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What does contract expiration mean?
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What Does Contract Expiration Mean
Contract expiration, or expiration of a contract, refers to the ending of a contract according to its terms.
There are many ways a contract can expire.
Typically, a contract can end by a certain date, the full performance of the obligations, or the occurrence of an event.
Keep reading as I will cover each of these three common ways a contract can expire.
Contract End Date
One way a contract can end is when it provides for a certain end date.
The contract starts on the effective date and will end on the contract expiration date.
When the contract expiration date arrives, the contract will automatically end.
For example, if you have rented equipment for thirty days, the rental agreement will end at the expiration of the thirtieth day.
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Full Contract Performance
Another way the contract can expire is if the parties have executed their duties and the objective of the contract has been achieved.
For example, if you hired someone to paint your house, the moment the paint job is completed and you paid for the services, the contract ends.
In this case, the purpose of the contract has been achieved and so the contract comes to a natural end.
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Occurrence of an Event
A contract can expire based on the occurrence of an event.
For example, you can have a rental agreement with an option to buy.
If the borrower exercises his or her option to buy, the rental agreement will expire.
Similarly, the event can be linked to an event of default, breach of covenants, or insolvency.
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Contract Expiration Example
Let’s look at an example of different scenarios when a contract can expire.
Example 1
A company signs a procurement contract with another company to deliver materials and parts for a one-year term.
In this case, the contract will automatically expire at the end of the term provided for in the contract.
Example 2
A company signs a shipment contract with another company to have 1,000 units of a product delivered.
Once the 1,000 units are delivered, the contract automatically expires.
Example 3
An investor signs an option agreement to purchase a real estate property where it is stipulated that the option agreement will end once the property owner sells the property.
Contract Expiration vs Termination
There are many who get confused between the terms “contract expiration” and “contract termination”.
Do you know what is the difference between contract expiration and termination?
Although there may not be a unanimous answer on this topic, there’s a clear majority of attorneys (just like myself) who believe that the phrases contract expiration and contract termination should be used to mean different things.
Contract expiration generally refers to the instance when a contract naturally comes to an end according to its own terms.
For example, a contract reaching its term (or end date) will expire.
On the other hand, contract termination is a phrase that should be used to refer to a more “premature” end of a contract.
For example, if a contracting party exercises the right to terminate for convenience before the contract’s end date, that would be a termination.
Alternatively, if a party terminates the contract for cause due to the other party’s breach of contract, that would be another instance when the contract is terminated “prematurely”.
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Takeaways
So there you have it folks!
What is the expiration of contract?
In a nutshell, contract expiration refers to an instance when the contract naturally comes to an end in compliance with its own terms.
For example, if you sign a contract to have your basement renovated, the moment the contractor fully renovates your basement as per the terms of the contract and you pay for the services, the contract will naturally come to an end.
The contract can naturally come to an end when the parties have agreed on a specific expiration date or with the occurrence of an event.
It’s important that you carefully read the terms of the contract to better understand the circumstances when it can expire.
In some cases, you may want the contract to expire and in other cases, you may want to ensure that the contract continues.
Now that you are better equipped on the topic, good luck managing your contract!
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