What is a cancellation clause?
What is a cancellation clause?
At a basic level, a clause is simply an additional condition included in a contract. Therefore, a cancellation clause is an entry in an agreement that defines who can cancel the contract as well as why and how. A good and common contract cancellation clause example is in insurance contracts, as it details how a policyholder can cancel their contract with the insurer. Importantly, it also describes how a policyholder can lose the coverage the policy gives them if they do not abide by what the policy stipulates.
How does a cancellation clause work?
As briefly mentioned, a cancellation clause stipulates who can cancel the contract, but importantly why and even more importantly, how. It means that how a cancellation clause works is already written into the clause itself. For the most part, a cancellation clause works by one of the two parties giving written notice of their intent to cancel.
Using the example of insurance policies again, a policyholder needs to inform the insurer that they wish to cancel their policy. That cancellation will then come into effect the number of days as stipulated in the clause. Usually, that is 30 days, but it certainly does not have to be. The same would be true of the insurer if they wanted to cancel the policy as well.
Advantages of a cancellation clause
One of the most significant advantages of a cancellation clause is that both parties know where they stand from the outset of the business agreement. Knowing that there is a cancellation clause in place means that both parties understand the criteria under which cancellation of the contract will occur. But also how.
Knowing the process means that any cancellation of the agreement is far more likely to be done legally and therefore efficiently. Consequently, it saves a considerable amount of time in the future that may arise from a legal dispute should a cancellation clause not have been included in an agreement that needed it between two parties.
It also gives people comfort and confidence in entering an agreement in the first place - making profitable contracts more likely. For example, any lease cancellation clause sample should provide assurances to lessors, lessees, landlords, and tenants alike.
Contractbook and cancellation clause
Contractbook can help ensure that you have the very best cancellation clause in any contract you enter into with another party. For instance, an excellent example of a cancellation clause in a contract sample that can be used as a template is within our licensing agreement. There, it states that the licensor shall have the option to cancel this agreement under specific criteria.
Contractbook can also help automate these processes with their contract generation tool and insert a cancellation clause if needed or requested into a draft contract. The software then allows for collaboration between parties before final signatures are made. It means that should either party dislike an aspect of the cancellation clause, it can be amended.