What should enterprises pay attention to regarding unilateral contract termination clauses?

To lawfully unilaterally terminate a civil or commercial contract and avoid compensation risks, enterprises must ensure three key elements: (1) Basis for termination: Clearly specify particular acts of breach or force majeure events that give rise to the right of termination, rather than using vague or general wording; (2) Notice obligation: Establish a written prior notice period and clearly determine the point in time when the contract officially ceases to be effective, in order to avoid operational disputes; (3) Handling of consequences: Transparently agree on the method for returning premises/assets, settlement of outstanding payments, penalties for breach, and liability for damages. Carefully drafting these clauses enables enterprises to proactively control legal risks and protect cash flow when disruptions arise from the counterparty.

1. What is the Legal basis for unilateral contract termination

With the growing use of AI and reference materials from social media platforms, some enterprises currently opt for generic contract templates or rely on AI assistance. However, these sources typically reflect only a general and high-level approach, without taking into account each party’s specific circumstances or the nature of the transaction. As a result, clauses on breaches and cases entitling unilateral termination may appear reasonable and well-worded at first glance, yet prove impractical when applied in reality.

The 2015 Civil Code currently provides for unilateral termination as follows:

“Article 428. Unilateral termination of performance of contracts

1. A party has the right to terminate unilaterally the performance of a contract without any compensation for damage when a party violates its obligations seriously if so agreed by the parties or so provided by law.
2. A party terminating unilaterally the performance of a contract must notify the other party immediately of its termination of the contract and must compensate if the failure to notify causes damage.
3. Where the performance of a contract is terminated unilaterally, it shall terminate from the time when the other party is notified of the termination. In such case, the parties are not required to continue to perform their obligations, except for agreement on fines for violations, compensation for damage and settlement of disputes. A party which has already performed its obligation may demand the other party to make payment for the performed obligation.
4. The aggrieved party shall receive a compensation for damage caused by the improper performance of obligation by the violating party.
5. If a contract is terminated unilaterally without any basis prescribed in Clause 1 of this Article, the party terminating unilaterally the performance of the contract shall be deemed to be the violating party and must perform civil liability as prescribed in this Code and relevant laws.”

It can be seen that the law only provides a general framework and leaves room for the parties to agree, provided such agreement does not violate the law. Accordingly, contracts should clearly enumerate specific situations and breaches that entitle a party to unilaterally terminate. If the parties merely use expressions such as “serious breach,” “material breach,” “significant impact,” or “core obligations,” issues arise as to how these concepts are to be interpreted: What constitutes a serious breach? How is seriousness assessed? What obligations are deemed “core”? If these terms are not clearly defined in a manner consistent with the transaction context, disputes are likely to arise due to differing interpretations, ultimately forcing the parties to seek resolution through courts or arbitration.

2. How should a unilateral termination notice be given to be considered proper?

“Proper” here means compliant with both legal regulations and the parties’ agreement. Under the Civil Code, “the party unilaterally terminating the contract must immediately notify the other party; otherwise, if damage occurs, compensation is required.” Article 520 of the Civil Code further provides: “1. Where the continued provision of services does not benefit the client, the client has the right to terminate unilaterally the performance of the contract but must provide reasonable prior notice to the service provider, in which case the client must pay a fee according to the portion of services already provided and [must] compensate for damage.” Although each type of contract may contain more specific provisions, the general principle remains that prior notice must be given within a reasonable period.

If a contract merely states that one party may unilaterally terminate upon the other party’s breach after giving prior notice within a “reasonable period,” the question arises: what constitutes a reasonable notice period? In practice, many disputes arise not because unilateral termination itself was impermissible, but because the parties disagree on whether the notice period was appropriate, thereby triggering penalties and compensation claims. A notable example is Precedent No. 21/2018/AL on fault and damages in unilateral termination of an asset lease contract, summarized as follows:

“[1] [1] On April 10, 2006, Company D leased two steel-hulled tugboats to Joint Stock Company C for towing vessels in and out of Port 10-10 and Khe Day Port, Quang Ninh, under Economic Contract No. 1141/HĐ-CNQN, effective until December 31, 2006. The contract did not stipulate termination conditions. However, on August 17, 2006, Joint Stock Company C issued Official Letter No. 2349/INDEVCO notifying termination effective August 20, 2006, citing ‘no longer having demand to lease the two tugboats.’ The notice period was excessively short, causing damage to Company D as it was unable to secure a replacement contract. Fault lay with Joint Stock Company C, which was therefore liable for damages. The actual damage to be considered was the rental fee for the remaining contract term.”

3. What sanctions apply when unilateral termination is not in accordance with the Agreement?

In practice, there are cases where a party believes it has no choice but to unilaterally terminate due to impracticability of performance, or where a party accepts termination because it has itself failed to perform properly. In such cases, regardless of whether the enterprise is the terminating party or the breaching party, anticipating the legal consequences is crucial in order to choose an appropriate course of action and minimize losses. Accordingly, parties should consider clearly stipulating sanctions in the contract, such as late payment interest, penalties for breach, and compensation for damages. These sanction clauses must be clear, specific, and detailed, rather than vaguely drafted in a way that renders them unenforceable in practice. When disputes arise, enterprises should also take into account the financial capacity of the breaching party when considering the application of penalties, compensation, or demands for continued performance, in order to make informed and practical decisions.

Enterprises should abandon the habit of relying on generic contract templates or superficial AI assistance, which may expose them to legal traps created by vague terminology. To protect cash flow and business position, unilateral termination clauses must be tailored based on three core pillars: concretely defining actual breaches as grounds for termination, and establishing clear notice periods. In short, a well-drafted contract is not merely a “shield” against prolonged disputes—it is also an effective tool for risk management.

• Advisory email info@cdlaf.vn

• Hotline: (+84) 909 668 216

Time of writing: 26/01/2026

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer  at  info@cdlaf.vn

You can refer for more information:

• Enterprise risk management: key issues enterprises must pay attention to (Part 1)
• New Standards for “Consent” and the Burden of Proof
• Artificial Intelligence (AI) and Personal Data Rights
• Internal control responsibilities and data sharing within organizations
• Personal data protection Personnel under Decree 356: In-house Implementation or Hiring Professional External Services?