Terminating without express terms: implied rights and reasonable notice

Why this is important

Terminating a commercial contract can be a high-risk step for businesses. If a contract is terminated unlawfully, including by failing to give the required notice, this can expose businesses to significant damages, disruption to commercial relationships and reputational risk. These risks are particularly acute where a contract does not contain express termination provisions or notice periods. In those cases, the question of whether a contract can be terminated and on what notice is rarely clear-cut and is heavily dependent on the contractual and commercial context, creating uncertainty and scope for disputes. 

Key takeaways

• The assessment of whether a notice period for termination can be implied into a contract, and what would be a reasonable notice period, is highly fact-specific and depends on the commercial context 
• The purpose of reasonable notice is to allow an orderly wind-down and time to adjust, not to protect profits or enable reconstruction of an equivalent business. A long-standing relationship does not, by itself, justify a lengthy notice period. 
• The decision in Zaha is significant because it restates the law on perpetual contracts, making a clear distinction between contracts which are perpetual and those that are of indefinite duration. Anheuser provides helpful guidance as to the factors that may be taken into account when assessing the reasonableness of notice periods.

It is always preferable to include explicit contract terms dealing with the right to terminate a contract in a non-fault situation, rather than to rely on broad legal principles the application of which may result in a dispute

Recent guidance from the courts

Can a contract be terminated on reasonable notice?

Absent express terms, the question of whether a party has the right to terminate a contract on reasonable notice will turn on the construction of the contract. The courts cannot intervene to imply terms to assist the parties unless there is room to do so.

In Zaha Hadid Ltd v The Zaha Hadid Foundation [2026] EWCA Civ 192, the Court of Appeal confirmed that where a contract does not contain a right for one party (or either party) to terminate, a two-step test should be applied:

1. First, as a matter of construction, is the contract intended to be perpetual (i.e. to last forever) or indefinite (i.e. to last for the time being until terminated). If a contract is perpetual then there is no right to terminate on reasonable notice, but if it is indefinite then there is a right to terminate on reasonable notice. 
2. The second step is to determine what constitutes reasonable notice to terminate the indefinite contract in question, which is determined at the time the notice is given and may vary at different points during the contract term. 

In Zaha the Court of Appeal allowed an appeal relating to the ability to terminate a trade mark licence that was expressed to continue in force “indefinitely, unless terminated earlier in accordance with this clause 12”. Clause 12 gave the licensor the right to terminate on 3 month’s’ notice at any time, or for the licensee’s material breach or insolvency, but did not give the licensee any right to terminate. 

The licensee argued that the clause should be interpreted as giving it a right to terminate on reasonable notice. At first instance it was held that the licensee did not have this right and that, as a matter of construction, clause 12 was an exhaustive statement of termination rights. 

The Court of Appeal disagreed, finding that there was a right for either party to terminate on reasonable notice – either as a matter of contract construction or as a result of implying a term as a consequence of contract construction. In this case the contract was indefinite and not perpetual; both the language and the commercial context of the trade mark licence supported this conclusion. 

Whether a right to terminate on reasonable notice can be implied into the contract will be a matter of construction of the contract and the factual context in each case.

What is considered reasonable notice?

This will also depend on the factual context. Factors which are relevant to the assessment of what is reasonable notice will depend upon the circumstances of the parties and the markets in which they are operating. 

In Anheuser-Busch v Commonwealth Brewery [2026] UKPC 8, following an appeal to the Privy Council, it was concluded that a notice period of just over three months was within the range of reasonable notice in the particular circumstances of the case.

The background to the dispute concerned a long-running distribution arrangement in the Bahamas. In 1975, Anheuser-Busch International Inc (ABI) entered into an oral agreement with a local distributor (later Commonwealth Brewery Ltd) for the exclusive distribution of certain beer brands. The arrangement was never reduced to writing but continued for approximately 40 years. The distributor was free to market and distribute other products, such as beer, wine, and spirits produced by other companies, including competitors of ABI. ABI’s products represented approximately 15 percent of the distributor’s turnover in beer and less than 10 percent of its overall turnover. 

In 2015, ABI terminated the arrangement, giving just over three months’ notice. The distributor argued that this was insufficient and claimed that reasonable notice should have been three and a half years, based on giving one months’ notice for each year of the contract period.

At first instance, the court held that reasonable notice was 15 months. The Court of Appeal overturned that decision and found that the notice given fell within a range of reasonable periods which it deemed to be three to six months. The distributor appealed to the Privy Council.

Considering earlier authorities, including decisions from other jurisdictions, the Privy Council dismissed the appeal and upheld the Court of Appeal’s decision. It held that the notice period of just over three months was within the range of reasonable notice in the circumstances and provided the following guidance:

• A term requiring reasonable notice may be implied into a contract depending on the circumstances at the time the contract was made;
• The purpose of reasonable notice is to allow an orderly wind-down of the relationship and give the recipient time to adjust; 
• Reasonable notice is not intended to protect the recipient from all loss of profit following termination; and
• The length of reasonable notice is assessed by reference to the circumstances at the time notice is given. 

The Privy Council also identified a non-exhaustive list of factors relevant to assessing reasonable notice, including:

• the duration of the relationship 
• the importance of the relationship to the recipient’s business 
• the extent of investment or resources committed to the relationship 
• whether the recipient incurred significant or unusual expenditure 
• any third-party commitments linked to the relationship 
• the practical difficulties of continuing performance during the notice period 

Applying those principles, the Privy Council found that the trial judge had erred by focusing heavily on the period over which profits were reduced after termination. This was not the correct approach because reasonable notice is not intended to compensate for lost profits.

The Privy Council also noted factors supporting shorter notice in this case, including that the distributor was able to sell competing products, the arrangement represented a relatively small proportion of its business, and a prolonged notice period would create practical difficulties for both parties.

Practical steps to help you navigate termination 

Termination strategies will vary depending on the contractual terms in play, the commercial objectives of the parties and the factual context. Our Guide to Contract Termination helps you to navigate the termination process with practical steps to protect your business.