Terminating contracts—how and when a contract ends—overview

There are a number of ways in which a contract may be brought to an end. The Practice
Notes in this sub-topic summarise the main ways of ending contractual relations and the
consequences for each party when that happens.

There are a number of ways a contract may be brought to an end, including:

1. •
where one party is in breach of contract entitling the other party to terminate the
contract (termination for breach of contract)
2. •
where one party is entitled to rescind the contract by reason of the other party’s
misrepresentation, undue influence or duress (rescission)
3. •
where a contract is void by reason of mistake, non est factum or statute (void contract)
4. •
where the parties agree to bring the contract to an end (discharge by agreement)
5. •
where the contract provides for termination in the event of force majeure (force
majeure)
6. •
where some unforeseen event prevents the parties from performing the contract
(frustration)
You should also ensure that you are fully aware of the potential exit routes in the contract
itself. You can then embark on service of the appropriate notice of breach and/or
termination notice, perhaps following this with an offer to settle (rather than or as a
precursor to pursuing a claim for damages should that be necessary). The Practice Notes
and Precedents listed below provide guidance on each of these aspects of contract
termination.

For a summary of the main methods of terminating or the expiration of contracts, see
Practice Note: Termination and expiry of contracts.
For a summary, in tabular form, of key and/or illustrative cases on contractual disputes (for
judgments dating 1 January 2020 onwards), see Practice Note: Contract disputes—key
and illustrative decisions.

Termination for breach of contract

A contract may be terminated by reason of one party’s breach of contract.

Termination for breach arises as follows:

1. •
 one party to the contract is in breach of contract—this requires consideration of the
precise obligations imposed upon the parties by the agreement and the extent to which
those obligations have been performed
2. •
the breach in question is one which gives rise to the right of the innocent party to
terminate in response—ie it must be either an anticipatory breach or a repudiatory
breach, and
3. •
the innocent party accepts the breach rather than affirms the continued existence of the
agreement
For more detail see Practice Note: Termination for breach of contract.

Rescission of a contract

Rescission is available as a remedy to a party whose consent, in entering into a contract, has been
invalidated in some way.

This will happen where:

1. •
a party has contracted on the basis of a false statement of fact made to it by the other
party (misrepresentation)
2. •
a party was mistaken as to the terms of the contract and the other party was aware of
its mistake (mistake), or
3. •
a party was unfairly persuaded by another individual to sign the contract (undue
influence)

Effect of rescission

The effect of rescinding a contract is to extinguish it and to restore (as far as possible) the parties to
the positions they were in before contracting.

A contract that can be rescinded is voidable, not void. In other words, subject to the right to rescind
being exercised, the contract remains enforceable. By contrast, an apparent contract that is void
never has any validity or effect.

Grounds of rescission

The main grounds of rescission are:

1. •
misrepresentation (whether fraudulent, negligent or innocent)
2. •
 non-disclosure in relation to contracts of insurance
3. •
undue influence, duress and unconscionability

Bars to rescission

Rescission will not be available in the following circumstances:

1. •
the party entitled to rescind affirms the contract
2. •
the party seeking rescission is unable to restore the other party to their pre-contractual
position—thus where the rescinding party has already received a benefit, they will not
be entitled to rescind unless they return the benefit
3. •
the consequence of rescission is to destroy a third party’s rights
For more detail see Practice Note: Rescission of a contract.

Void contract

A void contract is one that has no legal effect—it essentially never existed. It is to be distinguished
from a contract which is merely voidable (ie it exists and has legal effect unless and until it is
rescinded) or unenforceable (ie it is a binding agreement, but the parties cannot sue on it due to
illegality, for example).

When a contract is void it means:

1. •
neither party is able to sue the other on the contract
2. •
if goods have been delivered, they (or their value) should be recoverable because
property cannot pass under a void contract
A contract may be void where:

1. •
the parties have entered into the contract under a common mistake that is fundamental
to the contract
2. •
there has been a unilateral mistake—ie one party to the agreement accepts a promise
knowing that the terms stated by the other party differ from what that other party
intended
3. •
one of the parties is mistaken as to the identity of the other contracting party
4. •
a party is misled into signing a document which differs from what they had intended to
sign (non est factum)
 5. •
certain statutes specify that the contract is void
For more detail see Practice Notes: Void contracts and Mistake in contract law.

Discharge by agreement

The discharge of a contract by agreement covers a range of different factual and legal scenarios.

In its simplest and most absolute form, it involves the parties to a contract agreeing to a total release
of their obligations to one another or to a new contract with different obligations or parties.

However, it may also involve a more partial release by way of:

1. •
variation of an existing contract
2. •
the waiver of existing obligations

Release

Where one party has fully performed their obligations under a contract but the other party has some
obligations outstanding, the contract may be discharged at any time before breach by release by
deed.

A release not made by deed will still be effective if it is supported by the making of mutual
promises on both sides. This is called accord and satisfaction.

Rescission by agreement

Rescission by agreement is not to be confused with rescission where there has been
misrepresentation, duress or undue influence.

Where an agreement is at least partly executory and some obligations remain unperformed the
parties may expressly agree to discharge the outstanding obligations. Such agreement may also be
implied in certain circumstances.

Where a contract is rescinded by agreement between party A and B there may be novation where
the original agreement is substituted by another agreement between A and C.

Contractual termination

Parties may expressly provide in their contract that either or one of them is to have an option to
terminate the contract. This right may be exercisable:
 1. •
on a breach of contract by the other
2. •
on the occurrence or non-occurrence of a specified event other than breach
3. •
at the will of the party on whom the right is conferred

Variation

Parties to a contract may modify or alter its terms by mutual agreement. A variation will only be
effective if it is supported by consideration, ie the assumption of additional obligations by one party
to the other.

Waiver

Waiver occurs where one party (A) voluntarily agrees to a request by the other (B) not to perform in
the manner fixed by the contract.

A will be bound by the waiver and cannot rely on the original terms of the agreement if:

1. •
A’s agreement is clear and unequivocal
2. •
B alters their position in reliance on A’s agreement
This doctrine is similar to the equitable doctrine of promissory estoppel.

For more detail see Practice Note: Ending a contract by agreement.

Financial difficulty

Contracts may provide for termination where one or both of the parties to it enters into an
insolvency process. These are sometimes known as ipso facto clauses. It is important to be aware of
the restrictions on giving effect to such clauses in relation to certain contracts brought about by
the Corporate Insolvency and Governance Act 2020. See Practice Note: Corporate Insolvency and
Governance Act 2020—restrictions on ipso facto clauses.

Force majeure

Many contracts expressly provide for performance to be excused if rendered impossible by

unavoidable causes such as an act of God or force majeure.

A force majeure clause is a contractual term by which one (or both) of the parties is entitled to
cancel the contract or is excused from performance of the contract (in whole or in part) on the
occurrence of a specified event or events beyond their control.
These clauses raise issues as to who bears the burden of proof, how the clause should be interpreted
and whether or not the clause is open to challenge under the Unfair Contract Terms Act
1977 or Consumer Rights Act 2015.
For more details, see Practice Notes:

1. •
Force majeure—consequences and contract discharge
2. •
Force majeure clause analysis—a practical guide
3. •
Force majeure—key and illustrative decisions

Frustration

A contract may come to an end if, through no fault of either party, something occurs after the
formation of the contract that has the following effect:

1. •
it makes the contract physically or commercially impossible to fulfil, or
2. •
it transforms the obligation to perform into a radically different obligation from that
undertaken at the start of the contract
Events which might give rise to frustration include a change in law, sudden illegality in
performance, cancellation of an expected event, delay, death (in contracts for personal service),
illness/incapacity and destruction of particular property.

There are significant limits on the doctrine of frustration. For example the parties may have made
provision for the ‘unforeseen’ event in the contract, the event may well have been foreseen or
foreseeable by one or more parties and the frustrating event might be the fault of one of the parties.

Where frustration occurs, the contract comes to an end, both parties are released from further
performance and in certain circumstances money already paid can be recovered. If advance
payments have been made these can be recovered to the extent allowed by the Law Reform
(Frustrated Contracts) Act 1943.
For more detail see Practice Notes:

1. •
Discharge by frustration
2. •
Frustration event analysis—a practical guide
3. •
Frustration—key and illustrative decisions

Termination rights in contracts with consumers

If you enter into a retainer with a consumer client away from your office or without meeting them,
it is likely that the Consumer Contracts (Information, Cancellation and Additional Charges)
Regulations 2013, SI 2013/3134 apply.
See Practice Note: Different types of cancellation rights for assistance in assessing whether the
Regulations apply and, if they do, whether you need to comply with requirements about distance
contracts or off-premises contracts.

How to terminate agreements—practical steps

If considering terminating an agreement, there are a number of factors to consider when examining
potential exit routes, for further guidance on which, see Practice Note: How to terminate an
agreement.
For guidance on how to draft effective notices of breach and termination notices, see Practice
Notes:

1. •
Drafting notices of breach
2. •
Drafting termination notices—contract breach

Precedent notices of breach

For assistance on drafting an effective notice of breach, see the following Precedents:

1. •
Breach notice for non-payment—with time being of the essence
2. •
Breach notice for non-payment—without an express right to terminate and without
time being of the essence
3. •
Breach notice for other breaches—with an express right to terminate
4. •
Breach notice for other breaches—with time being of the essence
5. •
Breach notice for other breaches—without an express right to terminate and without
time being of the essence
6. •
Breach notice for non-payment—with an express right to terminate

Precedent termination notices

For assistance on drafting an effective termination notice, see the following Precedents:

1. •
Termination notice for non-payment—with time being of the essence and without an
antecedent breach notice
 2. •
Termination notice for other breaches—with an express right to terminate and without
an antecedent breach notice
3. •
Termination notice for other breaches—with time being of the essence and without an
antecedent breach notice
4. •
Termination notice without a breach—with an express right to terminate with notice
5. •
Termination notice for non-payment—with an express right to terminate and with an
antecedent breach notice
6. •
Termination notice for non-payment—repudiation with an antecedent breach notice
7. •
Termination notice for other breaches—with an express right to terminate and with an
antecedent breach notice
8. •
Termination notice for other breaches—repudiation with an antecedent breach notice
9. •
Termination notice for non-payment—with an express right to terminate and without
an antecedent breach notice

Precedent offer to settle following termination

If considering terminating an agreement for the other party's breach you may want to follow the
termination with an immediate offer to settle, rather than or as a precursor to embarking on the
process of pursuing a claim for damages through the courts. For further guidance, see Precedents:

1. •
Offer to settle—termination for non-payment
2. •
Offer to settle—termination for other breaches

Precedent statements of case

We also provide a selection of Precedents, including from those contained within our contract
volume of Atkins Court Forms (which will require a Lexis®Library subscription):

1. •
Particulars of claim—breach of contract
2. •
Particulars of claim for rescission: common mistake: Atkin’s Court Forms [126]
3. •
Particulars of claim for return of money paid on an illegal or void contract: Atkin’s
Court Forms [129]
4. •
 Particulars of claim for recovery of money paid under a contract which has been
frustrated: Atkin’s Court Forms [133]
5. •
Particulars of claim for damages for breach of contract: acceptance of repudiation:
Atkin’s Court Forms [138]
6. •
Particulars of claim for damages for losses incurred by claimant by reason of
defendant's default: Atkin’s Court Forms [142]
7. •
Defence to a claim for specific performance: unilateral mistake: Atkin’s Court Forms
[170]
8. •
Defence: common mistake and counterclaim for rectification: Atkin’s Court Forms
[171]
9. •
Defence of mistake as to identity: Atkin’s Court Forms [172]
10. •
Defence of non est factum: Atkin’s Court Forms [173]
11. •
Defence: illegality: contravention of statute: Atkin’s Court Forms [185]
12. •
Defence: illegality: company an alien enemy: Atkin’s Court Forms [186]
13. •
Defence: illegality: defrauding the revenue: Atkin’s Court Forms [187]
14. •
Defence denying frustration; alternatively counterclaim claiming set-off of expenses
incurred before frustration: Atkin’s Court Forms [190]
15. •
Defence: non-performance of condition precedent: Atkin’s Court Forms [193]
16. •
Defence of waiver: Atkin’s Court Forms [194]
17. •
Defence of promissory estoppel: Atkin’s Court Forms [195]
18. •
Defence: accord and satisfaction: delivery of goods: Atkin’s Court Forms [199]
19. •
Defence: accord and satisfaction: payment of money: Atkin’s Court Forms [200]
20. •
Defence: accord and satisfaction: discharge of bill of exchange by absolute
renunciation in writing: Atkin’s Court Forms [201]
21. •
Defence: accord and satisfaction: payment of smaller sum by stranger: Atkin’s Court
Forms [202]
22. •
Defence: novation by substitution of third party as debtor: Atkin’s Court Forms [203]
23. •
Defence: rescission by agreement or lapse of time: Atkin’s Court Forms [204]
24. •
 Defence: composition with creditors: Atkin’s Court Forms [210]
25. •
Defence: frustration of contract: Atkin’s Court Forms [215]
26. •
Defence: illegality: public policy and international comity: Atkin’s Court Forms [224]
27. •
Defence: account was stated in respect of a debt under a void contract: Atkin’s Court
Forms [232]
28. •
Defence: account was stated in respect of a debt upon an illegal consideration: Atkin’s
Court Forms [234]
29. •
Defence: account was stated in respect of a debt the consideration for which has
wholly failed: Atkin’s Court Forms [236]
30. •
Reply and defence to counterclaim for rectification: Atkin’s Court Forms [240]
31. •
Reply: limitation: discovery of mistake: Atkin’s Court Forms [246]