Minimum Term Clause in UK Contracts: What It Means & Example Wording
A minimum term clause commits the parties to the contract for a specified initial period during which the agreement cannot be terminated for convenience (though termination for material breach or insolvency typically remains available). Minimum terms are common in SaaS subscriptions, telecommunications contracts, service agreements, and commercial leases. They provide revenue certainty for the supplier and often come with pricing benefits for the customer.
Last updated: February 2025
When to Include a Minimum Term Clause
- When the supplier needs to recoup setup costs, onboarding investment, or capital expenditure made to serve the customer
- In contracts where the supplier offers discounted pricing in exchange for a commitment to a minimum period
- In telecoms, hosting, and SaaS agreements where a minimum commitment period is standard industry practice
Example Wording
This example wording is illustrative only. Customise it to your specific circumstances and consider seeking legal advice.
Is a Minimum Term Clause Enforceable in the UK?
Minimum term clauses are enforceable in UK B2B contracts. Early termination fees must be a genuine pre-estimate of loss and not a penalty — following the Supreme Court's decision in Cavendish Square v Makdessi [2015], the test is whether the clause is a secondary obligation that imposes a detriment disproportionate to any legitimate interest of the innocent party. In consumer contracts, minimum terms and early termination fees are subject to the fairness test under the Consumer Rights Act 2015 and Ofcom regulations (for telecoms). Excessive lock-in periods or disproportionate exit fees may be deemed unfair.
Common Mistakes
- Setting early termination fees that constitute a penalty rather than a genuine pre-estimate of loss — a fee of 100% of remaining contract value may be challenged as a penalty if the supplier would have incurred savings from not performing
- Not specifying what happens after the minimum term expires — the contract should transition to a rolling period or require active renewal to avoid ambiguity
- In consumer contracts, failing to comply with Ofcom or CMA guidance on minimum terms and early termination fees — excessive lock-ins can attract regulatory scrutiny
FAQ
Can I leave a contract during the minimum term?
Generally, you can only terminate during the minimum term if the other party is in material breach or if the contract includes a break clause. Terminating for convenience during the minimum term will usually trigger an early termination fee. The amount should be proportionate to the supplier's actual losses.
Is an early termination fee a penalty?
Not necessarily. Under the Cavendish Square v Makdessi [2015] test, a clause is only a penalty if it imposes a detriment that is disproportionate to any legitimate interest of the innocent party in the enforcement of the primary obligation. A fee that reflects the supplier's genuine loss from early termination (including lost margin and unrecovered setup costs) is likely to be upheld.
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Get Started FreeThis is guidance for UK businesses, not legal advice. Example wording is illustrative. Consult a solicitor for complex matters.
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