A long-term agreement is a contract for an indefinite period in which parties provide each other with obligations over an extended period — think of distribution, suppliers, services, or lease. Specific rules apply to termination. In our practice, we see Dutch entrepreneurs who give notice too late and thereby fall into breach of contract themselves. The Supreme Court has developed strict criteria for this, particularly in cases of long-term dependence on the counterparty.
What is the legal problem?
In long-term agreements, dependence arises: investments, personnel, inventory, customers. A sudden termination causes damage. The law therefore requires reasonableness, often a notice period, and sometimes a substantial ground. Internationally, the requirements vary widely. In some countries, mandatory law applies, while in others, freedom of contract is the guiding principle. Without a strategy, termination often escalates into a dispute involving hundreds of thousands of euros.
What does the law say?
Under Dutch law, termination of a long-term agreement must be effected with a reasonable notice period. In Latour/De Bruijn (HR 21 June 1991, NJ 1991/742) and subsequent case law (HR Goldnerstein/Mr. Mante, 28 October 2011, NJ 2012/685), the Supreme Court clarified that a substantial ground may be required in cases of long-term dependency. For commercial agency, Article 7:437 of the Dutch Civil Code applies, with mandatory time limits.
In Germany, Section 89 of the Commercial Code applies to commercial agents. In Belgium, the 1961 Act (Article 2) offers mandatory protection for exclusive distributors. In France, Article L442-1 of the French Commercial Code governs the sudden termination of long-standing commercial relationships.
What risks do companies face?
You risk compensation for lost profits, investments, and goodwill. Under mandatory law, statutory compensation, such as compensation for commercial agents (Article 7:442 of the Dutch Civil Code), may be mandatory. Foreign courts may prescribe longer notice periods than those contractually agreed. A rapid termination without substantiation often leads to litigation and reputational damage in the market.
Practical example from our practice
We advised a Dutch supplier who wanted to terminate a Belgian distributor after 15 years of cooperation with a three-month notice period. Under the Belgian Law of 1961, the judge deemed this insufficient; for a 15-year relationship, 12 to 18 months is customary. We renegotiated the termination: a nine-month term with phased reduction, voluntary goodwill compensation of 220,000 euros, and a transition period for customers. Legal proceedings were avoided, and total costs were 280,000 euros lower than the estimated scenario after the claim.
What can you do?
Document performance issues or strategic reasons prior to termination. Determine a reasonable term based on the duration of the relationship and mutual dependence (often 6 to 18 months). Communicate in writing and with justification. Research mandatory law in the counterparty's country. Consider a buyout arrangement or phasing. See also our article on Disputes with distributors.