Terminating Dutch agency contracts (3): How best to terminate?Thursday, 11 August 2016
Commercial agency is prone to conflict over termination fees. In the Netherlands, statute strictly regulates the rights and entitlements of the agent in the course of termination. How best to terminate agency contracts under Dutch law, in order to avoid liability or payment obligations?
Parties may, in principle, determine the content of their commercial agency agreements. Likewise, the agreement may be amended, if all parties agree. Accordingly, parties may terminate their commercial agency contract by mutual consent (with or without a termination fee). It is highly advisable to have a Dutch lawyer draft a termination (settlement) agreement, in order to avoid future claims being brought, in case the other party starts to regret termination.
Many commercial agency agreements are concluded for a specified period of time. In case of a temporary contract, it expires in principle after the term has expired. However, under Dutch law, different rules apply to commercial agency: if both parties continue the agency after the term has expired, they automatically conclude an agency contract for an indefinite period, on the same terms as before.
If you want to terminate the contract upon expiry of the term, make sure you do not continue business afterwards. Our law firm advises clients to confirm the other party in advance in writing that the agency will indeed end on the agreed upon date. This offers clarity and may prevent problems later on.
A commercial agency contract concluded for a specified period of time cannot in principle be terminated before the expiry date, unless expressly agreed upon.
A commercial agency contract concluded for an indefinite period of time can in principle be annulled by giving notice. This should be given against the last day of the calendar month and should respect the contractual notice period or, absent such agreement, the statutory notice period (Article 7:437 (1) BW).
If parties agreed a contractual notice period, please check that it respects the statutory requirements. The notice period may not be less than 1 month in the 1st year of the contract, 2 months in the 2nd year and 3 months in the following years. If the parties contractually agree to a longer notice period, it may not be shorter for the principal than for its agent (Article 7:437 (2) BW).
If no contractual notice period was agreed upon, in the Netherlands, the commercial agency agreement is subject to the statutary notice period. Under Dutch law, the statutory notice period is 4 months. 1 month is added after a 3 year period. 2 months after a 6 year period (Article 7:437 (1) BW).
Be careful when giving notice. The party who terminates an commercial agency contract in breach of the relevant notice period or other formalities, absent the other party’s consent, in principle becomes liable for damages (unless the agreement was terminated for an urgent reason, immediately communicated to the other party) (Article 7:439 (1) BW).
One may be able to have a commercial agency contract dissolved based on non-performance, or because of unforeseen circumstances (Article 6:258 io. 6:260 and 6:265 BW).
It may also be possible to request a Dutch District Court to dissolve the commercial agency contract on the basis of: (1) circumstances giving rise to ‘compelling reasons’ to terminate the contract, or (2) a change in circumstances that necessitates that the commercial agency contract is terminated immediately or after a very short time (Article 7:440 (1) BW).
In case of ‘compelling reasons’, the terminating party must prove circumstances of such a nature that it cannot reasonably be expected anymore from the terminating party to continue the co-operation, even temporarily (Article 7:439(2) BW). Moreover, if the party being terminated acted in gross violation of its obligations under the commercial agency agreement, it may also become liable for damages (Article 7:440(2)).
In case of ‘a change in circumstances’, one must prove objective or subjective circumstances that justify termination. For example: continued non-performance, the need for downsizing, incompatibilité d’humeurs, or a structural downturn in business. The District Court may, in such a case, grant compensation to the party being terminated (Article 7:440(3) BW).
A commercial agency contract is terminated by the death of the agent (Article 7:438 (1) BW).
Conversely, however, a commercial agency contract does not end (immediately) by the death of the principal. In that case, both the heirs and the commercial agent must, no later than 9 months after passing, terminate with a notice period of four months (Article 7:438 (2) BW).
Other ways to terminate
Under certain circumstances, Dutch law may even offer more ways to terminate a commcerial agency contract. For example, by annulment or by invoking nullity. Parties may have erred when agreeing to the commercial agency contract (Article 6:228 BW), or it may have been concluded in an atmosphere of threats, deceit, or abuse of circumstances (Article 3:44 BW). If you have experienced such circumstances, please feel free to contact us for assistance.
Check out our other contributions on terminating agency under Dutch law
- Rights & entitlements of the commercial agent
- Rights & entitlements of the principal business
- How best to terminate commercial agency agreements?
- Damages in addition to goodwill
- Claiming goodwill for existing customers