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What is “termination for convenience”?

On Behalf of | Jun 29, 2022 | Business Law |

Securing a new business contract with a partner in California no doubt provides you and other members of your company’s management team with a great deal of excitement. That comes from the understanding that as long as you fulfill your contractual terms, you are virtually guaranteed ongoing work and incoming revenue.

Yet what if your partner suddenly decided to walk away from your agreement? You may think this impossible as long as you have not given them cause to do so. This is one of the assumed bedrock foundations of contract law. There is, however, a legal principle that exists permitting businesses to end professional agreements even in the absence of cause.

Termination for convenience

“Termination for convenience” refers to the right certain companies have to end business contracts simply when they believe it to be in their best interest to do so. Some common reasons for invoking this benefit may include:

  • You refusing to renegotiate your contractual terms
  • Your partner no longer needing the goods or services your company offers
  • Your partner securing the capability to provide the goods or services you offer in-house
  • A general breakdown in your business relationship

Who can terminate business contracts for their convenience?

Upon learning of this possibility, your most obvious question likely becomes who can lawfully cite termination for convenience as a reason to end your contract. According to the Congressional Research Service, government agencies (either federal or local) automatically have this right. Private companies can only exercise it if you conceded the right to do so to them during contract negotiations.

If your partner does lawfully invoke this right, what recourse do you have? You can collect for any services already rendered (plus costs associated with ending your work). Damages for breach of contract are only an option if you have proof of any bad faith actions on your now-former partner’s part.