Imagine your business relationship is like a romantic relationship.
It starts off well with promises (sometimes slightly exaggerated) on either side, enthusiasm, trust and hope, and slowly you develop some ground rules for working together harmoniously (aka a contract). However rose-tinted your spectacles are, a small part of you knows that if the relationship irretrievably breaks down then you can bring it to an end.
The same applies to your business contracts. Each party needs to know that it can bring the contract to an end when it no longer wants to or can continue with the project.
Your contract is silent
For B2C, there is a 14-day (minimum) cooling off period. Generally if you send agreements to members of the public to sign, you must (1) tell them they have a right to cancel in that period (except for urgent repairs), and (2) provide forms for them to request you start work immediately or to cancel the agreement.
For B2B, there is a very limited implied right to cancel. You can only cancel if your contract allows it (express term) or if one party breaks a fundamental term of the contract (implied term). Unless it is written into the contract, your client does not have a right to cancel for any other reason, including losing faith in you!
It makes sense for your contract to include events which would allow one or both parties to cancel the contract. Typical events include:
- insolvency: if either party becomes insolvent the other can cancel with immediate effect
- substantial non-performance: if either party does not carry out their main obligations (client = pay invoices, consultant/contractor = perform works or services) then they are given 14 days to get back in shape and, if not, the other can cancel. For both these events, the client will have to pay for works or services provided up to the date of cancellation.
- change of mind: if one party simply no longer wants to continue with the project then it can cancel. This is also known as ‘termination at will’ i.e. without breach or non-performance. Cancellation on this basis should entitle the other to their lost profits or some form of compensation (ideally set out in the contract as a cancellation fee). A contract gives each party the obligation as well as the right to carry out everything (a right to finish) so if you want to bring the relationship to an early end, you should pay for that privilege.
What should you do?
In your contract, you should include rights to cancel. You need to balance:
- discouraging your client from treating your contract lightly or frivolously, relying on a ‘get out of jail’ card
- locking an unhappy client into a contract just because you can is not a good strategy. Disputes will damage your reputation.
For typical clauses you can adapt to meet your needs, see chapter 14 of How to Write Simple and Effective Consultant Appointments in Just 500 Words [read more].