In English law, the term of a contract is its duration: the amount of time that the contract will remain in force.
It’s referred to simply as “the term of the contract”.
The term of a contract can be set up in any number of ways.
Commencement or “Effective Date”
Contracts can be made to begin in different ways:
- on the date the contract is signed
- at some specified date in the future
- when an event takes place - a condition precedent - such as a grant or assignment of registered intellectual property rights, another contract is signed, or
- when another party says so, by issuing a contractual notice.
We don’t see the word “Effective Date” used by anyone other than US lawyers. It’s a marker that you’re looking at a contract prepared by a US trained lawyer.
Term and Termination
And there’s no limit to the number of ways any one contract may be made to terminate.
They can also be made to terminate in different ways:
- on a specified date
- after a specified period of time has passed (6 months, 2 years, as the case may be)
- when one or more terms (ie clauses) of the contract are breached, or
- when an event takes place.
This is known as a condition subsequent.
For example, some contracts such as shareholders agreements, terminate when a shareholder ceases to hold shares in a company.
Renewal of the Term
The term of the contract can also be made to renew either automatically or by notice.
The alternative is that the contract lapses at the end of an initial term, fixed by a period of time.
The right to renew the contract might be:
- left with one party alone to exercise unilaterally
- made subject to a continuing state of affairs, whatever may be appropriate for the parties
- automatic subject to earlier termination by a party
Example: Fixed Term / Automatic Renewals
This Agreement will commence when it is signed and continue for 2 years, and thereafter automatically renew for consecutive periods of 1 year, unless terminated in accordance with its terms.
Example: Fixed Term
The Agreement shall commence on [date | the date of this Agreement], and continue for a period of  years and thereafter terminate.
We run through some examples of contingent commencement of contracts and termination of contracts in the context of conditions precedent.