How do contracts end? Rescission vs. Termination

A contract of sale is usually complete when the parties to the contract have performed their terms within the contract, however, contracts may end in other ways. If your sale contract is coming to an end prematurely, it is important to understand whether this amounts to a rescission or a termination.

Rescinding a Contract

Rescission is a remedy for contracted parties to end a contract when the contract is void or voidable. This remedy allows contracted parties to withdraw from a contract if a specified thing occurs or fails to occur, or a contract outlines a timeframe in which the contract can be rescinded. When a contract is rescinded, the contracted parties are free of their contractual obligations, as if there had never been a contract at all. A key element to a contract being rescinded is that the parties must be restored to the position they were in prior to entering the contract. In sale contracts, there are often specified terms that allow parties to rescind their contract, for buyers this might look like a cooling-off period and for vendors this may be a right to rescind if the buyer is unable to obtain the finance necessary for purchase.

Terminating a Contract

A termination of contract may occur when there has been a breach of contract by one of the parties. The innocent party may be entitled to a right to terminate the contract. The right to terminate is often not a freely exercisable right, and there may be restrictions on when a party can terminate the contract.

An example of when the right to terminate a contract may be used is a sale contract when there is an agreed upon arrangement for the payment of a deposit between the vendor and purchaser. If the purchaser fails to oblige with this arrangement the vendor may be able to terminate the contract. When a contract is terminated, the contract is unenforceable from the date of termination – this means all contractual obligations prior to termination are still enforceable.

It is important for those wishing to terminate a contract to understand their obligations prior to termination and ensure they are able to fulfil those obligations. It is also imperative that a contract is terminated on the correct grounds, as a failure to do so may amount to a breach of contract for the party seeking to terminate.

If you have questions regarding your rights to rescission or termination under a contract get in touch with our corporate and commercial team on (02) 9964 049.