Conditions Subsequent (Automatic Termination) template clause

    Updated: 22 March 2026

    Please note: these example clauses are intended as a starting point, not as legal advice. Always adapt the text to your specific situation and have important contracts reviewed by a legal professional.

    Clause text

    Article [X] – Conditions Subsequent (Automatic Termination Events)

    1. This Agreement shall automatically terminate, without the need for any notice, cure period, or court order, upon the occurrence of any of the following events ("Termination Events"):
    (a) [Party] enters insolvency, administration, or receivership proceedings, or makes an assignment for the benefit of creditors;
    (b) [Party] ceases, or announces its intention to cease, to carry on all or a material part of its business;
    (c) a material attachment or execution is levied on the assets of [Party] and is not discharged within [e.g. 30 days];
    (d) any licence, permit, or authorisation required for [Party] to perform its obligations under this Agreement is revoked or not renewed.

    2. Each Party shall notify the other Party in writing immediately upon becoming aware that a Termination Event has occurred or is reasonably likely to occur.

    3. Upon termination under this Article:
    (a) the Parties shall settle all amounts accrued up to the date of termination on a pro-rata basis at the agreed rates;
    (b) each Party shall promptly return or destroy any Confidential Information of the other Party; and
    (c) provisions expressed to survive termination shall remain in full force and effect.

    4. Termination under this Article shall not give rise to any liability for damages between the Parties, unless the Termination Event was caused by the wilful misconduct or material breach of the Party whose position triggered the event.

    5. The Parties may waive the application of this Article in respect of a specific Termination Event, provided both Parties expressly consent to that waiver in writing.

    What does this clause mean?

    A conditions subsequent clause specifies events that automatically end the contract without requiring either party to serve formal notice or obtain a court order. When any of the listed events occurs, the agreement terminates by operation of law.

    The clause differs from a standard termination right. A termination right requires the non-defaulting party to actively exercise it, creating a risk that the party misses the window or is unaware it has opened. A condition subsequent ends the contract automatically, removing that risk.

    Paragraph 3 governs the financial settlement after automatic termination. Services already rendered are invoiced at the agreed rate; future obligations fall away. Loio (2026) found that 71% of contracts are never monitored after signing, which means automatic termination events can go undetected for extended periods, creating disputes about obligations that arose after the termination date.

    When should you use this clause?

    Use conditions subsequent in contracts where the counterparty's status, financial health, or regulatory standing is a prerequisite for the contract to function. This applies especially in regulated industries — healthcare, financial services, construction — where the other party must hold specific licences or certifications. If those fall away, the contract should end automatically.

    Conditions subsequent are also common in partnerships, outsourcing arrangements, and franchise agreements, where insolvency or cessation of business by one party makes continued performance impossible or pointless.

    Keep in mind that automatic termination events must be monitored. Weshare (2025) found that 95% of organisations lack full visibility into their contractual obligations, which includes ongoing conditions that would trigger automatic termination. Building a monitoring workflow into your contract management process helps ensure termination events are identified and acted upon promptly.

    Customize these elements

    • 1Define each Termination Event as objectively and specifically as possible — vague formulations such as "material deterioration in financial condition" invite dispute
    • 2Add a cure period for certain events (for example, an attachment must be discharged within 30 days before termination triggers) to avoid disruption from temporary issues
    • 3Align the settlement mechanism in paragraph 3 with the payment schedule elsewhere in the contract to avoid inconsistencies
    • 4Decide whether termination under this clause is truly automatic or whether a written notice is needed to confirm the date of termination
    • 5Ensure conditions subsequent are consistent with, and do not duplicate, any early termination rights elsewhere in the agreement

    Sources

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