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Contracts underpin certain relationships between two legal parties in order to legally enforce a transaction. They are usually a written contract, but not always. They are often used in commercial dealings so that both parties uphold what they have agreed to under the contract. However, there may be times when someone wishes to break a contract before the contract term expires. One contract that businesses commonly use for employment purposes is a service agreement. This article will explain what a service agreement is and how you can break it.

What is a Service Agreement?

A service agreement is a legally binding contract that is entered into between someone who is providing a service and someone who is receiving it. It will contain key terms such as what the:

  • service provider will provide; and 
  • person receiving the service will pay for this. 

It will also contain how the service is provided and whether they are any caveats to this. 

For example, a common service agreement is between an internet service provider and a customer. 

How Do I Break a Service Agreement?

Termination Clause

The best way to break a service agreement is by using the termination clause. Most contracts will have a termination clause and allow either party to cancel the agreement in certain circumstances. These circumstances will be outlined in the termination clause and can vary depending on the contract.

You must be sure that you have met the circumstances outlined in the termination clause before you activate it. Otherwise, you could be unlawfully terminating the contract. This is known as an unlawful repudiation and could cause you to be liable for any loss that your contracting party incurs. If so, the contracting party can take legal action against you.

Breach of Contract

Another way that you can break a service agreement is if your contracting party breaches the contract. Once your contracting party has breached the contract, you can cancel it and are under no further obligations.

For example, if your internet service provider fails to provide you with internet access, you can terminate the agreement to find a new provider.

It is also important to note that terminating the agreement does not hinder your ability to take legal action to claim damages for any loss incurred because of the breach.

Mutual Consent

The best way to break your service agreement is through mutual consent. This is when both parties to the contract agree to cancel it, meaning that they no longer have any further obligations through the contract. This is the best way to break a contract as it is less likely to lead to a dispute if both parties consent to the termination. 

Refuse Obligations

Another way that you can break a service agreement is to refuse your obligations. Although this is not a recommended method, your contracting party will likely terminate the agreement if you are not upholding your obligations.

However, it is important to note that if you cause any loss to your contracting party due to refusing to uphold your obligations then your contracting party can claim damages in court for that loss incurred. Therefore, you should try to remain on good terms with the other party.

Contract Expiry

Finally, another way that you can break your service agreement in New Zealand is to wait until the contract expires. Once a contract has expired, both parties are not under any further obligations under the contract. Waiting until the contract expires is a good way to leave your service agreement, but it does mean that you may be under contract for longer than you would like. When your contract is about to expire, you will likely be offered a renewal. If you want to cancel the service agreement, you should decline any renewal offered to you. Then, you will be free of your contractual obligations.

Key Takeaways

Service agreements are used to govern the relationship between a service provider and a customer. The agreement will contain important terms such as how the service is provided and what conditions the service provider must follow. In addition, it will also define the type of service and how long they have to provide the service.

Service agreements are legally binding, which means that both parties must follow its terms. Otherwise, they could face legal repercussions. However, a party to a service agreement may want to break it. There are several ways to break a service agreement, but the best way is through mutual consent, so there is less chance of a dispute arising. Due to these complexities, it is best to seek legal advice if you wish to break a service agreement.

If you need help with managing your contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

How do I recognise that my contracting partner has breached the contract?

If they have not upheld an obligation under the contract, then they have breached it. However, it is always best to consult a lawyer if you are unsure if your contracting party has breached the contract. 

Can a court uphold an agreement that both parties have terminated?

A court may uphold an agreement that both parties have terminated if there are third party beneficiaries that suffer a loss due to the termination.

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