Disclaimer: Anything posted in this blog is for general information only and is not intended to provide legal advice on any general or specific matter.
Matthew Wolton is a partner at VWV in the Commercial Law team. He has worked in the education sector for over 21 years, and with academy trusts since 2007, and has significant experience in general commercial law as well as public procurement advising on everything from individual contracts through to overarching strategic support.
In this blog Matthew covers termination and how to get out of contracts that are just not working, specifically looking at:
- The different ways a contract can be terminated
- What termination triggers should be in the contract
- Risks of termination, and how to minimise them
Entering a contract is often straightforward. Exiting one before it expires, especially when it’s not serving your best interests, is rarely as simple. For schools, trusts, and academies, this scenario can arise in the context of service provision contracts, such as catering, cleaning, payroll, and IT support. While these contracts are often entered into in good faith and in the expectation that they will continue for their full term, circumstances can change – and when they do, knowing your rights and options becomes essential.
The Importance of Contractual Clauses
The starting point in any contract termination is the contract itself. Each agreement is unique, and your rights will depend heavily on the specific wording within your document. Whether drafted by your legal team or signed under standard provider terms, the details matter.
1. Termination for Convenience – The Gold Standard
Ideally, your contract includes a termination for convenience clause. Sometimes referred to as a unilateral termination right or a no-fault clause, this provision allows you to terminate the contract by simply providing notice – without needing to justify your decision.
Key things to check:
- Notice period: Typically one month or more.
- Minimum term: Is there a period before which termination for convenience cannot occur?
- Mutuality: Does the provider also have the right to terminate on similar terms?
- Consequences: Does terminating in this way incur any financial cost?
If this clause exists, use it – it provides a clean and risk-free way to exit.
2. Termination for Breach – When Things Go Wrong
This is the most commonly used method when contracts aren’t working and you don’t have a termination for convenience clause. Whether the cleaning isn’t up to standard or the payroll provider makes consistent errors, breaches of contractual obligations can form the basis for ending an agreement. You will need to follow the process set out in the contract, and important elements to consider are usually:
- Material breach: The issue will probably need to be significant, not trivial.
- Notice requirements: Written notice is typically needed.
- Right to remedy: The provider usually has an opportunity to fix the problem within a set period.
Act early. If problems persist and you say nothing, it may be argued that you’ve accepted the underperformance, weakening your right to terminate later. Always keep a paper trail, and notify the provider as soon as you consider there is a problem.
Risks. Providers will often disagree that the circumstances give you the right to terminate for breach, and may challenge your proposed termination.
3. Failure to Meet KPIs
Key Performance Indicators (KPIs) can help quantify performance. Contracts can often specify a right to terminate if these KPIs are consistently missed or if critical indicators (like safeguarding) are missed. You may see:
- Cumulative breaches: e.g., failing to meet 3 out of 6 KPIs in a term.
- Critical failure: Missing a single specified KPI could be grounds for termination.
Monitoring KPIs and maintaining records is essential to uphold these rights.
4. Insolvency Events
If a provider becomes insolvent or cannot pay its debts, most contracts allow for immediate termination. This right should be exercised quickly, as failure to do so could result in complications with administrators or liquidators.
5. Change of Control
If included, this clause should give you the right to terminate if the provider is taken over by another company. You entered into the agreement based on trust in a specific company – if that changes, your should have the option to end the contract. In some cases, the right to terminate may be qualified, e.g. only if the new owner may bring you into disrepute.
6. Reputational Risk and Non-Performance
Some contracts may include clauses allowing termination if the provider poses a reputational risk (e.g., food safety violations) or shows early signs of likely non-performance. These are less common, but can be useful when present.
7. Common Law Rights – Last Resort
Even if your contract lacks express termination clauses, you’re not powerless. Under common law, you may terminate if the provider:
- Breaches a condition of the contract.
- Frustrates the purpose of the agreement.
- Renounces the contract.
- Makes performance impossible.
However these are complex legal provisions with high thresholds. If you’re considering this path, seek legal advice – if you get it wrong, you could be liable for wrongful termination.
8. Force Majeure Events
Events beyond anyone’s control – like COVID-19 – may fall under force majeure. If correctly invoked, this can relieve the provider from performance duties without allowing immediate termination unless the event persists (often 1–3 months). Check:
- Definition of force majeure in the contract.
- Notification procedures – did the provider alert you in time?
Risks and Best Practices
Terminating a contract isn’t without risk. If you do so improperly:
- The provider may claim you’ve breached the contract.
- You may face legal action and financial liabilities.
To mitigate these risks:
- Follow the contract to the letter.
- Document everything – especially performance issues and complaints.
- Maintain KPI records.
- Consult a solicitor before acting.
Strategic Approach: Negotiated Exit
Before initiating a formal termination, consider a pragmatic conversation with the provider. An informal discussion outlining your concerns – backed by your legal position – can often lead to a mutually agreed exit without confrontation.
Real-World Considerations
- Transferring contracts: When a school joins a Multi-Academy Trust (MAT), contracts often transfer via a Commercial Transfer Agreement (CTA). Most providers allow this – utilities are a notable exception, and are likely to bs subject to termination by the provider.
- Notice periods: Always follow the contract’s notice requirements, including delivery method (e.g., by post, not email, sending to a specified address etc).
Final Thoughts
Contracts are powerful tools – but only if understood and managed properly. Whether you’re dissatisfied with a provider, undergoing organisational change, or simply reassessing value for money, it’s crucial to know your rights and plan your exit carefully. Always review your contract early, monitor performance continuously, and keep a paper trail of issues. And when in doubt – consult legal experts.
Matthew also made an excellent webinar with us on this subject – if you prefer you can watch it here.
