Contract Termination in Australia

This guide explains when contract termination is lawful under Australian law, how to terminate properly, and the legal risks of getting it wrong.

Written by: Mark Lazarus, Commercial Lawyer, Director of Lazarus Legal
Last updated: 02 January 2026

Legal Disclaimer: The information on this page is general in nature and is not intended to constitute legal advice. It does not take into account your personal circumstances. Laws and legal processes can change, and their application varies between cases. You should seek independent legal advice before acting on any information on this page.

What Is Contract Termination?

Contract termination brings a contractual relationship to an end before or at the completion of all obligations. It differs from contract expiry, where an agreement ends naturally after its fixed term or upon completion of performance.

Termination has legal consequences. It determines what obligations remain enforceable, what remedies are available, and whether either party has liability for damages. A properly terminated contract releases parties from future obligations while preserving rights related to past breaches. An improperly terminated contract can reverse liability, turning you from the aggrieved party into the breaching party.

When Contracts Are Terminated Under Australian Law

Australian contract law recognises several grounds for termination. Each creates different legal consequences and requires different procedural steps. The basis for termination matters because it affects what remedies you can pursue and whether you face liability for ending the agreement.

Termination by Performance

Contracts end naturally when both parties complete their obligations. A builder finishes construction, gets paid, and the contract concludes. No termination notice is needed because the agreement has been fully performed.

Termination by Agreement

Parties can mutually agree to end a contract at any time. This requires genuine consensus, usually documented in writing. You might negotiate an exit because circumstances changed, business needs shifted, or the relationship broke down. Termination by agreement typically releases both parties from future obligations without liability.

Termination for Contract Breach

You can terminate when the other party commits a serious breach of contract agreement that undermines the contract’s purpose. Not every breach justifies termination. The breach must be substantial enough to deprive you of what you bargained for. Minor or technical breaches usually don’t give termination rights unless the contract specifically says otherwise.

Termination Due to Frustration

Frustration occurs when unforeseen events make performance impossible, illegal, or radically different from what parties contemplated. The contract ends automatically without fault. Examples include government prohibition, destruction of subject matter, or events that make the commercial purpose impossible.

How To Terminate A Contract Properly

Proper termination requires following the process set out in the contract or, where no process exists, complying with common law requirements. Wrongful termination exposes you to damages claims and can reverse your legal position. Here are the key steps for lawful termination:

Review the termination clause. Most commercial contracts specify notice periods, required delivery methods, and conditions that must be met before termination is valid.
Give clear written notice. Identify the termination ground you're relying on, include the effective date, and reference the specific contract clause or legal basis supporting your decision. Verbal termination or ambiguous communication creates disputes.
Get the timing right. Terminating too early, before a breach becomes sufficiently serious, can invalidate your termination. Waiting too long after discovering a breach might constitute waiver or acceptance of the breach.
Act promptly when relying on repudiation. If the other party repudiates, you must elect to accept or affirm within a reasonable time. Delay may constitute affirmation, preventing you from later terminating.
Satisfy all conditions. If the contract requires written notice delivered by registered post, email won't suffice. If the clause requires providing an opportunity to remedy the breach, you must give that opportunity.
Seek legal advice for valuable or complex contracts. Unilateral termination without proper grounds makes you the breaching party. The cost of getting termination wrong typically exceeds the cost of professional guidance.

What Are Termination Clauses?

Most commercial contracts include express termination clauses that specify when and how parties can end the agreement. These clauses override common law termination rights unless they conflict with mandatory statutory protections.

Common elements in termination clauses include:

Notice periods. Thirty, sixty, or ninety days' notice is typical for ongoing service agreements, giving the other party time to transition or cure breaches if allowed.
Termination for convenience. Many contracts allow either party to exit without cause by providing sufficient notice.
Immediate termination triggers. Serious breaches like insolvency, fraud, or safety violations often permit termination without notice.
Cure periods. The breaching party may get time to fix the problem before termination becomes valid.
Required delivery method. Specific requirements like registered post, email to designated addresses, or physical delivery to certain locations.
Conditions precedent. Steps that must be completed before termination is valid, such as providing written warnings or opportunities to remedy.

Note: Poorly drafted termination clauses create disputes. Vague language about termination grounds, missing cure periods, and unclear notice requirements make it difficult to prove valid termination. Review termination clauses carefully before entering contracts and before attempting to exercise them.

Repudiation In Contract Law

Repudiation in contract law occurs when one party shows, through words or conduct, that they will not perform their contractual obligations. It’s a form of anticipatory breach that gives the innocent party the right to terminate immediately without waiting for actual breach to occur.

Repudiatory conduct includes expressly refusing to perform, making performance impossible through your own actions, or demonstrating that you cannot or will not meet essential obligations. The conduct must be clear and unequivocal; mere complaints, requests to renegotiate, or expressing difficulty don’t constitute repudiation.

When repudiation occurs, you must elect whether to accept it and terminate or to affirm the contract and keep it alive. Accepting repudiation requires communicating your decision to the repudiating party within a reasonable time. Continuing to demand performance or taking inconsistent actions may constitute affirmation, preventing you from later relying on the repudiation as grounds for termination.

Common Contract Termination Scenarios

Contract termination arises across different commercial contexts with varying legal considerations.

Termination of Commercial and Service Contracts

Service agreements, supply contracts, and ongoing commercial arrangements often terminate when one party fails to meet service levels, deliver goods on time, or pay invoices. Many commercial contracts allow termination for convenience with sufficient notice, giving either party an exit even without breach.

Fixed-term contracts pose specific challenges. Early termination without contractual right or serious breach constitutes wrongful termination. You remain liable for payments or obligations through to the original end date unless the contract includes early exit provisions.

Breakdown of performance or trust between parties may justify termination if it constitutes repudiation or makes cooperation essential to performance impossible. However, relationship breakdown alone doesn’t create termination rights unless it manifests as actual breach or repudiation.

Termination of Employment Contract

Termination of employment contract operates differently from commercial contract termination due to statutory protections under the Fair Work Act 2009 (Cth). Employment termination requires lawful grounds and compliance with notice requirements, procedural fairness obligations, and unfair dismissal protections for eligible employees.

Employers must have a valid reason for termination: serious misconduct, redundancy, poor performance after warnings, or frustration of contract through incapacity. Summary dismissal for serious misconduct allows immediate termination without notice, but only for conduct that fundamentally breaches trust and confidence.

Breach of employment contract by an employee (unauthorised absence, competing business activity, breach of confidentiality) may justify termination, but employers must still follow procedural requirements. Unfair dismissal claims can arise even when breach occurred if termination wasn’t proportionate or procedurally fair.

Termination must comply with minimum notice periods in the National Employment Standards or the employment contract, whichever is more generous. Payment in lieu of notice is permitted unless the contract prohibits it.

Termination of Commercial Leases

Commercial lease termination involves both contract law and property law considerations. Leases typically run for fixed terms with options to renew. Early termination without a break clause or landlord consent constitutes breach, leaving you liable for rent through the lease term.

Many commercial leases include break clauses allowing termination at specified intervals if proper notice is given. These clauses usually require three to six months’ written notice and may impose conditions like premises being in good repair or no rental arrears.

Landlord breach rarely justifies tenant termination unless the breach is fundamental, such as failing to provide essential services or breaching quiet enjoyment. Tenants should seek legal advice before withholding rent or abandoning premises, as these actions can constitute tenant breach even when landlord breach occurred first.

Risks Of Getting Contract Termination Wrong

Wrongful termination occurs when you end a contract without lawful grounds or without following required procedures. The legal consequences can be significant. Common risks include:

Damages claims for losses. This includes loss of bargain damages (what the other party would have earned under the contract), costs incurred in reliance on the contract continuing, and sometimes consequential losses from business disruption.
Loss of your own claims. Terminating wrongfully can extinguish your right to claim damages for the other party's prior breaches. You transform from the innocent party to the breaching party, reversing the liability dynamic.
Court orders to continue performing. Specific performance or injunctive relief might be sought against you. Courts can order you to continue performing or to reinstate terminated relationships, particularly in employment contracts or where damages are inadequate compensation.
Reputation damage. Business communities are often tight-knit. Improper termination can impact your credibility when negotiating future contracts or hiring talent.
Contract remains in force. Invalid termination may not end the contract at all. If your termination was wrongful, the contract continues and you remain bound by its obligations. The other party can hold you to performance or sue for ongoing breaches.

When To Get Legal Advice For Contract Termination

Legal advice is strongly recommended before terminating high-value or complex contracts. The cost of getting termination wrong typically exceeds the cost of professional guidance.

Seek advice when the contract is unclear about termination grounds or procedures, when the value at stake is substantial, or when the other party disputes your right to terminate. Disputes involving breach, repudiation, or employment termination need legal assessment. What appears to be a clear breach to you might not meet the legal threshold for termination.

A lawyer can review your contract before issues arise, identify termination mechanisms available to you, and flag procedural requirements you’ll need to follow. This preparation makes termination clearer if it becomes necessary.

Summary

Contract termination requires a lawful basis: performance, agreement, breach, repudiation, or frustration.
Follow contract termination clauses and give required notice in writing.
Not every breach justifies termination. The breach must be serious or specified in the contract.
Wrongful termination reverses liability and exposes you to damages claims.
Employment termination carries additional Fair Work Act obligations.
Invalid termination may not end the contract and can extinguish your own claims.
Seek legal advice for high-value contracts or when termination grounds are disputed.

About Mark Lazarus – Director, Lazarus Legal

Admitted in both Australia and the UK, Mark brings more than two decades of global legal experience to Lazarus Legal. Having worked as a barrister, in private practice, and as in-house counsel for a major international consumer brand he combines courtroom-honed advocacy with commercial insight. Specialising in commercial law, intellectual property and dispute resolution, Mark advises startups, creative businesses, and established enterprises on transactions, trademarks, contract drafting, and litigation strategy. His cross-jurisdictional background and history as a former in-house legal director give clients confidence that their legal issues will be managed with both strategic foresight and commercial realism.