Ask the legal team

Can I terminate a management agreement for unpaid fees?

If you’re owed several months of management fees, it’s natural to question whether you can terminate the agreement. The answer often lies in the contract itself. Most management agreements include provisions that allow termination for material breach, such as prolonged non-payment, provided you follow the correct procedures, including issuing a formal notice and allowing time to remedy the breach. Usually, the management agreement will contain a clause that you are under no obligation to use your own funds to operate the ship. Ideally you should take legal advice before making any decisions.

There are essentially two types of breach - one which allows the innocent party to claim for damages and another which allows them to terminate the contract. Knowing which is which is not always straightforward. One would think not being paid for your services would constitute a fundamental breach, allowing the unpaid party to terminate. But this is not always the case. Careful legal assessment is necessary because if you get this wrong, the innocent party may be the one to face a claim for non-performance. ITIC always recommends legal advice is obtained before making any decision.