How and When to Use a Cancellation Contract

Imagine that you have clients who come to you several months before their event needing to cancel due to a change in circumstances (break up, family expansion, health issues, financial changes, etc.). Most of you have been in this situation before! Sadly, cancellations are a part of running a business, but that doesn't mean you can't protect your business when it occurs. When rescheduling is not an option, the importance of a well-crafted cancellation contract cannot be overstated.

Let's go through the intricacies of when and how to use a cancellation contract effectively and why it's important to have for your business! 

Understanding a Cancellation Contract:

A cancellation contract is a stand-alone agreement separate from your original service contract. A cancellation clause in your service contract is the first step to outline your cancellation policies including what fees will be refunded, when a client will owe the entire service fee, and policies regarding your non-refundable retainers. To learn more about how a cancellation clause works check out this blog HERE! A cancellation contract on the other hand is the document that serves as a vital tool when clients decide to cancel services entirely and officially confirms the cancellation of your service contract. When clients sign a cancellation contract they not only document and confirm the cancellation decision but also agree and confirm what happens to fees and the retainer as outlined in the service contract.

Why is a Cancellation Contract Important: 

Cancellations, especially if you are an event or wedding service provider, can be sensitive situations. A cancellation contract helps maintain professionalism by establishing a clear and agreed-upon process for termination. It sets the tone for a respectful and structured conclusion to the business relationship. Cancellation contracts also protect you as the service provider from potential legal actions but also ensure that clients have a clear understanding of the agreed-upon terms and conditions surrounding the cancellation. It serves as a valuable record in case of future disputes.

Must-Have Clauses for Your Cancellation Contract:

• Forfeit of Retainer and Fees Paid/Refund of Retainer and Fees Paid: Clearly articulate the fate of fees paid by clients—whether it involves a partial refund, no refund, or (in very rare instances) a full refund. Make sure you are also addressing "non-refundable retainers" and "liquidated damages" in your cancellation contract.
  
• Company’s Release of Contractual Obligations: Emphasize that, with the cancellation contract in effect, your company is no longer contractually obligated to perform services on the originally agreed-upon date.
• Mutual Release of Claims: Ensure that neither party will pursue legal action related to the previous contract or payments due.
• Representations and Warranties: Include a clause where both parties affirm their capacity to enter into the cancellation contract willingly, with full knowledge of its implications.
• Confidentiality: Highlight the importance of confidentiality concerning the terms and conditions of the cancellation contract. This clause will keep all negotiations of this particular cancellation between just you and them (since you may do things a bit differently with each client who cancels depending on facts and circumstances). This clause however DOES NOT prevent clients from writing reviews on the services they have already received from you. You also shouldn't be putting a non-disparagement clause in your cancellation contract. Focusing on exceptional service and exceeding client expectations should be the focal point in your client relationships. To learn more about why you shouldn't be using a non-disparagement clause to prevent reviews check out this blog HERE. 
• Venue & Jurisdiction: Specify the home county and state as the designated venue for litigating and enforcing any disputes that may arise.
• Severability: Include a severability clause to safeguard the contract's integrity in case any part is deemed invalid according to state law.
• Counterparts/Facsimile Signature: Acknowledge that electronic signatures are valid and can be signed at different times by all parties, ensuring the contract’s legitimacy even when signed remotely.

Now you know how and when you need to use a cancellation contract! This document plays a pivotal role in safeguarding both parties involved. By presenting a cancellation contract to your clients you can navigate cancellations smoothly, providing clarity on refunds, fee forfeiture, and confidentiality. Make sure you have this contract in your business toolbox by utilizing TLP's Cancellation Contract bundle which offers two different contracts for when your clients voluntarily cancel and then when you may have to cancel as the service provider.