Termination right

A termination right is a clause that lets one or both parties end an agreement without being in breach. A business purchase agreement can give a buyer, a seller or both such a right between signing and closing. The agreement decides who holds it, what triggers it and what notice it needs. Read it with the closing condition clauses, because a right to terminate may be tied to them.

How courts treat the exercise of the right

Holding the right does not end the question. In Bhasin v. Hrynew, the Supreme Court of Canada recognised an organizing principle of good faith in the common law of contract, under which parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. In C.M. Callow Inc. v. Zollinger, the Court held that no contractual right, including a termination right, can be exercised dishonestly, and that the duty of honest performance requires that parties must not lie or otherwise knowingly mislead each other about matters directly linked to performance of the contract.

Where the rules differ

Those are common-law rules. Quebec’s Civil Code works from its own provisions: article 6 requires every person to exercise civil rights in accordance with the requirements of good faith, article 7 bars exercising a right with the intent of injuring another or in an excessive and unreasonable manner, and article 1375 requires the parties to conduct themselves in good faith when the obligation arises and when it is performed or extinguished. Confirm which province’s law governs the agreement.

What to ask

• Who holds the right, and does the other side hold one too?
• What exactly triggers it, and what notice must be given?
• What happens to deposits and expenses if it is used?
• Which remedies remain, as set out in what remedies you have if the seller backs out?