Contract Duration: Everything You Need to Know + Best Practices (2024)

In a nutshell, the contract duration outlines the period when an agreement is effective. Without it, the party’s understanding of when the contract commitments start and end is anyone’s guess. 

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Learn about contract duration; see examples of duration clauses and best practices.

What Is Contract Duration?

Contract duration is the period through which a contract is effective. In other words, it’s the time between the contract’s effective date and contract end date, usually stipulated in the contract and agreed by all parties.

Example:

This agreement is effective from April 2023 through to April 2024.

What Is a Duration Clause?

The duration clause explains how, depending on certain circumstances, the contract’s effective period could change, i.e., early termination.

Such clauses can be found in employment contracts and are useful in establishing responsibilities outside of the contract duration.

If the contract duration isn’t set, both parties usually have the right to renew the effective term.

Example:

This agreement shall continue in effect until 30^th April 2024. It will remain in force year to year thereafter until 30 days notice to terminate this agreement is provided in writing to either party, or a request to make a contract amendment.

Different Types of Duration Clauses

There are three main duration clauses that a legally binding contract may include regarding the duration clause.

1. Termination Clause

Termination clauses, also known as severance clauses, are the most common duration clause.

They outline the specific terms and conditions by which parties can terminate the contract early and without penalty. It addresses who can cancel the contract and the acceptable reasons for cancelling.

The termination clause’s main purpose is to avoid disputes by ensuring everyone understands the contract breaches and termination.

Example:

Whenever either party concludes that the termination of this contract is in their best interest, then the contract may be ended by providing written notification to the other party (90 days) before the expiration date.

2. Effect of the Termination Clause

The effect of termination clause outlines how the rights and responsibilities of the parties are affected once the contract has been terminated.

It explains how each party’s duties are concluded and whether any new obligations are triggered once the contract is over.

Usually, ending a contract means parties go their separate ways and are no longer obligated to each other.

However, when outstanding payments are due or one party hasn’t fulfilled all of their contractual obligations, the effect of the termination clause covers how remaining responsibilities are handled.

Example:

In the event that this agreement is terminated or fails to renew upon expiry, all parties shall continue to collaborate to fulfill pending orders and fulfill payment. The termination or expiry of this contract will not affect orders confirmed by the vendor before termination or expiration.

3. Survival Clause

The survival clause, also referred to as the survival within provisions, are the clauses that define which contract obligations will outlive the contract termination.

In short, it answers the question: which part(s) of the contract will remain binding after the contract ends? The survival clause promises to continue the party’s rights beyond the contract end date.

Example:

All party’s obligations under Section A 1.11 will survive the departure or replacement of the admin agent and the obligation fulfillment or release of all other commitments.

Why Is Contract Duration Important?

Defining the contract duration is essential for all involved parties to know when their legal responsibilities are due.

Here are some reasons why it’s necessary for business.

• It defines a reasonable time frame: Both parties would have agreed on an achievable period to fulfill their contractual obligations before sealing the deal. Knowing the start and end dates, helps to avoid failure; and unrealistic return expectations that could lead to disputes.
• It offers confidence around transactions: The contract duration offers legal assurance that obligations will be fulfilled during the agreed time. It also helps to protect the business should they need to prove that their commitments were satisfied during the duration period.
• It ensures businesses charge suitable service fees: The period given to deliver an offering usually affects the chargeable amount. For example, a party may require services for one week so the business will charge a rate of one week.
• Control over contract renewals and extensions: Without clarifying dates and deadlines, a business could end up in a contract for longer than planned, with an unwanted cost attached.

Contract Duration Best Practices

Determine Who Decides the Duration of a Contract

All contract terms and conditions are determined by the parties involved, and the same is true when deciding the contract duration.

It’s a good idea to make sure your draft copy of the contract is made by a proficient member of your team and legally vetted. If you’re drafting a contract, look through our free contract templates. 

The draft should suggest a contract duration.

Once the counterparty or a business attorney reviews the contract, the parties decide whether to go ahead with the proposed contract duration or negotiate.

Set up the Terms of the Contract

Commencement or “Effective Date”

There are different ways a contract can be set up to begin:

1. On the day it’s signed.
2. On an upcoming date.
3. When a conditions precedent is fulfilled. These are contract terms that must be fulfilled before the contract becomes effective or legally enforceable. Examples of conditions precedent may include the signing of another agreement first.
4. When a contractual notice is issued by another party stating that the contract has commenced.

Term and Termination

The ways in which a contract can be terminated are boundless; here are some examples:

• On a particular date;
• When one or more contract clauses are breached or when a conditions subsequent is fulfilled. Conditions subsequent are also referred to as an exit, break, or escape clause. It ends the whole contract or some of the commitments. An example of a conditions subsequent could be a shareholder agreement that terminates when the shareholder no longer owns shares.

Renewal of the Term

The contract term can either be set to renew automatically or through notice. Alternatively, it can expire at the end of the first term.

Automatic renewal is a passive agreement between parties to renew the contract and continue the same arrangements and obligations.

Here are some scenarios where the right for contract renewal could be:

• Down to one party member to complete;
• Dependent on the current standpoint and what’s suitable for the parties;
• Automatic due to early termination by a party.

Signing the Contract

Now the contract must be executed with signatures.

This is the last stage of creating a contract. It seals the deal by activating the terms and conditions agreed by all parties. All parties have to sign the contract to make it legally binding.

The people signing the contract must have “contractual capacity.” This is the minimum mental capacity to enter into an agreement.

The following individuals are recognized by law as lacking contractual capacity:

• Minors;
• Those with psychological disabilities;
• Someone intoxicated.

A contract may be deemed invalid and unenforceable by law if signed by a person from any of these three categories.

Electronic Signatures

An electronic signature is electronic data that acts as authentication by being attached to or “logically associated” with it. eSignatures are a legal way to bind a contract in all U.S. states.

Electronic signatures are the current method to sign contracts and avoid scanning, printing, and lengthy post-deliveries between parties. It’s reliable and cost-effective, and parties can quickly add their signatures irrespective of location and time.

Many people use eSignature signing software like SignHouse to get contracts signed with zero headaches.

And if you juggle several contracts, you can track them all and keep on top of what’s happening throughout their life cycle with real-time updates.

Use SignHouse for Easier Contract Management

The contract duration is the effective date and end date when involved parties must meet their contractual duties and obligations.

It typically outlines how the contract can be terminated early without penalty, what happens once it’s been terminated, and what contractual obligations remain binding once terminated.

Signing the contract confirms the agreement to the duration and all other details. When several signatures are required and time is of the essence, SignHouse helps get your contracts and legal docs signed and executed on time.

They offer a wide range of eSigning, document creation, and document management support from the comfort of your mobile phone. They deliver the best signing experience, and you can find out for yourself with a free account.