Contract Termination Letter: What Is It?

The contract termination letter is a type of termination letter that aims to end the terms, stipulations, and agreements made from an existing contract. It is a notable business letter that notifies parties about a contract cancellation rather than ending a contract without any formal documentation or notice. That means a contract renewal or any form of practice that involves continuing a contract will no longer be possible once this professional document plays out.

Did you know that 22% of employers have terminated workers who called in sick as a false excuse?

The Importance of Composing a Contract Termination Letter

Ending a partnership or business contract may not sound good but it is often needed for various circumstances. And it helps to understand what makes the concept of a contract termination letter important in the world of business.

To Keep Records of the Decision

Whether an agency plans to cut ties with a consultant, physician, contractor, subcontractor, vendor, tenant, or any other client, what matters the most is that the company has kept records of its termination decisions. Companies need documentation to make it official whether a business contract has actually ended or not. Those records will eventually be used as evidence just in case another party plans to interject with the decision.

To Explain the Reason/s Clearly

A contract termination letter is a detailed letter in itself for containing the reason why terminating the contract should happen, when the cancellation occurs, and other concerns. The point is the said letter has the explanation needed to clarify the decision rather than simply ending terms for no apparent reason. At least whoever needs to read the document will be guided about the contract termination’s details.

To Facilitate What to Do Next

Something to note about contract termination letters is that there will usually be a short statement about what the other party can do next. Like a job termination letter, the letter outlines what the terminated employee can do next to further one’s career rather than giving an impression that everything is hopeless now that the employee is out of the company. Be helpful in the process too so that the contract termination runs smoothly for all parties involved.

To Avoid Possible Legal Disputes

Keep in mind that sending a written letter notice in the form of a contract termination letter is a smart move to prevent legal disputes. You wouldn’t want to forcibly get rid of a party from a contract without any notice because that person could sue you for wrongful termination. Hence, be professional by sending the contract termination letter to explain the details and make the person of concern understand why you have reached such a decision.

To End Terms in an Amicable Way

Contract termination letters are essential to be in a mutual agreement and achieving termination in a friendly manner. The document itself aims to prevent misunderstandings so that it is possible to be apart from each other but still be friends when you come across the person being terminated at some point. Thus, don’t be hostile in making a serious decision such as ending a contract.

What Are the Basic Parts of a Contract Termination Letter?

Don’t ever take for granted how you write a contract termination letter because every detail inside there matters. To make sure you put on a top-quality contract termination letter, be sure to insert these standard parts:

Letterhead: A business document such as a contract termination letter should begin with the company letterhead. This letterhead contains the company logo, name of organization, contact details, and business address.Date: The date is where you jot down the complete day, month, and year of when you are writing the letter. Don’t confuse this with the actual date of termination because that will still be mentioned in the contract termination letter’s body section.Title: The title is self-explanatory, meaning it should contain the words “Contract Termination Letter” and is considered the main subject of this business document. It is often written in bold capital letters for easy distinction; thus, anyone who comes across reading this document will get the idea as to what the message is entirely about.Recipient’s Details: The recipient’s details contain the name of the person being terminated from the contract, that person’s inside address, as well as that recipient’s contact list info. Make sure you got the right details from the recipient as you wouldn’t want to send this letter to the wrong hands.Salutation: Get personal starting with the salutation of your contract termination letter. Don’t simply say “to whom it may concern” because you have to acknowledge the first name or last name of your recipient; use the appropriate pronoun too.Introductory Statement: After the salutation is the introductory statement, and this section expounds on the title such as what the letter’s intention is. The introduction reminds the recipient about the name of the contract and when it was initially signed until you eventually say that it has come to an end.Reason for Termination: Probably the main meat of your letter is the reason for the termination of the contract. In the body of the letter, briefly explain why the contract must be canceled may it be due to retrenchment, breach of contract, or any acceptable reason.Date of Termination: Next, write down when the date of termination effectively takes place. Set the complete termination schedule such as the time, day, month, and year of the contract’s official termination.Closing Statement: The last paragraph of your contract termination letter is the closing statement, and this is the segment where you summarize the point of the letter. Also, jot down your phone number and contact details in case the recipient wants to reach out with further concerns about the termination.Complimentary Close and Signature Byline: Close the letter with a complimentary close such as “Sincerely,” and add the signature byline below it. The signature byline consists of your full name (the writer of the letter’s name), the company name, employer branding, the job position, and the signature affixed on top of the name.

How to Prep a Contract Termination Letter

Writing a contract termination letter is not that difficult, especially when you already have an idea as to what this document means, why it is important, and what its standard parts are. So without further ado, these are the steps you must consider on how to make a contract termination letter effectively:

Step 1: Assess the Whole Purpose and Situation

Review the entire situation first such as who is involved in the terminated contract, what was the reason behind it, and if terminating it is actually reasonable or legally acceptable. Set your own statement of purpose so you won’t lose track of your contract termination letter’s intention and prepare a draft containing the important details to insert in the actual letter later on. Only keep the data that is relevant to contract termination on your draft because unnecessary details are a no-no.

Step 2: Optimize a Sample Template

Maximize the use of this post’s collection of pre-formatted sample contract termination letter templates, and this is how you craft well-made letters without working from scratch. Check out the whole collection first until you can pick your favorite premade samples to work with. On your chosen template, edit the content, design, layout, and overall content so that it will now be personalized according to your preference.

Step 3: Follow Standard Business Letter Format

Keep in mind that a contract termination letter is still a business letter, meaning it should be written professionally. Business letter formatting standards still apply such as using the right technical terms, being straightforward, getting rid of unnecessary and flowery words, and observing a formal tone. This rule is necessary because you wouldn’t want to use a personal type of letter to be used as legal evidence, such as when it can’t be helped that things head to court.

Step 4: Complete the Parts of a Contract Termination Letter

From the business letterhead, date, title, and salutation, down to the complimentary close and signature byline, be sure your contract termination letter has the complete parts that were discussed earlier in this article. That way, you avoid giving incomplete information which could have made your letter ineffective. Besides the standard elements of a contract termination letter, there is also room to insert additional info such as the last paycheck, confirmation receipt, compensation agreement, etc.

Step 5: Submit the Letter as Early as Possible

The general rule for submitting this type of formal letter is to send it earlier than the actual date of contract termination. It is wrong to send the letter on the day that the contract will be officially over. Give at least two or three weeks before the termination date so that your recipient can still prepare on how to process the termination properly.

Step 6: Finalize the Format and Output

Another last-minute instruction to properly prepare your contract termination letter is to finalize how the output’s format should be. Do you want the letter to be printed as a hard copy or do you prefer sending it as a soft copy via email only? Most importantly, review if there is any mistake that should be corrected in the letter before submitting it to avoid issues as soon as the recipient reads and responds to the contract termination letter.


What reasons are acceptable to give a contract termination letter?

The most commonly used reasons to opt to give contract termination letters involve the end of a probation period, a breach of contract, employee misconduct, and retrenchment reasons.

What is a common reason to terminate an employee?

According to Breezy HR, 22% of employees who have fired workers were due to calling in sick but aren’t actually sick.

How many weeks should you send a contract termination letter before the actual termination?

The standard notice period to send a contract termination letter before actually ending the contract is two weeks.

What are the best practices to close contracts formally?

Close contracts accordingly using any of these suggestions: submit a contract termination letter, set the termination clause, recognize the breach of contract, negotiate with partners, claim an impossibility of performance, declare the reason or purpose of closing the contract, and notify the recipient ahead of the termination.

If it takes some serious effort to recruit someone to be part of a contract, then the same amount of baggage should be considered during a termination of contract. Contract termination takes some skill such as in deciding how canceling terms is necessary for someone whom you used to work with for so long; be sure to end things on a positive note using a well-crafted contract termination letter. Download a sample contract termination letter template and get started now.