Close the Books on Your Contract with a Termination of Agreement and Release

Ready to end a business contract that isn't working for you? A termination agreement and release may be what you need. Here's what you need to know.

by Michelle Kaminsky, Esq.
updated May 02, 2022 ·  2min read

Running a business involves making many decisions all day, every day, and one of the hardest is deciding when it's time to end a contract and relationship with another company. If you've reached the point that you feel it's time to cut your losses and move on, you may want to consult with the other party to see if they are feeling the same way and consider drawing up a termination agreement and release to end the contract.

Woman and man sitting at a table discussing a document

A termination of agreement and release, or contract termination agreement, not only ends the contract but also releases the parties from liabilities that may arise under the agreement.

If you're unhappy with the way a contract is working for your business and feel like the other party may also wish to get out of the contract, even if it's at a cost to you, a termination of contract and release agreement may be exactly what you need to move forward.

How a Contract Termination and Release Agreement Works

They say "when you know, you know," and, if you've reached that point in a business relationship, a contract termination and release agreement can put both parties back into the position they were before the original contract was signed. The release included in the agreement releases both parties from facing any claims that could arise from the termination agreement. The release may or may not release the parties from their obligations under the original contract.

If one party doesn't feel like simply terminating the contract is advantageous, they may request compensation in the form of a termination fee, in exchange for ending it. In this case, the termination agreement would also include the specific terms outlining what that party is entitled to under the termination agreement.

Contents of a Contract Termination and Release Agreement

The basic contract terms in a termination of agreement and release are fairly straightforward, as you're simply ending a contractual relationship before the expiration date provided for in the original agreement.

Common termination and release agreement terms include:

  • Statement of termination of the contract along with the effective date
  • Statement permitting for the survival of any terms of the agreement that would otherwise survive termination
  • Release of any claims by both parties
  • Promise not to sue the other party over the termination agreement
  • Any return of goods or merchandise that is applicable
  • Provisions calling for the protection of confidential information obtained during the contractual relationship
  • A nondisparagement clause, preventing either party from making statements that disparage or could harm the reputation or goodwill of the other
  • The choice of state's law under which the termination contract was executed
  • A statement that neither party had assigned any of its rights under the original contract to any other party

In any event, with a termination of agreement and release, the desire to force the end of the contract must be mutual. To confirm this decision with the other party, you may wish to send an agreement termination letter before passing along a finalized termination agreement to be sure you're on the same page.

If you're ready to end a business relationship that isn't working for you, you may also wish to speak with an attorney to make sure you're going about ending things the right way under the law.

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Michelle Kaminsky, Esq.

About the Author

Michelle Kaminsky, Esq.

Freelance writer and editor Michelle Kaminsky, Esq. has been working with LegalZoom since 2004. She earned a Juris Docto… Read more

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.