Penalties for terminating a contract
In some cases, a supplier demands payment of a fee or penalty for early termination of a contract, but several restrictions are placed on any power to impose such penalties.
SLC 24 provides that a termination fee shall not be demanded in the case of a contract of indefinite length (ie, a rolling contract, not a fixed-term contract) or where you have notified the supplier of an intention to terminate where the supplier has unilaterally changed or intends to change the contract. Other situations where a supplier may not impose a fee or penalty include where a property is sold, or you move out or where a contract of supply is for more than 12 months or is for an initial fixed-term period.
A supplier may be prepared to waive a penalty in certain circumstances at its discretion – eg, where a contract must be ended because you have gone into care. The supplier may also accept a lesser sum in full and final settlement of any claim for the penalty as a way of settling legal proceedings (see here). There may also be an argument that a supplier is under a duty to mitigate its loss (ie, take steps to reduce any loss) from early termination of the contract. The duty to mitigate is imposed at common law in a case of breach of contract. A supplier cannot just demand any sum in compensation or damages it sees fit simply because you have broken the contract in some way. The duty to mitigate losses should be referred to in correspondence to settle such a dispute.