Legal Definitions - clause potestative

A clause potestative (pronounced "poh-tes-tay-tiv") is a specific provision within a contract that grants one of the parties the exclusive right to cancel or terminate the agreement. This means one party holds the unilateral power to end the contractual relationship, often based on their own discretion or the occurrence of a particular event, without a reciprocal right for the other party under the same terms.

Here are some examples to illustrate this concept:

• Example 1: Software Development Contract

  A small business hires a software development firm to create a custom application. The contract includes a provision stating that the small business client can terminate the project at any stage with 30 days' written notice, even if the development is proceeding as planned, simply by paying for the work completed up to that point. The software development firm, however, does not have the same unilateral right to terminate the project without a breach of contract by the client.

  This illustrates a clause potestative because the client has reserved the exclusive right to annul the contract at their discretion, without needing a specific fault from the other party, while the software firm does not possess this same power.

• Example 2: Commercial Lease Agreement

  A commercial lease for a retail store contains a clause allowing the tenant to terminate the lease early, after the first year, if their gross sales targets are not met, provided they give six months' notice. The landlord, conversely, does not have a similar right to terminate the lease early based on their own business performance or changing property needs.

  Here, the tenant holds the unilateral power to end the lease based on a condition they control (their sales performance), demonstrating the reserved right to annul the agreement that is characteristic of a clause potestative.

• Example 3: Investment Agreement

  An angel investor provides seed funding to a startup. Their investment agreement includes a clause that allows the investor to withdraw their investment and dissolve their partnership if the startup fails to secure a second round of funding within 18 months. The startup, conversely, cannot unilaterally force the investor to exit the agreement or withdraw their capital under similar discretionary conditions.

  This scenario shows a clause potestative because the investor has reserved the right to annul their part of the agreement (withdraw investment, dissolve partnership) based on a specific future event, highlighting their unilateral power to terminate the contractual relationship.