Netherlands: Termination of a Continuing Performance Agreement – What Is Allowed and What Is Not?

In practice, it is common for parties to begin with a one-year contract, extend it with little thought, and ultimately work together for many years. In such cases, a continuing performance agreement arises: an agreement under which the parties commit to the continuous or recurring provision of services over an extended period. This can be for a predetermined duration, but often it is for an indefinite period.

Because these collaborations are long-term and often intensive, the termination of a continuing performance agreement can give rise to difficult discussions. When may a party terminate such an agreement, and under what conditions?

The Position in Case Law

Dutch law does not contain specific statutory provisions governing the termination of continuing performance agreements. Instead, the framework has been developed through case law, which distinguishes between agreements for a definite and indefinite term.

In addition, the principle of reasonableness and fairness (redelijkheid en billijkheid) plays a central role in Dutch contract law. This principle requires parties to comply not only with the literal terms of their contract but also with what is fair and reasonable in the circumstances. Courts may therefore supplement or limit contractual provisions if strict application would lead to an unreasonable outcome.

1. Continuing Performance Agreement for a Fixed Term

An agreement concluded for a fixed period cannot be terminated prematurely, unless such termination is expressly permitted under the agreement.

2. Continuing Performance Agreement for an Indefinite Term

Where an agreement has no end date, the starting point is that it can be terminated. Even if the agreement does not include a termination clause, termination is in principle possible. However, reasonableness and fairness may require that:

• there is a compelling ground for termination;

• a reasonable notice period is observed; and/or

• termination is accompanied by an offer of compensation.

In other words, the obligations of the terminating party are increasingly determined by what is reasonable in the circumstances.

A Recent Example: DPD / Get Moving

A recent judgment illustrates how far the principle of reasonableness can extend.

DPD and Get Moving had an agreement that was renewed annually, subject to a notice period of one month. After ten years of cooperation, DPD terminated the agreement and complied with the contractual one-month notice period.

However, the court held that, given the length and intensity of the cooperation, a one-month notice period was no longer reasonable. At the same time, a judge cannot simply replace a contractually agreed notice period with a longer one – courts do not rewrite contracts.

The solution?

The court ruled that in such circumstances, the terminating party is obliged to offer compensation upon termination. In other words, reasonableness and fairness may require that terminating a continuing performance agreement is accompanied by an offer of damages.

How Is the Amount of Compensation Determined?

There is no fixed statutory formula. Courts assess all relevant circumstances. Costs incurred by the terminated party specifically for performing the agreement, which can no longer be recovered because of the termination, are in principle eligible for reimbursement.

The parties may agree in advance on the amount of any termination fee. However, such provisions may still be set aside if they are unacceptable according to standards of reasonableness and fairness.

Conclusion

Terminating a continuing performance agreement requires careful handling. Beyond the contractual wording, reasonableness and fairness increasingly influence what is required. Particularly in long-term collaborations, termination may necessitate compensation and/or the observance of a longer notice period.

If you are considering entering into or terminating a continuing performance agreement, seek timely advice. We are happy to assist you in drafting reasonable contractual arrangements and developing a careful strategy for termination.

By Hocker, Netherlands, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact netherlands@transatlanticlaw.com

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