Signed a Contract but Want to Exit? What You Need to Know
Whether it’s for digital services, supply of items for resale, partnerships, or another business agreement, signing a contract means you’ve committed to certain terms and obligations. But what happens if circumstances change, and you need to get out of the deal?
Contracts are legally binding documents. A contract is an agreement reached between two or more people. It can be made either in writing or verbally. Once the contract is entered into, both parties are expected to follow through. However, there may be ways to end a contract early — especially if you approach the situation carefully and respectfully. Importantly, the resources and information below are not legal advice, and are not intended to be a substitute for legal advice and should not be relied upon as such. You should Seek Legal Advice to understand the implications and options for your specific situation.
Here are three realties many small businesses in dispute have shared with us:
- there may be no clause to end the contract early without paying the contract out in full
- what is lawful and what is fair can be two very different things
- the cost of discovering in court who is right, would be far more than the amount in dispute under the contract.
So, negotiating may be your best shot at minimising some of the costs and moving on.
Negotiated Exit (Mutual Termination)
Even if the contract doesn’t contain an exit clause, both parties can agree to end the contract early. This is known as a mutual termination.
While not automatically entitled to walk away from a contract, in many cases, parties can agree to modify or end the contract early.
Mutual terminations like this, start with a conversation.
Think about how first moves are received and responded to. For example, if you received a solicitor’s letter as the first step in ‘talks’ on changing a contract, how would you respond?
Agreement usually requires some concession from both parties, and you may need to meet certain conditions or provide compensation. Below are some of the main options to consider if you’re seeking to exit a contract early.
Consider:
- Proposing a staged exit or transition period.
- A reset of the relationship, focused on the future and agreement not to dwell on the past.
- Offering compensation to offset the other party’s costs or lost income.
- Providing a substitute solution (e.g. a replacement supplier or contractor).
- Avoiding long drawn out and expensive litigation.
- Seeking the advice of an industry or contract specific expert negotiator (for example, in the Telco and MFD industry, Strata titles sector and the Construction industry).
- Adding a clause to future agreements requiring alternative dispute resolution steps like mediation prior to either party applying to a Tribunal or Court.
A mutual exit should always be documented in writing to avoid future disputes.
If Discussions Break Down
If you’re unable to reach agreement directly with the other party, mediation can be a practical and low-cost way to move forward.
Mediation for business disputes may be available through the Dispute Resolution Branch (DRB).
If both parties are willing, the DRB offers free mediation for business-related disputes such as issues with shop neighbours, contract disputes or disputes between business partners. A DRB case manager can speak with you first and may reach out to the other party to invite them to participate.
- Attending mediation is usually voluntary, requiring both parties to agree to participate.
- Before applying for mediation, you should be open to meeting with the other party to resolve the dispute.
- Mediation sessions typically last around 3 to 4 hours.
- In most cases, participating in mediation is free of charge.
- The DRB will evaluate if mediation is suitable and arrange a session at a convenient time and place for everyone.
The DRB will evaluate if mediation is suitable and arrange a session at a convenient time and place for everyone. To find a centre, visit the Dispute resolution centres search page, or you can apply for mediation online here.
Private mediation options are also available. Search the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) mediator panel for a commercial mediator in Queensland.
Consider the Cost of Walking Away
Sometimes, the only way to exit a contract is to knowingly breach it — but this can carry significant legal and financial consequences.
- The other party may take legal action.
- You may be liable for damages or costs.
- It could affect your business reputation or credit rating.
- Any proceeding and decisions may be publicly available.
- Legal action can hangover parties for extended periods of time.
It’s important to weigh up these risks compared with the potential costs stemming from a negotiated mutual termination.
Unlawful vs Unfair
If you are opposed to negotiating because you believe the situation is unfair, you’ll need to start preparing your evidence on what was unlawful. What is unlawful is not always the same as what is unfair. You should ready yourself for the potential of increased stress, publicity, legal costs, costs to get expert reports and/or considerable time away from your business. Think about these costs as the alternative to settling this dispute early and putting it behind you. Consider what makes the most commercial sense for you.
Check the Contract Terms
If you have decided that negotiating is not for you or not plausible, start by reviewing the contract itself. Some contracts include a termination clause that allows one or both parties to end the agreement under specific circumstances. For example, a software development company may include an express right to terminate a contract if the client fails to pay for services rendered or breaches the confidentiality agreement.
Look for:
- Termination for convenience clauses – which allow a party to exit without cause.
- Termination for breach – if the other party has failed to meet their obligations.
- Notice periods – you may be able to exit the contract by giving advance written notice.
- Cooling-off periods – these are very rare in business-to-business contracts but may apply in specific industries or regulated transactions.
Cooling-off periods are generally only available for individual consumers — not businesses. However, limited exceptions may apply in situations like:
- Franchise agreements (14-day cooling-off period under the Franchising Code of Conduct).
- Unsolicited consumer agreements (10-day cooling off period), which may affect sole traders or home-based businesses.
- Certain financial or insurance contracts under financial services law.
If the other party has not upheld their side of the agreement — for example, by failing to deliver goods or meet deadlines — you may be entitled to terminate the contract for breach.
Before taking this step:
- Confirm that a material breach has occurred.
- Check whether you need to issue a notice to remedy breach.
- Follow any procedures outlined in the contract.
These can be tricky strategies. Wrongly terminating a contract can itself be a breach, so proceed carefully and consider seeking legal advice.
Vitiating factors
A vitiating factor is something that spoils the contract, preventing it from being enforceable because it voids the consent of a party to the contract. If a person abuses their power to unduly influence the other person, holds them under duress to force them into the contract, or engages in unconscionable conduct, a contract will be unenforceable.
Likewise, the contract cannot be enforced if one party misinforms the other by engaging in misleading or deceptive conduct.
The QSBC cannot decide whether a party has engaged in unconscionable, misleading or deceptive conduct. A vitiating factor, such as these, is usually established through a court trial or a tribunal hearing and could lead to protracted legal proceedings.
If a vitiating factor is established, the affected party may be able to rescind (cancel) the contract or seek damages.
Frustration or Impossibility
In rare cases, a contract may be discharged because it has become impossible to perform due to events beyond party’s control. This is known as frustration under Australian common law. It has been reported to us that frustration is difficult to establish and rarely applies in commercial settings. Check your contract for force majeure or termination clauses, which may provide clearer and more practical options.
Protections Under Australian Consumer Law (ACL) and Unfair Contract Terms
The Australian Consumer Law (ACL) usually involves business to consumer transactions, but can apply in business-to-business contracts in certain cases. Learn more: Australian Consumer Law for business.
If you believe your consumer rights under the ACL have been breached, you can make a complaint online to the Queensland Office of Fair Trading.
If a dispute involves disagreements arising from contracts for goods or services between two businesses, it could also be a ‘trader to trader’ contract dispute. For disputes up to $25,000 you may be able to apply to QCAT to resolve your dispute. QCAT also hears some motor vehicle and other types of disputes that a business may be involved in.
Unfair contract term protections exist for small business. A court can determine whether a contract term is unfair. Australian Securities and Investments Commission (ASIC), Australian Competition and Consumer Commission (ACCC), Office of Fair Trading or the QSBC cannot endorse contract terms or declare that they are unfair. Although ASIC and ACCC have successfully taken court action to have unfair contract terms removed from standard form small business contracts, generally they do not act for a small business unless it is in the wider public interest.
In any dispute it is important to gather as much information as possible and weigh up the options based on what you have been able to discover and professional advice. From our experience, negotiating a settlement can reduce the time and costs associated with resolving disputes and allow parties to get back to doing business.
To discuss your situation, and get connected with people that can help, reach out to our Assistance team.
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