Terminating a distribution agreement takes more than a notice letter. Check the term, the termination clause, the reason for termination and the consequences for stock, investments and customers. Even where the contract provides for termination, the principles of reasonableness and fairness may impose additional requirements or limit reliance on the clause.
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Written by Onur Arslan, attorney at Arslan Advocaten. Registered in the specialisation register of the Netherlands Bar for employment law and personal injury. Last updated: 17 September 2026.
For a distributor, termination can affect a large part of its turnover. For a supplier, on the other hand, dependence on an underperforming distributor can be the problem. In both cases, a documented assessment of the relationship, the agreements made and the transition to a new situation is helpful.
This article concerns distribution under Dutch law. In international distribution, the choice of law, the competent court, competition law and the law of the countries involved must be examined separately. An exclusive distribution relationship abroad may be subject to different mandatory rules.
What is a distribution agreement
In distribution, a business usually buys products and resells them for its own account and at its own risk. The distributor generally earns the difference between the purchase and resale price. This differs from a commercial agent, who negotiates contracts on behalf of the principal and usually receives commission.
The actual working relationship matters more than the heading. A contract called “distribution” may contain elements of agency, franchising, licensing or a contract for services. Special rules may apply to those elements. Where intermediation is involved, also read terminating an agency agreement.
So establish who concludes the customer contracts, who bears the stock and credit risk and who sets the prices. Use of trade marks, sales support and exclusivity can also affect the classification and the winding-up of the relationship.
Fixed term or indefinite term
A fixed-term agreement often ends on an agreed date, but early termination is not a given. Check whether a right of termination has been included, which conditions apply and whether the agreement renews automatically. A deadline for preventing renewal can be important.
With a long-term agreement for an indefinite period, the question is whether, and on what conditions, it can be terminated. If neither the law nor the contract provides for this, the agreement may in principle be terminable, but its nature and content and the circumstances may give rise to additional requirements.
Do not confuse the end of the framework agreement with the lapse of all individual orders. Orders already accepted, warranty arrangements and obligations towards end customers may continue to exist. Make a separate list of these before you close the relationship.
What does the termination clause say
Read who may terminate, with effect from which date, with what notice period and through which channel. Sometimes a registered letter is required, or notice must be given with effect from the end of a calendar year. The correct contracting party and address are also important.
Check whether there are different grounds for termination, such as ordinary termination, failure to meet targets, change of control or breach. Each ground may have its own conditions and consequences. Do not pick the quickest clause without examining whether the facts actually fit it.
Keep proof of sending and receipt. A telephone call with the account manager may be insufficient where the contract requires formal notice. An email to a former contact person may also create an evidential problem.
The role of reasonableness and fairness
The Dutch Supreme Court (Hoge Raad) has confirmed that reasonableness and fairness may play a role in the termination of long-term agreements. Depending on the circumstances, sufficiently weighty grounds, a reasonable notice period or an offer of compensation may be required. A contractual right of termination does not entirely exclude that assessment.
At the same time, not every disappointing termination is legally invalid. The court looks at the specific relationship and applies different standards for supplementing agreements and for setting aside a contractual provision. A general formula of “long relationship means long notice period” is too simplistic.
Relevant factors may include the length of the relationship, dependence, expectations created, specific investments and the opportunities to build up other activities. Support those circumstances with documents rather than merely referring to loyalty or years of cooperation.
How do you determine a defensible notice period
Start with the agreed notice period and then assess whether additional circumstances could justify a different outcome. There is no general statutory scale for distribution that automatically produces one month per year of cooperation.
Examine how much time is needed to run down stock, adjust staffing and logistics and find replacement suppliers or customers. What the distributor already knew about a possible termination may also be relevant. A recent expansion made at the express request of the supplier may carry different weight from an investment made on the distributor’s own initiative.
Draw up a reasoned transition proposal. A longer notice period, phased wind-down or temporary continuation for pending orders may offer a solution. Record which rights the parties retain and what compensation, if any, forms part of the arrangement.
Termination by notice is not the same as rescission
Termination by notice usually ends the relationship for the future in accordance with the applicable rules. Rescission for breach has a different legal basis and may give rise to obligations to undo performance already rendered. Not every disappointing turnover figure or unmet expectation justifies rescission.
Where a breach can be remedied, a notice of default may be required. Describe the provision that was breached, give a reasonable period to remedy it where necessary and assess the response. A target schedule without a clear obligation is not automatically a guarantee that the distributor must achieve a particular result.
An unjustified immediate termination may itself amount to a breach. So have it assessed whether ordinary termination, rescission or a mutually agreed arrangement fits best. For the general steps, see terminating a cooperation agreement.
What happens to remaining stock
Not every distribution relationship carries an automatic right to have all stock bought back. Check the arrangements on returns, minimum stock, shelf life, damage and obsolescence. The circumstances in which the stock was built up may also be relevant.
Draw up a current inventory with purchase date, quantities, purchase price and saleability. Separate ordinary stock, specially ordered products and unsaleable goods. A single total based on the original purchase price says little about the actual loss.
Discuss a sell-off period, buy-back or transfer to a successor distributor. Record which prices, warranties and uses of the trade mark are permitted in that context. Bear competition law in mind: arrangements on resale prices and market sharing may not be imposed without being tested against it.
Substantiating investments and dependence
A distributor may have invested in a showroom, training, specialised staff or marketing for a single brand. That may be relevant to the termination, but not every investment is automatically compensated. Examine depreciation, remaining useful value and the link with commitments made by the supplier.
Keep business plans, correspondence about expansions and approved budgets. Distinguish between investments you made on your own initiative and investments the supplier specifically required. The payback period and benefits already received also count.
Nor is dependence simply a percentage of turnover. Look at alternatives, contractual restrictions, transferable know-how and the time needed to diversify. A specific economic overview helps more than the general assertion that the termination affects the business.
Is a distributor entitled to goodwill compensation
The statutory goodwill indemnity for commercial agents cannot automatically be applied to every distributor. In distribution, any compensation must be based on the agreement, the applicable rules and the specific circumstances. Moreover, it must first be established that the relationship really is one of distribution.
That does not mean compensation on termination is never possible. Loss caused by an improper termination, too short a notice period or breached agreements can be examined separately. However, the legal basis and calculation differ from the rules on agency.
So do not have an amount calculated by simply taking one year’s margin as a fixed goodwill payment without further analysis. Examine which claim exists, what loss has been suffered and which benefits or avoided costs must be taken into account.
Customers, trade mark use and data
Who may stay in contact with customers after termination, and which information may be used? The answer depends on the contract, intellectual property, privacy and any non-compete or non-solicitation clauses. Customer data is not simply a freely transferable asset without further obligations.
Make arrangements on domain names, trade names, marketing materials, accounts, product information and access to ordering systems. A supplier may have an interest in ending use of its trade mark, while the distributor must wind up its ongoing obligations towards end customers.
Also record arrangements on warranty, service, product recalls and complaints after the end date. The end of the distribution relationship must not leave customers uncertain about necessary support. Allocate tasks, costs and information exchange in concrete terms.
Sample first response to a termination
The text below is intended to record your position and request information. A formal defence or urgent proceedings may also be needed.
Subject: termination of the distribution agreement dated [date]
We have received your notice stating that you wish to terminate the distribution agreement with effect from [date]. We are currently assessing the contractual basis, the notice period applied and the consequences. We do not yet agree to this end date and winding-up.
We would appreciate your explanation of [termination provision or ground for termination] and a proposal for pending orders, stock, warranties and use of the trade mark. In connection with the cooperation, our company has made, among other things, [specific investments]. We enclose the relevant documents and a provisional overview.
We propose to meet on [date] to discuss a workable transition. Until otherwise agreed, we reserve our rights and will continue to assess our obligations on the basis of the existing agreement. Any loss and additional claims will be substantiated separately.
Do not make a response so general that a necessary time limit is missed. If supplies are about to stop next week, you should examine at the same time whether interim relief is needed.
Fictitious example of an unexpected termination
A distributor has sold products from a single supplier for twelve years. At the supplier’s request, it opens a larger showroom. Shortly afterwards, the agreement is terminated with the contractual notice period of two months. The distributor still has substantial stock and multi-year premises costs.
The contractual notice period is the starting point, but not the end of the assessment. Relevant questions may include which expectations were created, which investments were specifically required and which alternatives exist. It must also be examined whether the showroom can be used for other brands.
A solution may consist of an adjusted transition period, arrangements on stock and a financial settlement. Whether there is a legal entitlement to this depends on the documents. The example is fictitious and mainly shows which information is needed for a well-founded assessment.
Calculating loss without double counting
In a damages claim, what would probably have happened without the relevant breach or improper termination must be compared with the actual situation. Lost turnover is not automatically a loss equal to the full turnover. Variable costs and other savings may have to be deducted.
Also substantiate the period over which damages are claimed. A claim for unlimited future profit does not naturally fit an agreement that could lawfully end with a reasonable notice period. The correct legal basis determines which comparison is needed.
Keep sales data, margins, stock movements and your attempts to find alternatives. Your own steps to mitigate the loss may be relevant. An expert can help with an extensive calculation, but must work from verifiable assumptions.
Drawing up a settlement agreement
Record the end date, last orders, stock, prices, handling of warranties, data, use of the trade mark and any compensation. Also specify which obligations continue to apply, such as confidentiality or a legally valid non-compete clause. Check penalty clauses and limitations of liability.
A full and final discharge must match what has actually been settled. Do not unintentionally waive claims that have not yet been examined. If necessary, agree that the discharge will only take effect once the payment and other obligations have been performed.
Through corporate law for business owners you can have a proposed termination, or a termination you have received, assessed. Bring all versions of the contract, investment arrangements, turnover figures and stock lists. This makes it possible to determine which transition is defensible both legally and commercially.
Check the last orders separately
A distribution relationship often consists of a framework agreement and separate sale contracts. Terminating the framework agreement does not automatically determine what happens to orders already confirmed. Draw up an order list with acceptance date, delivery date, advance payment and obligations towards end customers.
Discuss which orders will still be performed and which will lapse by mutual agreement. If the distributor has already promised delivery to its customer, a sudden stop may trigger a chain of claims. The allocation of those risks must be based on the existing arrangements and specific commitments.
Also check minimum purchase obligations and annual bonuses. A termination halfway through a period may lead to disputes about targets, discounts or repayments. An automatic calculation over a full year is not always consistent with the agreement. Record how the parties will settle the final period.
Make the transition workable for customers
Agree who will inform customers, what message will be used and who remains responsible for existing warranties. A new distributor does not automatically take over all the obligations of the old one. The supplier may also have direct obligations towards users that are separate from the distribution arrangement.
Make a list of service contracts, outstanding complaints and necessary spare parts. Determine which documentation will be transferred and which consent or legal basis is needed for that. Customer data may not simply be copied in full to another company without further assessment.
A joint communication plan can limit reputational damage, but must not create a misleading impression about liability or warranties. For example, state clearly from which date a new party will handle new orders and who will deal with older complaints.
Finally, check online listings. Websites, dealer locators, domains and social media profiles may still suggest a relationship after termination. Record who will update which listing and when. A practical handover checklist helps prevent a situation in which the relationship has ended legally while customers are still referred to the wrong party for months.
Frequently asked questions
Can a supplier always terminate in accordance with the contract?
The contract is the starting point, but in certain circumstances reasonableness and fairness may impose additional requirements or limit reliance on a clause. The duration, dependence, investments and expectations created must be assessed in concrete terms.
Is there a statutory notice period for distribution?
There is no general fixed scale that applies to every distribution relationship. Look at the contract and the circumstances. Where nothing has been agreed, a reasonable notice period may be required, but it does not follow automatically from a single formula.
Does the supplier have to buy back all the stock?
Not in every situation. Contractual arrangements, the nature of the stock and the circumstances of the termination are relevant. Draw up a detailed overview and discuss buy-back, sell-off or transfer as possible ways of winding up.
Am I automatically entitled to goodwill compensation?
Not under the same statutory rules as a commercial agent. Compensation may be available on other grounds, but requires its own substantiation. First check whether the relationship is really distribution or possibly agency.
May I continue selling the same brand after termination?
That depends on, among other things, the origin of the goods, contractual arrangements and intellectual property rules. Use of the trade mark in advertising and remaining stock must be assessed separately. Make clear transitional arrangements on this.
What if supplies are stopped immediately?
Examine the ground for termination, pending orders and the urgency of your interest. In certain circumstances, interim relief proceedings may be considered. Immediately gather contracts, messages and information about the consequences for your business.
Sources and legal basis
- Dutch Civil Code, Book 6: including Articles 74, 81 to 83, 248 and 265.
- Dutch Supreme Court, 2 February 2018, on the termination of long-term agreements.
- Dutch Civil Code, Book 7: Articles 428 to 445 on the distinction from agency.
