Termination of a continuing performance agreement

In principle, it is possible to terminate continuing performance agreements, even if the parties have made no arrangements to that end and the law does not provide for a termination arrangement. Sometimes the circumstances do require that there must also be substantial grounds for giving notice, possibly in combination with a notice period and the payment of financial compensation.

Continuing performance agreements are characterized by having effect for a longer period of time. A continuing performance agreement does not require a one-off performance, but rather successive or continuous performance. In most continuing performance agreements parties have provided for a termination arrangement. If the parties have not agreed on a termination arrangement, a statutory arrangement may apply, as applies to rental or agency agreements. In addition, continuing performance agreements can be concluded for a fixed period. In principle, these agreements end on the agreed date. But what if the agreement does not include a termination regulation and there cannot be fallen back on statutory arrangements either?

Whether a continuing performance agreement without termination arrangement can be terminated depends on whether termination is reasonable in the given situation. Various factors play a role in this.

Termination without termination arrangement

In the majority of cases where both the law and the agreement do not provide for a termination arrangement, termination is possible. However, the greater the interest of the terminated party in the continuation of the agreement, the more should be offered by the terminating party.

Compensation for termination

What the terminating party must offer depends on the circumstance of the case. The circumstances may require that

• There must be a substantial ground to terminate the agreement and/or
• The terminating party must observe a certain notice period and/or
• A financial compensation or damages must be paid.

Substantial ground

Though termination is in principle possible (whether or not with notice period and/or financial compensation), sometimes the circumstances may require that there must be a substantial ground. This may be the case if the terminated party suffers financial loss, for example because it is not possible to recoup specific or recently made investments.

Substantial grounds for the terminating party may include: policy changes, non-performance of the terminated party or external circumstances such as, for instance, a trade ban. In these cases the continuing performance agreement can be terminated, even if this sometimes has far-reaching negative consequences for the terminated party. For example, breach of contract, such as the sale of competing products in contradiction to the agreement, may even be a reason to terminate the contract without notice and compensation.

Notice period

When one party has invested a lot in the contractual relationship, it can be unreasonable for the other party to suddenly terminate the agreement. The duration of the agreement plays a role in the determination of the notice period. A long trade relationship cannot be terminated just like that, but can also mean that the terminated party has had sufficient time to recoup its investments.

A notice period can also be reasonable if there is a dependency relationship in which the terminating party is a large or the only trading partner of the other party. A notice period gives the other party time to find a new source of income. If, on the other hand, there is no dependency relationship, this may be an indication that no (long) notice period is required.

Financial compensation or damages

The payment of financial compensation or damages usually occurs if the contract has been terminated in a valid manner, but for example the notice period does not sufficiently compensate the interests of the terminated party. As it is in principle possible to terminate the continuing performance agreement, in the case of an already terminated agreement compensation will be chosen rather than an extension of the notice period.

Our advice

• Take into account the notice period or have an investigation carried out whether that is necessary in your case, for instance, if you have a substantial ground to terminate the agreement with immediate effect.
• Determine what your financial interests are if you are dealing with a terminating party.

More information?

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