A Termination Agreement or a termination clause in an agreement or contract is a formal agreement (demand agreement) between contracting parties that sets out the circumstances under which the agreements may be terminated Termination provision specifies how the parties will cease their business partnership and their respective duties when the agreement end. You might have seen termination agreement in employment contract, master service relation, principal agent relation etc.

Contract termination is governed by the Indian Contract Act, which varies depending on the circumstances of each instance.

Understanding contract termination

It’s not always the primary objective of a Termination Agreement to dissolve the partnership.  The beginning of the termination agreement may be brought on by a change in the purpose of the contractual relationship, the services provided, or the fact that the contracted services have already been delivered.

A termination agreement can shield parties to a contract from future legal disputes over a breach of the agreement.

Causes of Contract Termination (Termination Agreement

  1. Mutual consent: Both parties come to an understanding and consent to the cancellation of the contract and all obligations therein.
  2. Fulfillment: When all parties have fulfilled their obligations under the agreement, it is deemed to have expired.
  3. Lack of ability to perform: Unexpected and uncontrollable events can make it impossible for the parties to an agreement to carry out their separate obligations.
  4. Bankruptcy: If the other party to the contract is no longer able to fulfill their obligations in terms of their debt; when such a circumstance occurs It is feasible to terminate the contract

Most termination clauses often include these two elements:

  • If the terms of the Terms and Conditions agreement are breached
  • Termination will take place, when the firm may decide to do so for any reason.


To protect a party’s position in business, the option to terminate a contract is an essential aspect for a commercial concern, particularly in cases when a contract becomes unprofitable or is no longer commercially viable. A party who desires to exercise its right to terminate this Agreement will first carefully evaluate the legal and business ramifications of such exercise.

Also Check : Lease Agreement Article

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