When terminating any contract, it is important for the consumer to follow certain steps to reduce any damages the other party may want to bring against them. A well planned contract termination letter is the best way to cancel a business contract, agreement or service and is courteous to the other party. It’s like a request letter in that the consumer is requesting a termination.
Simply stopping payments on a contract is not professional and could give the other party an opening to make a case against the consumer. However, if there is no other way out, refusing to perform is a way to cancel a contract, but the consumer should consult a lawyer first, to understand the consequences.
The consumer should carefully read the contract before they begin writing a termination letter. There may be provisions about cancelling including a specific period of time or condition. For example, if poor service is one legitimate reason for cancelling, the consumer needs to know, so they don’t say the service was fine in the letter. The letter should clearly state that the termination is within the time period or according to specifications for termination. If there are no specifications, then the letter should not have an elaborate explanation.
If the contract was fully executed by both parties, then the contract doesn’t need to be terminated because the parties have no obligation to one another. However, some contracts are long-term or have automatic renewal policies. These need to be canceled. An automatically renewing contract often has a termination clause that gives the guidelines for cancelling the contract. This is usually between 30 - 60 days. There may also be penalties for early termination.
The letter should be a formal business letter format. This is more professional, and will be taken more seriously than a casual, friendly letter. It should be short and to the point without allowing any possibility of misinterpretation. If any money is owed on the contract, the consumer should enclose a final payment or request a final bill.
In the first paragraph, the aim of the letter can be stated. In the second paragraph, the reason can be given for cancelling the contract. The conclusion should have a friendly tone. Even if the consumer is unhappy about the service or product and wants to cancel a contract, they should always be polite. This will give better results than rudely expressing anger and unhappiness about the product or service.
The consumer should keep copies of everything they send the other party. This includes a copy of the original contract and the contract termination letter. It may be tempting for the consumer to tear up and throw away the unsatisfactory contract, but this is not a good idea.
The main reasons people cancel contracts are:
• No understanding of the agreement
• The product or service is sub-standard quality
• The product or service is no longer useful
• The product or service was not delivered properly
• Fraud by the other party
• Breach of contract
• A person who lacks capacity to enter a contract did so
• The consumer has second thoughts
• Mutual agreement
According to the Federal Truth in Lending Act (FTLA), consumers have the right to cancel a contract before midnight of the third business day after signing the contract if their home is used as collateral. There is also a federal law that allows consumers to cancel a contract within three days of making a purchase of $25 or more from a door-to-door salesperson.
Here are samples of a contract termination letter. It should be sent by certified mail, so the consumer has proof of the time and date the letter was sent and received. Any documents enclosed with the letter including the original contract should be copies. No original documents should be sent.
Sample 1 - Contract Termination Letter
Contract or consumer number if any
City, State, Zip Code
City, State, Zip Code
Dear Sir / Madam,
This letter is to inform you that I am officially cancelling our contract for monthly maintenance of my lawn. Our contract ends on DATE, and I do not wish to renew it as I no longer own the house. The contract states that if I cancel before 30 days of the end of the contract, there is no penalty fee. Please note that I am within that timing. I have enclosed the final payment and a copy of my contract.
Your service has been excellent, and my beautiful lawn helped my house have curb appeal, and sell faster. Kindly confirm within 30 days of receiving this letter that my contract is cancelled.
If you have any questions, I can be reached at 555-123-4567 or at Name@email.com. Thank you for your prompt attention to my request.
Consumer’s Name Printed
List of Enclosures
Sample 2 - Contract Termination Letter
Re: Construction Contract Termination
Dear Mr. Recipient:
This correspondence is sent in accordance with sections 6 and 7 of the contract between SENDER and RECIPIENT. Over the last two months, it has become clear that the construction project at (SENDER'S ADDRESS) is not going to be finished with the efficiency and quality that were promised in the original contract. Accordingly, RECIPIENT is hereby notified of the termination of this contract.
Specifically, SENDER became aware on DATE of certain defects in the quality of the cabinetry and counter tops that were installed at the above-mentioned address. RECIPIENT was informed of the problems the same day. In accordance with the terms of the contract, RECIPIENT promised to fix the issues within 30 calendar days. It is now 15 days after the expiration of that 30 calendar day period, and no further work has been completed. Sections 6 and 7 of the contract stipulate that SENDER may terminate the contract if issues brought to the attention of RECIPIENT are not resolved within 30 calendar days. Accordingly, this contract is terminated, and SENDER is not responsible for any balance due to RECIPIENT.
Please sign a copy of this letter and return it to us within seven days of receipt.
Very truly yours,
By Andre Bradley