Non-compete clause

Definition

For a buyer this is the most valuable protection the SPA carries after the title warranty. A seller who pockets €4m today for a healthy customer base and tomorrow opens an identical business three streets away destroys most of what they just sold. That's why buyers insist on the clause; that's why every Benelux jurisdiction treats it as enforceable in principle — provided the three standard guardrails are respected.

Those guardrails are duration, geographic scope, and activity. Belgian case law — where Article VI.91 of the Code of Economic Law frames consumer protection but M&A context falls under general contract freedom of the Civil Code — accepts 2 to 5 years as reasonable, with 3 years as the centre of gravity for Benelux deals below €25m EV. Beyond 5 years the clause is typically reduced to a reasonable duration by the court; some judges cut to 3 years. Geographically: the effective area in which the business operated before closing, not beyond — an SME active only in Flanders cannot enforce a non-compete covering all of Belgium.

The Dutch doctrine is different but the outcome similar: Article 7:653 BW governs employees, not M&A, so the SPA clause again falls under contract freedom. Dutch courts are slightly more tolerant of longer durations (5 years without reduction is regularly seen) but still apply proportionality. EU competition law sets a ceiling: a non-compete longer than 3 years must be justified by goodwill OR know-how transfer; pure customer transfer justifies a maximum of 2 years (see Commission Notice 2005/C 56/03 on ancillary restraints).

Operationally: in 80% of Benelux SME deals the clause runs 3 years, covers the activity as described in the SPA annex, geography matches the pre-closing operating area, and sanctions (typically a liquidated damages of 50% of the equivalent salary per month of breach) sit in the contract. Sellers who want to remain an advisor or consultant in the same sector: have that explicitly excluded in the definition of "competing activity" — otherwise you're locked in for 36 months.

Worked example

An Antwerp seller of an industrial cleaning firm negotiated a 3-year non-compete for Belgium + South Netherlands, with €5k per month in breach penalty. Two years post-closing he started a consultancy optimising industrial cleaning processes — without performing any operational cleaning himself. Buyer sued for breach. The Antwerp commercial court ruled: consultancy in the same sector falls inside the clause unless explicitly excluded. Result: 18 months of penalty = €90k, and the consultancy had to be wound down for the remainder. Lesson: define "competing activity" narrowly and explicitly in the SPA annex, not generically.

When it matters

In every SME share purchase. The clause often goes in on autopilot and only gets detailed scrutiny when conflict arises — too late. Negotiate the three levers in advance: (1) exactly what counts as "competing activity" (and what explicitly does not — consultancy, advisory roles, board seats at non-competitors), (2) geographic scope tied to the actual pre-closing operating area, (3) duration capped at what the transaction justifies (3 years on goodwill transfer, max 2 on customer transfer alone).

Frequently asked

How long can a non-compete actually be enforced in Belgium?

Three years is the Benelux centre of gravity for SME transfers. Up to 5 years is accepted if justified by goodwill or know-how transfer. Beyond 5 years courts consistently reduce. EU competition law caps at 3 years unless specifically justified.

Does the clause apply to passive investments or board seats?

Only if the SPA says so explicitly. Standard wording covers active operational roles; passive minority interests (<10%) and board seats at non-competitors are typically free. Ask for this in writing — otherwise a court will interpret broadly when in doubt.

What if I want to work in the same sector again after 2 years?

Two paths: (1) negotiate a buyout payment that releases you from the clause (typically 30-50% of the original transaction value, rarely done), or (2) wait out the term. Renegotiating mid-term rarely succeeds without real commercial leverage — buyers don't give this up.

Does the clause apply to my spouse or family members?

Not automatically — a non-compete binds only the party who signs the SPA. But buyers often require a separate clause for key family members who worked in the business, or an anti-circumvention clause preventing you from circumventing via family. Read this carefully.