Introduction

We’ve all been there—whether it’s an impulse purchase, a hasty decision, or something that seemed like a great idea at the time, you’ve signed a contract and now you’re rethinking the whole deal. But when it comes to business contracts, it’s not as simple as returning a pair of shoes. Business agreements come with serious responsibilities and consequences. So, what do you do when you’ve inked a deal and want to back out?

The good news? You're not always stuck. There are steps you can take to mitigate the situation and maybe even get out of the contract without burning bridges or facing hefty penalties. Let’s dive in.

Read: The top 5 contracts every small to medium-sized businesses should have

Understanding the business contract you’ve signed

First thing’s first: dust off that contract and actually read it. I know, it’s not exactly page-turning stuff, but you’ve got to understand what you’re dealing with. Contracts can be sneaky—they’re full of terms, clauses, and fine print that lay out your responsibilities.

Start by identifying the key clauses. These are the parts of the contract that can give you insight into whether you can back out and how much it may cost you.

Here are some areas to focus on.

Termination rights

The first thing you need to do is locate the termination rights section. This part of the contract is like your emergency exit plan. It spells out how either party can end the contract, and under what conditions.

Business contracts allow for different types of termination.

The first type is termination for convenience. This is the contract equivalent of "it's not you, it’s me." It allows one party to end the contract simply because they want to—no hard feelings, no drama. But here’s the catch: you’ll rarely see this in high-stakes commercial deals, as most companies don’t like the idea of their business partners bailing without reason. If you do have this clause, consider yourself lucky—it’s your get-out-of-jail-free card.

The second type is termination for cause. This is more common and usually kicks in if one party seriously messes up. Think failure to deliver services, missing critical deadlines, or any breach that affects the heart of the agreement. Essentially, the contract allows you to break up with the other party if they’re not holding up their end of the deal—but you might have to prove it. There’s usually a process involved, like sending a formal notice, giving the other party a chance to fix the problem, and then terminating if they still can’t get their act together. Always check how your contract addresses this type of termination and if there’s any specific steps that have to be followed.

Read this section carefully. If you’re hoping to terminate for a minor issue, like being tired of the partnership, you might be out of luck. However, if the other party is failing spectacularly at their responsibilities, this might be your best option.

Read: How can I get out of a business contract?

Conditions precedents

Lastly, let’s chat about conditions precedent. These are little gems that could save you from having to honor the contract in the first place—because the contract only becomes binding if certain conditions are met. It’s like a checklist the contract has to go through before it becomes legally enforceable.

For example, a condition precedent might be something like getting regulatory approval, securing financing by a certain date or reaching specific milestones, like a product launch or project completion.

If any of these conditions aren’t met, the contract might not go into full effect. This could give you an out before you’re fully locked in.

Say you’ve signed a deal to distribute a product, but the manufacturer hasn’t delivered the product by the agreed-upon date. If that’s a condition precedent in the contract, you might be able to walk away scot-free since the contract never officially "started."

This isn’t a magic solution, though—you need to review the contract carefully and make sure the unmet condition is clearly stated as a dealbreaker. But if you do find a valid condition precedent that wasn’t fulfilled, it could be your loophole out of the deal without facing breach penalties.

Force majeure or material adverse change (MAC) clauses

Sometimes, contracts come with get-out-of-jail-free cards disguised as force majeure or material adverse change (MAC) clauses. These clauses apply when something big and unexpected happens that’s completely outside your control—think natural disasters, pandemics, or sudden economic crashes.

A force majeure clause might allow you to pause or even terminate the contract if these events make it impossible to perform your obligations. MAC clauses can also offer a way out if there’s been a drastic, unforeseen change that affects the contract’s foundation, like a massive supply chain disruption or sudden regulatory change.

If either of these clauses is in your contract and the conditions are met, you might have a way to walk away without taking a hit.

Negotiating with the other party

Let’s be real—contracts are relationships on paper. And just like in any relationship, sometimes things don’t go as planned. If you’ve changed your mind, your first move should be to reach out to the other party. Before you go all-in on legal loopholes, try a conversation.

Here’s the thing: businesses want to maintain good relationships, and if you’re upfront and professional, they might be willing to renegotiate or cancel the contract. Maybe they’re not thrilled with the partnership either or they have more flexibility than you expect.

Here’s how to approach the conversation:

• Be transparent about why you’re reconsidering the contract.

• Offer solutions, like modifying the terms, delaying the start date, or scaling back the scope of work.

• Stay professional—this is business, not personal. A respectful approach goes a long way.

If you can both agree to walk away amicably or adjust the terms, document everything in writing. That way, everyone knows exactly what’s happening, and you avoid any “he said, she said” scenarios down the road.

Read: What you should do if a client refuses to sign your contract

Breach of contract: Weighing the risks

Now, let’s talk about what happens if you walk away without playing by the rules: penalties for breach. This is the part of the contract where the consequences of not following through are laid out. Spoiler: It’s rarely good news, especially in commercial agreements where the stakes (and dollar amounts) are higher.

Here’s how it usually goes.

Damages

If you ghost and breach the contract, the other party is likely entitled to compensation. This could mean paying them for losses caused by your breach—like lost profits, project delays, or extra costs they incurred because you didn’t hold up your end of the deal. Depending on the severity, the damages can range from “that stings” to “I’m going to need a loan.”

Liquidated damages

In some cases, contracts include a pre-agreed amount that one party will owe to the other if they breach the agreement. It’s basically a fine for backing out. The good news? You know exactly how much you’ll owe. The bad news? You’ll probably owe it, whether the breach caused significant harm or not. Think of it like paying a parking ticket—you may not agree with it, but you’re still on the hook.

Termination fees

Sometimes, there’s a specific fee tied to ending the contract early. This fee compensates the other party for the inconvenience of you walking away. Again, not a great feeling, but it’s better to pay a termination fee than face an all-out lawsuit.

Bottom line: If you’re thinking of backing out without a legitimate reason (or without following the termination process), you could end up paying a hefty price. So, read your contract and weigh your options carefully.

Read: What is a business contract?

Alternatives to exiting a contract

If outright walking away from a contract isn’t possible (or comes with too many consequences), there are other options that might ease the situation.

One alternative is to subcontract part of the work to someone else. This means you hire another party to fulfill certain responsibilities while you remain responsible for the overall contract. This approach works well if the tasks you’re struggling with are specific and someone else in your network has the expertise to handle them. Subcontracting allows you to meet your responsibilities without taking on the full burden yourself.

Another option is novating your contract. Novation is a legal process where one party in a contract is replaced by another, with the consent of all involved parties. In other words, the new party steps into the shoes of the original one, taking full responsibility for fulfilling the terms of the contract. All three parties—the original party, the new party, and the remaining contract party—must agree to the novation for it to be valid. It's an effective way to exit a contract cleanly while ensuring the other party continues to receive what they were promised.

When legal advice is essential

At this point, if you’re still stuck, it’s time to call in the big guns—your lawyer. Contracts can be tricky beasts, and you don’t want to make a misstep that costs you down the line. A lawyer can help you figure out whether you have grounds to terminate the contract legally, how to negotiate your way out without getting hit with penalties, and what to expect if it turns into a dispute.

If you’re in doubt, get legal help before making any big moves. A lawyer’s guidance can save you from making an expensive mistake.

Conclusion

Signing a business contract and changing your mind doesn’t have to spell disaster. By understanding the contract, exploring exit clauses, negotiating with the other party, and seeking legal advice when necessary, you can often find a way out without taking too much of a hit. Whether it's leveraging force majeure, subcontracting, or renegotiating, there are usually options on the table that are less painful than simply walking away.

So, take a deep breath. You’ve got options. With a little strategy and some good communication, you can navigate your way out of a contract and move forward—smarter and hopefully with less drama.

Read: The importance of having a force majeure clause in your contracts

How Cobrief can help with contract review

Reading your business contracts can feel overwhelming as an owner-manager of a small to medium-sized business. That’s where Cobrief comes in. Cobrief helps business owners and operators review their business-to-business contracts for legal risks.

Upload your contract to Cobrief's AI contract review software, click review and you’ll get a list of all the risks, in plain English. This helps you decide whether to sign, negotiate or reject the terms of your contract, or hire a lawyer. Think of it as a heat map for your contracts.

Get started here.