When is compensation payable in the event of terminated negotiations if the parties have signed a letter of intent?

In complex merger and acquisition processes, it is not unusual for business parties to ultimately fail to reach an agreement. But when can a party withdraw without consequences? And when can this lead to liability for unlawfully breaking off negotiations?

These were precisely the questions at the heart of a recent ruling by the Court of Amsterdam on 8 October 2025. The parties were negotiating the acquisition of companies engaged in the breeding of (ornamental) crops and small fruit. An extensive due diligence investigation was carried out, draft purchase agreements were exchanged and a working visit to Spain was even organised to meet with an important co-shareholder. Nevertheless, the process broke down at a later stage. The seller withdrew and the buyer claimed damages.

However, the buyer’s claims ultimately did not hold up in court.

Why no compensation?

The parties had concluded two letters of intent (LOI).

Both LOI’s explicitly stated that a binding agreement would only be concluded upon full written agreement and that a number of specific conditions had to be met, including (i) approval by multiple shareholders and (ii) agreement between the parties on the final transaction documentation. It was also stipulated that the parties could terminate the negotiations at any time and without giving reasons. In addition, it was stipulated that each party would bear its own costs, even if no transaction was concluded.

The court assessed whether the seller had given the buyer a justified expectation that the negotiations would lead to a final agreement and whether it would be unacceptable, according to standards of reasonableness and fairness, for the seller to break off the negotiations at that stage. The court agreed with the strict standard set by the Supreme Court on 12 August 2005 and emphasised that it can only be assumed with caution that breaking off negotiations would be unacceptable according to standards of reasonableness and fairness.

According to the court, the seller had not given the buyer any justified confidence that the negotiations would lead to a signed agreement. The court ruled that there was no such confidence because the conditions in the letters of intent had not been met and therefore no final agreement had been reached between the parties.

In short, the court therefore found that the negotiations could be lawfully terminated without the seller being liable for damages.

Read the full court ruling here and the Supreme Court ruling here.

Practical tips

The ruling confirms that the terms of a letter of intent can be decisive in disputes over broken negotiations..

• Anyone entering into a takeover or investment process would therefore be well advised to formulate the content of a letter of intent carefully and precisely, explicitly stating when an agreement is and is not formed. Use clear language: when is the agreement binding and when is it not? And at what point? Ambiguity quickly leads to disputes.
• Consider, for example, a provision that co-shareholders must approve the conclusion of the agreement, or specify which findings from the due diligence investigation could lead to the transaction not going ahead. The more specific, the better.
• Do you want exclusivity from one party? Put it in the letter of intent. If exclusivity is not included, the other party is free to negotiate with other parties.
• WhatsApp and email communications were an important factor in this cas. Ensure that your (internal) communication in such negotiations is consistent with how you intended the agreements to be, thereby also preventing any undesirable commitments.

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Conclusion

It follows from this ruling that parties are free to break off negotiations, even at an advanced stage, as long as no legitimate expectation has been created that an agreement would be concluded and termination is not unacceptable according to standards of reasonableness and fairness. This is certainly the case when the freedom to terminate is clearly included in a letter of intent and the conditions in the letter of intent for final agreement have not yet been fulfilled.

If you intend to enter into an acquisition process, it is therefore advisable to limit the legal risks at the outset by having the mutual obligations set out in a clear and watertight letter of intent.

Do you or your organisation have questions about the negotiations in the context of an acquisition or need help drafting a letter of intent or other acquisition documentation? Please feel free to contact the corporate law solicitors at SPEE advocaten & mediation. They are ready to assist you with expert advice in the field of corporate law.