How to Write a Contract Termination Letter (With Template)
By Indeed Editorial Team
Updated October 23, 2022
Published July 26, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Documentation is necessary when two businesses enter a working relationship. In the event one party decides to end the partnership, a termination letter ensures the process takes place properly. To conduct business professionally and to protect your organization's interests, it's important to learn about contract termination letters. In this article, we outline the steps for writing this type of letter and provide tips for ensuring your letter accomplishes its objective.
What is a contract termination letter?
A contract termination letter is a formal business notice sent from one firm to another intending to end a contract-based arrangement. Most contracts specify an end date or list the work that a party needs to finish before the contract's considered complete by both firms. These contracts also stipulate termination conditions and methods a firm needs to follow if one party wants to cancel a portion of the previously agreed-upon work. For example, the terminating party may have to pay the other a fee per the original agreement.
How to write a termination of contract letter
Use these steps to write a contract-ending letter:
1. Review termination clauses
Before drafting your letter, review the clauses in your agreement that address ending the relationship earlier than planned. Your contract likely specifies how much notice either party has to provide the other, the rights of each party in the event of termination, and if there is a fee the terminating party has to pay. Understanding each of these considerations helps your company avoid disputes with the other party and ensures a smooth transition out of the arrangement.
2. Address the appropriate individual
Address your letter to the right party. Depending on the type of enterprise you're writing to, the appropriate individual might be the business owner, a project manager, or another leader in the organization. In most cases, you can identify the right recipient by looking at who signed off on the initial contract or who has been the other party's primary representative throughout your collaboration.
Begin your letter by indicating the date you're sending the letter and then address the individual by name, job title, and company name. Include the business address you've used in previous correspondence.
3. State your purpose for writing
Directly state your purpose for writing in the first paragraph of your letter. While maintaining a respectful tone, succinctly state why you've chosen to terminate the contract. In addition, specify the date you intend to officially end your working relationship. You benefit from acknowledging that you're aware of your contract's early termination requirements and that you're following them by giving enough advance notice in writing.
4. Discuss outstanding concerns
In your second paragraph, discuss the concerns your early termination raises. Identify the currently unresolved issues that you and the other party need to handle before exiting the partnership. Provide your intended plan of action to address them so the other party knows you've considered the consequences of contract termination. You also may use this paragraph to request anything you need from the other party. For instance, a construction company terminating a contract with a subcontractor might acknowledge that it has a few invoices to pay and request the subcontractor to forward any remaining ones.
5. Close your letter respectfully
Close your letter with a paragraph that requests the other party confirm receipt of your letter. Provide contact information where the other party can reach you if they have questions. Ending with a nice sentiment, such as wishing the business success in the future, can support a positive and cordial conclusion to your contract.
6. Ensure receipt of the letter
Contract terminations are highly time-sensitive. Both you and the other party need to take quick action to prepare for changing circumstances. If they take a while to respond, call or send a follow-up email.
Tips for writing a letter to terminate a contract
Here are some tips to help you write an effective termination of contract letter:
Give ample notice
Respect the agreed-upon minimum notice requirement and give as much notice as possible to your business partner. This makes it easier for the other party to handle any outstanding matters and settle questions about the situation. It also ensures you and the other party can have a discussion about any remaining work or unpaid fees without being rushed.
Preserve future partnerships
Maintain a respectful relationship to benefit your business and enter another arrangement with the same firm without fear of lingering resentment from an earlier termination. To preserve the opportunity for future partnerships, express appreciation in your letter. For example, you can offer a sincere compliment about how you enjoyed working with the vendor or how you found their work to be of excellent quality. As you work toward ending the contract, make your best effort to be cooperative and helpful toward the other party.
Keep a copy of your communications
To protect your business from future disputes, keep copies of your communications involving a contract termination. Aside from copying the sent letter, copy any in-writing confirmation of your business partner's response. Doing so avoids disagreements taking place regarding the dates of these critical communications.
Prepare for your partners' input
When a business partner receives this type of letter, they typically review the agreement's contents to confirm you've properly interpreted and followed them. They may raise valid concerns about the status of your project or about how you initiated termination. Therefore, emphasize your availability in your letter, clearly stating that you're open to questions and that you wish to resolve any remaining business items. By communicating you're prepared for your partners' input, you can create a platform for mutually respectful discussions.
Here is a template you can reference when writing a contract termination letter between two businesses:
[Recipient's job title]
[City, province, postal code]
Dear [recipient name],
I am writing to respectfully inform you that as of [contract termination date], [your company] no longer requires [recipient company]'s services. With this letter, [your company] provides the minimum notice specified in our agreement. [Reason for contract termination].
[Describe any outstanding matters that require resolution before termination date]. [Specify actions you intend to take to provide resolution]. [Make any requests you need of the company before the termination date].
Please respond to confirm receipt of this contract termination notice. If you have any questions, please call me at [phone number] or email me at [your email] at your soonest convenience.
Thank you for being a productive and helpful partner. We wish you and your company the best for the future.
Here are two examples of a contract termination letter:
Here is an example of a letter that terminates a contract due to a company's budgeting concerns:
30 May 2021
Top Echelon Consulting Group
240 Orchard Street
Toronto, Ontario M5V 1J2
I am writing to inform you that as of 19 June 2021, Roundtable Corporation no longer requires the services of Top Echelon Consulting Group. This letter represents Roundtable's formal notice of contract termination, per the minimum notice and conditions that our contract requires. Regretfully, shifting budget priorities have made it impossible for us to continue to pay for your expertise.
I recognize that as of my writing, two of your consultants are completing a report that represents a contracted deliverable. We appreciate this work and intend to make sure you receive prompt payment upon report delivery. Please review your records and confirm there are no other items for which we owe you payment.
I would appreciate confirmation in writing that you received this letter. You can send it to me at firstname.lastname@example.org. Please contact me at the above email or at 888-888-8888 with any concerns.
Your company has proven to be an excellent and able partner. While we regret terminating this contract, we certainly would approach you again for future projects.
Here is an example of a letter that ends an employment contract because of a company's desire to downsize:
28 May 2021
260 Applewood Street
Toronto, Ontario M5V 1J2
This letter is to inform you that you no longer have employment with Williams Construction as of June 28, 2020.
Over the last few months, Williams Construction has experienced a lack of work in our industry, leading to financial difficulties. We've concluded that we must reduce our workforce by 20%. We are regretful to say that your position is a part of this reduction and that we plan to eliminate your job title. This decision is final.
You can expect a final paycheck after your last day with us, and payment for your remaining leave days. You can also expect to receive a $20,000 severance payment. Please sign and return the attached claim document to ensure you collect this.
Expect a call from the human resources department within the next week to arrange a meeting to discuss details regarding your benefits. If you have additional questions, your representative is John Wallis. You can contact him at 444-555-6666 or at email@example.com.
Please accept our appreciation for your contributions during your employment with Williams Construction.
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