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The Legal Paige - How and When to Use a Cancellation Contract

How and When to Use a Cancellation Contract

What is a Cancellation Contract?

Say, unfortunately, rescheduling is not an option and your clients want to cancel in full. If this happens you will need to document that decision to cancel in a signed agreement and explain what is going to happen to any fees your clients have paid thus far.

A cancellation contract will be sent out to your clients as a stand-alone contract. A cancellation contract will terminate and supersede the previous service agreement and also any oral agreements you had with your clients (say through emailing back and forth or on a phone call with them).

Must have clauses for your Cancellation Contract

1. Forfeit of Retainer and Fees Paid/Refund of Retainer and Fees Paid

One thing you need to make clear within the Cancellation Contract is what is happening with any and all fees paid by your clients under the previous agreement.

For example, you will need to state how much of your fees will be refunded based on services provided to date. Depending on how you are canceling the contract, you will title this clause either “Forfeit of Retainer and Fees Paid” OR “Refund of Retainer and Fees Paid”. You can even put “Partial Refund of Fees Paid” if that is what you are doing.

Many service providers have existing contract language that allows them to legally keep the retainer or at least a portion of the retainer due to services they have performed up to the date of this cancellation agreement. Look for the terms "non-refundable retainer" and "liquidated damages" in your existing contract. If you are having trouble determining whether you can legally keep the retainer payment, you should contact an attorney to go over your existing contract language.

Now, if you are giving the Client a full refund, you will want to modify the language in this clause to state exactly what you are refunding to the client, indicate the exact monetary amount, and also how long you have to refund the amount upon signing.


2. Company’s release of contractual obligations

This clause is very important because it makes sure that your client knows that you are no longer contractually obligated to perform on the date in the original contract.


3. Mutual release of claims

A mutual release of claims clause states that you’ve come to an agreement with transferring all fees paid, that your clients won’t take legal action against you, and that you won’t take legal action against them for anything dealing with that previous contract and payments due or performance due on your part.


4. Representations and warranties

By agreeing to this representation and warranties clause you and your clients are stating you all have the capacity to enter into the contract, and that they are indeed the ones signing at the bottom and are knowingly and willfully entering into the cancellation agreement.


5. Confidentiality

While the reason why a cancellation agreement is necessary is different in every circumstance it is very important that your clients know that the terms and conditions regarding this cancellation agreement are kept quiet. 


6. Venue & Jurisdiction

Venue and Jurisdiction clause makes sure your home county and state as the business owner are the place where any dispute will be litigated and/or enforced.


7. Severability

A Severability clause is a catch-all that helps just in case one state law says that if a clause in the template document is invalid then the remainder of the contract still stays intact.


8. Counterparts/Facsimile Signature

This clause means that electronic signatures are okay and constitute a valid contract as if you were signing together on paper in person.


Stay away from a non-disparagement clause in your Cancellation Contract!

People have asked if they can include a “non-disparagement clause” or something similar in this Cancellation Contract in an attempt to prevent clients from giving bad reviews online or posting anything testimonial-wise about their experience working with you.

First off, putting this type of clause in your contract is not a good idea because it looks bad on its face (you’re basically telling them you don’t like bad reviews and/or are worried about it) and, second, you can’t really keep your clients from writing a bad review.

If you’ve done a bad job or they have something to complain about as a customer, that’s their first amendment freedom of speech right to say something. Non-disparagement clauses really only belong in business-to-business contracts, not client-to-business contracts. This is why a non-disparagement clause in a cancellation agreement is usually not a good idea.

Remember…. if you just go above and beyond for your clients, you shouldn’t be worrying about bad reviews anyway. 😉


TLP's Take

Cancellation agreements are important to protect yourself if you or your clients have to cancel an original service agreement.  You want clear language regarding refunds, fee forfeiture, and confidentiality in this contract so you and your clients know exactly what is being conducted and terminated by the cancellation. 

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Make sure you are ready with a cancellation agreement when you need it! Shop our cancellation agreements whether you or your clients are the ones canceling.

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