Data and records
For software and SaaS contracts, address data on exit: the format and timeline for returning customer data, and certified destruction. This is now also a regulatory question. The EU Data Act (Regulation (EU) 2023/2854), with its switching provisions applying from 12 September 2025, requires providers of in-scope data-processing services to remove barriers to switching - allowing customers to switch on a maximum two-month notice and to port their exportable data and digital assets within, generally, a 30-day transition period (extendable only where technically infeasible).
The rules may affect existing contracts, not just new ones (their temporal scope for legacy contracts is debated), and have extraterritorial reach, so UK and other non-EU providers serving EU customers should assume they may need to comply. Build the switching timeline and data-portability obligations into the contract rather than discovering them on exit. (The EU Data Act is flagged here for cross-border deals - take local advice.)
Transition assistance
For critical services, a clean exit needs the outgoing provider's help. Include obligations to continue the services for a defined transition period at the customer's request, to give reasonable assistance to a replacement provider, to deliver customer data in a specified format within a set time, and to certify destruction of any retained data.
Transition terms are far easier to agree at the outset than when the relationship has broken down - by termination, the leverage has usually shifted.
The penalty rule and termination fees
Termination fees must be structured with the penalty rule in mind. Cavendish Square Holdings BV v Makdessi [2015] UKSC 67 reformulated that rule: a provision is penal, and unenforceable, where it is a secondary obligation (triggered by breach) that imposes a detriment on the contract-breaker out of all proportion to the innocent party's legitimate interest in performance.
The key is the trigger. A payment that is a secondary obligation - triggered by breach - is exposed to the penalty rule; a payment that is a primary obligation, payable on a specified non-breach event (such as termination for convenience, or a change-of-control or amalgamation trigger), is generally not.
Structuring a termination fee
So, where commercially viable, structure a termination fee as payable on a non-breach termination event rather than as damages for breach. In URE Energy Ltd v Notting Hill Genesis [2025] EWCA Civ 1407, a substantial contractual termination payment (nearly GBP 4 million) triggered by an amalgamation event was upheld - it operated as a primary obligation on a defined event, not as a disguised penalty for breach.
A workable drafting pattern is a fee payable on termination for convenience equal to a defined percentage of the fees that would have been payable for the remainder of the term - a primary obligation on a non-breach trigger, well clear of the penalty rule.
Plan consequences before signing
Before and after executing termination, run the consequences: have you (or the other side) done anything only consistent with continuing the contract; does the notice comply with the formal mechanics; have you identified all viable grounds; which provisions survive; what are the data-return, deletion, and transition obligations, and are the timelines deliverable; and can you still prove you would have been ready and able to perform but for the breach?
The consequences of termination are too important to improvise. The contract should answer them in advance - which is also where a careful review at signing pays off.
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Practical checklist
- Address data return, format, timeline, and certified destruction in the contract.
- Account for the EU Data Act switching rules (Regulation 2023/2854) if you serve EU customers - maximum two months' notice, about 30-day porting.
- Include transition-assistance obligations for critical services, agreed at the outset.
- Structure termination fees as primary obligations on a non-breach event to avoid the penalty rule (Cavendish v Makdessi [2015] UKSC 67; URE Energy [2025] EWCA Civ 1407).
- Avoid framing a termination payment as a breach remedy out of all proportion to your legitimate interest.
- Run the post-termination checklist - affirmation risk, notice, grounds, survival, data and transition, ability to perform - at the point of termination.
This guide is informational only and is not legal advice. It does not replace advice from licensed counsel on the facts of a specific transaction.
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