Contract Termination Letter: What is it & How to Write it?


We’ve all gotten ourselves into deals or signed contracts that we wish we hadn’t, right? That gym membership you took two months back is probably nodding in agreement with us.

Just like that, even in business, you might enter into a contract with a lot of hopes and dreams. But it may not turn out the way you want it to and you’ll probably want to terminate it as soon as possible.

While it may be a little easier to cancel your gym membership, that might not be the case with your business contract. Your business contracts involve dealing with other businesses and being in accordance with the law, which is why ending it is not as easy as pressing a cancel button.

What you need to do is write a formal contract termination letter informing your fellow contractor that you are ending things. In this blog, we will walk you through the steps involved in writing a professional contract termination letter and also provide you with a special tool to help you on the way.

But before we get to that part, let’s take a look at what a contract termination letter is and why it is important to create them. Ready, folks? Then, jump right in!

 

What is a Contract Termination Letter? (Definition)

A contract termination letter is an official letter sent by one party involved in the contract to the other, formally declaring the intention to terminate or cancel their contract or agreement.

It’s basically a formal way of saying “I am ending this business relationship”. These letters can be used in employee termination, business termination, simple contract termination, and so on.

You could send a contract termination letter if you feel that specific changes have been made in the contract without consulting you or if the other party is not fulfilling the duties and obligations or if the contract wasn’t legal in the first place.

Whatever the case may be, a contract termination letter is a professional and respectful way of exiting a contract. Now let’s take a look at the reasons why you must create a contract termination letter.

 

Why You Must Create a Contract Termination Letter?

A contract termination letter helps both parties in many ways. How? Let’s take a look:

1. Maintains a Professional and Positive Relationship

Writing a contract termination letter is a great way to show respect while wrapping up things with the other party involved. Even if you are ending your contract based on disagreement, a contract termination letter helps maintain a professional tone and sometimes even maintains a positive business relationship.

Read more: Contract Proposal: What is it and How to Create it?

 

2. Great Way to Say “Thank You”

Terminating a contract need not always be on a disappointing note. This means that you can write a contract termination letter to express your gratitude to the other party for their services. Doing this will also help you leave a good impression while exiting a contract.

 

3. Helps the Other Party Prepare

Your contract termination letter will contain the date for the termination of your services to the other party. This is a great heads up for the other party as they get enough time to plan and prepare for your departure and find a replacement or substitute for your position.

 

4. Proof of a Record

Since a contract termination letter is a formal document that declares your decisions to terminate or cancel a contract, it also acts as official proof that you are terminating the contract. It becomes a written record of when and why a contract was terminated.

Writing a contract letter is therefore more than just ending a contract, it is also about showing professionalism and gratitude while giving notice in advance and leaving an official record. Thus, it’s an important piece of document in your business dealings.

So, let’s learn how to write a contract termination letter and take a look at the important things that you need to keep in mind while creating it!

 

How to Create a Contract Termination Letter? Follow these steps:

Step 1. Use a Proper Business Letter Format

When you start writing a contract termination letter, be certain to follow the standard business letter format. Do not send an unevenly formatted letter, so make sure that your letter has proper line spacing throughout and everything is aligned to the margin as well

Here, you can include a header with the company’s name along with the company address, the date of drafting the letter, proper salutation, etc.

 

Step 2. Make an Official Statement of Termination

Start your letter by stating the fact that you are officially terminating the business contract. No need to beat around the bush or sugarcoat, just make a formal declaration of the termination of the contract. This will send the message loud and clear.

You can begin with a clear statement like “We regret to inform you that our company XYZ is terminating the contract…” OR “As per the conditions of our business contract, please allow this letter to serve as a termination of the contract…” OR “This letter is to formally notify you that the company has decided to terminate the contract…”

 

Step 3. Mention the Date of Termination

Just after you state your intention of termination, you must specify the date from which the termination comes into effect. This can be mentioned in the same line as your statement of termination.

Here you should put in the exact date that you wish to end the contract. This will give the other party involved in the contract some time to prepare for your departure and make the appropriate arrangements for it.

 

Step 4. State the Reasons for the Contract Termination

After you have declared your intention and the date of termination, the next step is to inform the other party why you are terminating the contract.

Here, you can enlist all the reasons that lead to the termination of the contract. This can be anything from financial difficulties to breach of contract to unfulfilled responsibilities and so on.

If possible, you can even provide or support your reasons with evidence and data.

 

Step 5. Explain the Settlement Details

Once you are done writing down your reasons, you be required to explain the settlement details. This section is where you will detail how to clear off your payments or settle for a compensation amount for whatever work you did.

Here, you can also remind the other party involved about any agreements you made relating to non-disclosure of information or copyrights and ownership and how you wish for that be to be dealt with.

 

Step 6. Express Gratitude

Even if you don’t want to, a little expression of gratitude can never hurt anyone. Put in a word or two to thank your fellow contractor for their services and efforts, even if it wasn’t too much.

No need to get unnecessarily detailed about things, but a single line that expresses your gratitude can ensure that you leave on a positive note and not a bitter one.

 

Step 8. Wrap it All Up

Conclude your letter with good wishes and a formal closing salutation. For example, something like “Sincerely” or “Faithfully” or “Best Regards” should do the trick.

Leave a little space below it for signature and name.

Don’t forget to take time to proofread it and look for any spelling errors and grammar mistakes before you actually send it out.

… and there you have it – a contract termination letter, all ready to break off your contract in the most professional and respectful way!

Even though it might not take too long, we know that terminating a contract is not exactly an exciting task for you. And writing it is not something you are probably looking forward to.

Who even wants to sit down and write time-consuming letters while also trying to ensure that it has a neat formatting style, right? That’s why we present to you – Bit.ai!

Read more: Confirmation Letter: Definition, Importance, and Format!

Bit.ai: The Best Tool for Creating All Kinds of Letters

Bit.ai is a modern cloud-based documentation platform that will help you create, design, and share beautiful documents. Yes, that includes your contract termination letters as well.

Bit has an extensive template gallery that provides you with over 70+ stunning templates for creating a perfect contract termination letter or any document for that matter.

Don’t spend a second worrying about the format of your letter because Bit comes with an auto-formatting feature, which automatically formats your entire letter to give it a very uniform and consistent look.

What’s more? With over 100 integrations, Bit lets you add any rich media in your Bit doc in seconds. All you need to do is copy the shareable link and paste it into your Bit doc. It’s that easy!

That’s not even the best part! With Bit’s real-time collaboration features, you can easily collaborate and work together with multiple people while drafting your letter.

All-in-all, Bit is the whole package deal for creating and sharing all kinds of letters. So what are you waiting for? Get Bit and make your lives easier!

 

Conclusion

With that, we can formally declare that you are equipped with the best tips to craft a contract termination letter.

Termination of a contract may not be the easiest task out there. But with the help of this blog, we hope that you got a better understanding of contract termination letters and how to write them.

Follow our steps and combine it with one of Bit’s templates and voila, you’ll have a perfect letter in your hand to end that contract as fast as you can and without causing any mess!

You are only a step away from closing an unwanted chapter in your professional life! So roll up your sleeves and prepare to break it up!

Happy writing!

Further reads: 

Formal Letter: What Is It & How to Create it?

Proposal Letter: What is it & How to Write it?

Letter of Resignation: Definition, Examples, and Format!

Letter of Authorization (Authority Letter): Definition, Examples & Steps!

Employment Verification Letter: What is it & How to Write it?

Apology Letter: Definition, Format, Tips & Examples!

Sales Letter: What is it & How to Create it?

Complaint Letter: What is it & How to Create it? (With Examples)

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