Many commercial contracts include a so-called change of control provision. Such a provision grants a contracting party the right to terminate the agreement if control over the other contracting party changes.
This may involve a (substantial) change in the direct or indirect shareholder structure or a change in the company’s management. But as with anything related to contracts, there are many possible scenarios, and the nuances are important.
Why a change of control?
There may be various reasons for including such a provision. Consider, for example, a client who deliberately chose a small IT business because of its short lines of communication and personal contact. If that business is subsequently acquired by a large corporation, this could negatively impact the partnership.
Or a sustainable clothing brand that wants the option to terminate an agreement with a manufacturer if that manufacturer comes under the control of an investor with very different interests.
What constitutes a change of control
A “change of control” is not a legal term. A good change of control provision must therefore specify exactly when it applies. Does it involve a certain percentage of the shares? Or the right to appoint the management? Is there a change of control if two of the four directors are replaced?
In line with this, it can also be agreed upon which changes trigger the right to terminate the agreement: any change in control, or only a transfer to, for example, a competitor. It is also important to consider the reason for including the change-of-control clause. This reason differs between a personal partnership and protection against certain investors.
A real-world example
The importance of a well-drafted change of control clause becomes clear in a dispute between two candy companies (ECLI:NL:GHAMS:2026:905). The case involved the Belgian company CSB and the Dutch company Copar. CSB had granted Copar a license to use its trademarks in the Netherlands. The license agreement stipulated that CSB could terminate the license agreement if Copar came under the control of a competitor.
When an investment fund acquired a majority stake in Copar, CSB terminated the agreement by invoking this provision. It argued that the fund was a competitor because it operated in the candy industry. However, the Court of Appeals Amsterdam did not agree. The court ruled that the fund did not manufacture candy itself and was therefore not a competitor, meaning there were no grounds for termination.
Here, the wording of the provision played tricks on CSB. If the provision had allowed termination upon any change of control, CSB would likely have been permitted to terminate the agreement.
What to Look Out For
In practice, when drafting contracts, it is important to consider in advance the scope of your change of control provision and the objective you wish to achieve with it. The more limited the situations in which the other party is permitted to terminate the contract, the greater the likelihood that the contract will survive a subsequent sale.
This is beneficial for the acquiring party, but may be problematic for the other side. It is a delicate balance that requires a careful approach. Sound legal advice can help navigate that dynamic.
