What Is a Termination Date?
The term termination date refers to the day on which a financial contract ends. This date is the natural ending of any contract—such as a swap, rental lease, or loan agreement—which indicates that final payment is made and no further exchanges will occur. Contracts normally indicate the length of the term as well as the termination date or the date that it is expected to expire. The term may also refer to the date when an individual's employment is terminated with their employer.
- A termination date is a day on which a financial contract ends.
- The termination date is the natural ending of any contract such as a swap, rental lease, or loan agreement.
- This date indicates that the final payment is made and no further exchanges will occur.
- Termination dates are also found in employment contracts, which indicate the last day of an individual's employment with a company.
How Termination Dates Work
When two parties enter into a financial contract, they agree to certain terms and conditions. Depending on the type of contract, these provisions may include the obligations and responsibilities of each party, payment terms, due dates, interest rates, additional fees, the financial instruments in question, what happens if one party defaults on their obligations, and the contract termination date. The termination date marks the end or expiration of the contract. Also referred to as the expiration date or the closing date, this is the period when any final payment is due to close out the contract.
Be sure to read any contract thoroughly to make sure you understand the terms and conditions, as well as what's required of you when you reach the termination date.
Termination dates are found in many different types of financial contracts including:
- Loan contracts outline the responsibilities of both lenders and borrowers. A borrower agrees to repay the lender the principal balance and any additional money including interest and service charges by a certain date. Most loan contracts include a payment schedule—usually monthly—payment amounts, and the termination date. This date is the end of the contract, and usually includes the final payment amount and any additional charges required to close the contract.
- Swaps are contracts that exchange assets, liabilities, currencies, securities, equity participations, or commodities. Some are simple, such as floating-for-fixed-rate loans or Japanese yen for British pound sterling, while others are quite complex incorporating multiple currencies, interest rates, commodities, and options. Both types are flexible in terms of specifications. The easiest way to terminate the contract is to hold it to maturity.
- Futures contracts are usually standardized without any customization. Futures are derivative contracts that obligate the named parties to buy or sell an asset at a predetermined price at a certain date in the future. So the buyer must purchase and the seller must sell the asset by the expiration date. Traded futures generally settle on the third Friday of the expiration month.
- Rental agreements are written between a landlord and a tenant. The landlord outlines the terms of the lease including the property, rent payment due dates, rental policies, and the termination date of the lease. In many cases, the tenant has the option to continue their tenancy after this date or vacate the property. In either case, the tenant is required to notify their landlord of their intentions.
As mentioned above, the termination date marks the end of the contract and also signals the date by which the payment or final payment is due. The payment may include interest, fees, or other charges to satisfy the terms of the contract and close it out. Once the termination or expiration date is reached and the (final) payment is made, no further payment is required.
Termination dates are also found in employment contracts. In this case, the term refers to the date that the contract ends. At this point, an individual's employment with their employer ends. Since the employee is no longer on the payroll, they are no longer bound by the duties and responsibilities as outlined in the contract. The employee also gives up access to the workplace, equipment, and any benefits related to their employment.
In some cases, the termination date may be extended. For instance, real estate contracts often depend on buyers being able to secure financing. If the buyer is able to lock in financing with a lender, then the deal can close as per schedule. But in some cases, there may be hiccups such as a delay with title searches or there may be an outstanding lien on the property that the seller didn't know existed. In other cases, a buyer's lender may not approve the mortgage application. The seller may agree to extend the termination date or closing date with no strings attached. The other option is to cancel the contract and start over again with a new buyer.