Methods of Contract Termination
Why is Proper Contract Termination Important?
Terminating a contract incorrectly can result in:
Financial penalties for breaching contract terms.
Legal disputes between the condominium corporation and service providers.
Disruptions in essential services, such as maintenance or condominium management.
To prevent issues, contracts should only be terminated using legally valid methods.
Common Methods of Termination
1. Mutual Agreement
The simplest and least contentious method.
Both parties agree in writing to end the contract before its scheduled expiration.
The termination agreement should specify any financial settlements (e.g., final payments, outstanding obligations).
Example: A condominium corporation and a janitorial service provider mutually agree to terminate their contract after the company fails to meet performance expectations, and the corporation finds an alternative provider.
2. Fulfillment of Contractual Obligations
A contract ends naturally when all terms have been satisfied.
No additional termination process is needed, but documentation should confirm completion of obligations.
Example: A roofing contractor completes a scheduled roof replacement, meeting all contractual requirements. The contract ends automatically.
3. Termination Under Statutory Provisions
In some cases, Alberta’s Condominium Property Act provides a legal right to terminate certain contracts, even if the contract does not include termination clauses.
Statutory Termination Rights:
1. Termination Within 12 Months of Board Election
If a developer-appointed board signed contracts before an independent board was elected, the new board can terminate agreements (except management agreements) within 12 months of taking office.
This applies only if 50% or more of the total unit factors are owned by persons at arm’s length from the developer.
Example: A newly elected condominium board reviews service contracts signed by the developer and decides to terminate a landscaping agreement within the first 12 months.
2. Termination of a Developer’s Management Agreement
A developer-signed management agreement cannot be terminated without cause until at least one year has passed since the agreement was signed.
However, after one year, the corporation may terminate the agreement by providing 60 days' written notice (or a shorter period if specified in the contract).
Example: A condominium corporation wants to switch condominium management companies after transitioning away from developer control. Since one year has passed, they issue a 60-day notice to terminate the agreement.
Legal Processes for Contract Termination
Each Termination Method Has Specific Legal Requirements
1. Mutual Agreement
Requires a written termination agreement signed by both parties.
Should detail any final financial settlements or remaining obligations.
Example: A condominium corporation and its cleaning company mutually agree to terminate their contract early due to poor service. They sign a termination agreement confirming the last date of service and final payment terms.
2. Fulfillment of Obligations
Even if no formal termination notice is needed, documentation should confirm:
All services were delivered as required.
Any final payments have been made.
Example: After a contractor completes exterior renovations, the condominium manager keeps a signed project completion report and proof of payment for record-keeping.
3. Statutory Termination
The corporation must provide written notice to the other party at least 60 days before termination, unless a shorter period is specified in the contract.
The termination notice should:
Reference the applicable statutory right under the Condominium Property Act.
Specify the exact termination date.
Be signed by the authorized representatives of the condominium corporation.
Example: A condominium corporation sends a letter to their developer-appointed condominium management company, stating:
"In accordance with Section [X] of the Condominium Property Act, we are providing 60 days' written notice to terminate our management agreement, effective [date]."
Practical Steps for Executing a Termination
Step 1: Evaluate the Contract for Termination Clauses
Check if the contract has a termination clause that specifies:
Required notice periods.
Any penalties for early termination.
Obligations for final service delivery or payments.
Example: A condominium board wants to terminate a snow removal contract early. They check the contract and discover a penalty fee for early termination.
Step 2: Document the Termination Process
Keep detailed records of:
All communications related to the termination.
Copies of termination notices.
Proof that the termination notice was sent and received.
Example: A condominium manager sends a termination notice via registered mail and email to ensure there is a verifiable record of receipt.
Step 3: Seek Legal Counsel if Needed
If contractual disputes arise, consult a legal professional to ensure compliance with Alberta condominium law.
Legal review is recommended for:
Complex termination situations involving financial penalties.
Disputes over the validity of the termination notice.
Example: A contractor refuses to acknowledge a legally valid termination notice. The condominium board consults a lawyer to enforce termination.
Contract Termination Case Study
Scenario: A condominium corporation is dissatisfied with their condominium management company and wants to terminate their contract. However, the contract was signed by the developer, and only eight months have passed since the agreement was entered into.
Your Task:
Determine if the corporation can legally terminate the contract.
Identify what notice period is required.
Draft a sample termination notice based on the Condominium Property Act provisions.
