Material Breach

Definition of Material Breach

A material breach is a significant failure to perform contractual obligations that goes to the heart of the agreement and justifies termination by the non-breaching party. Unlike minor or technical breaches, a material breach fundamentally undermines the contract’s purpose or value.

Whether a breach is “material” depends on factors such as the extent of harm caused, the importance of the breached term, and the possibility of remedy.

Why Material Breach Matters

Identifying a material breach gives the non-breaching party the right to terminate the contract and seek damages. Recognizing the difference between material and minor breaches is critical for legal and operational decisions.

Properly defined breach clauses:

• Clarify triggers for termination and compensation.

• Prevent disputes over interpretation.

• Support enforceability during litigation or arbitration.

• Strengthen risk management during contract performance.

Best Practices for Material Breach Clauses

1. Define what constitutes a “material breach” in the contract.

2. Allow a cure period for remediation where appropriate.

3. Document communications related to the breach.

4. Use proportional remedies (termination or damages).

5. Align breach definitions with termination and indemnification clauses.

Example of Material Breach in Practice

A supplier fails to deliver a critical component on time, halting production for weeks. The buyer declares a material breach, terminates the contract, and seeks damages for lost revenue.