Contract Termination
Agreement for the termination of a contract with the agreement of both parties. The parties can choose whether any provisions of the contract continue in effect after termination and whether termination is a release of all claims under the contract.
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When do I use this document?
- for termination of a contract by mutual agreement of the parties
- for a contract governed by English law
What are the key features?
- agreement in the form of a deed of termination
- alternative wording depending on whether any provisions of the contract will continue in force after termination
- alternative wording depending on whether termination amounts to a release of all claims under the contract
What else do I need to know?
The parties to a contract may agree to bring an agreement to an end earlier than originally envisaged. The contract may itself provide for circumstances in which the contract may be terminated. These include:
- completion: termination of the contract once the subject-matter of the contract has been achieved
- notice: termination by one party by giving a specified period of notice to the other party
- breach: termination by one party either on immediate notice or by giving a specified period of notice following the breach of the contract by the other party (the defaulting party). The contract may provide that the breach must be “material” or “repeated” and/or that the defaulting party has a period of time in which to remedy the breach before the non-defaulting party may terminate the contract
In the absence of a party being entitled to terminate the contract by its terms, the termination of a contract will require the mutual agreement of both parties to the contract.
When do I use this document?
- as a document to be delivered by a seller at closing of a Share Purchase Agreement
- when stamp duty is payable on the share transfer
- to enable the buyer to vote and exercise other share rights pending the registration of the share transfer
What are the key features?
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- suitable for an individual or corporate seller
- appointment of the buyer as the seller’s attorney
- grant of authority to the buyer to exercise all rights as the legal owner of the sale shares
- irrevocable appointment given by way of security
What else do I need to know?
Following the closing of a share sale transaction, the seller will remain the registered owner of the shares which have been sold until the buyer has paid the necessary stamp duty. This process can take a number of weeks. The transfer of the sale shares cannot be registered in the register of members of the target company until the stamp duty has been paid.
The buyer will want to be able to exercise all the rights as the owner of the sale shares notwithstanding that the seller remains the registered legal owner of the sale shares. To enable the buyer to do this, the buyer will usually require that the seller grants a power of attorney in favour of the buyer which enables the buyer to exercise the legal rights of ownership of the sale shares.
If a share transfer involves consideration exceeding £1,000, stamp duty will be payable to HMRC and HMRC will need to confirm that the stamp duty has been paid. This stamping process typically takes a few weeks and involves payment of the stamp duty and submission of the stock transfer by email to HMRC for HMRC to confirm the payment.
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Updated by a lawyer on 05/01/2023
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