,” in which case whether the term is one or five or seven or nine or ninety-nine years, you’ve got a 30-day contract.

But I want to focus on something else related to termination; it’s to remind you not to lose track of the issue of what happens upon termination.

Many agreements are pretty straightforward on the effect of termination: an agreement that provides for the payment of money usually has a provision that states that, if there’s any obligation that by its nature continues past termination, then those obligations remain enforceable.

For example, the commitment to pay stipend support in arrears survives the earlier termination of the underlying the agreement.

But what’s often missed is the fact that some agreements should provide for a number of deliverables that one party owes another following termination. Think, for example, of the termination of a billing service agreement or of an agreement with a collection agency. Who owns the data? In what format does that data get turned over to you? It is the actual data or a summary of the data?

These and similar issues are not often thought about, whether by the parties or their lawyers.

Remember, a contract doesn’t have to govern only what happens during its term; it can govern what happens upon the end of the term, even if that “clean up” is to take place after the term.

Think about it this way: If you don’t think about it up front and document the full effect of contract termination, you’re likely going to have to address it in a more expensive forum: it’s called litigation.

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