For businesses in Germany, contracts for recurring services or payments can pose challenges. One issue involves cancelling subscriptions in compliance with the law. Different regulations apply and depend on the type of contract – whether it relates to a B2C or B2B sale.

In this article, we explain the basic requirements businesses in Germany must observe when cancelling contracts, including rules that apply to B2C and B2B contracts and mandatory notice periods. We also outline the rules on cancel buttons for online contracts and provide topics businesses need to consider when they receive cancellations.

Key takeaways

• Contract cancellations are subject to specific formal requirements, time constraints, and contractual regulations that businesses in Germany must observe.
  
• Customer contracts are subject to strict statutory limits on contract terms, notice periods, and automatic renewals.
  
• With B2B contracts, parties have greater flexibility to establish individual contract terms and notice periods.
  
• Businesses in Germany are required to provide legally mandated cancel buttons for certain online customer contracts.
  
• When they receive cancellations, businesses need to verify the effective dates of cancellation and process billing and other obligations appropriately.
  

Managing contract cancellations for businesses in Germany

Contracts are a part of every business: from lease agreements and mobile phone plans to contracts for software, maintenance, or external services. Many business relationships are maintained over an extended period and do not end automatically. However, contracts are relevant beyond a business's purchasing activities.

For example, businesses that sell subscriptions, memberships, or other ongoing services to customers need clear, compliant regulations on ending contracts. When businesses and customers agree to recurring invoices and services, it is important for customers to know when and how they can terminate their contracts.

This is predominantly determined by the agreed-upon contract term, notice period, and method of termination. Businesses need to integrate these requirements into their contract wording and terms and conditions. Incorrect invoices can void cancellation clauses or result in contracts ending earlier than planned.

Formal requirements for cancelling contracts

According to the German Civil Code (BGB), a contract can be cancelled in either text form or written form. If the law stipulates that a contract can be cancelled in text form, then a readable notice of cancellation on a permanent data carrier is sufficient. This notice does not need to be signed. It is typically enough to give notice via text, email, fax, or as a scanned Portable Document Format (PDF).

On the other hand, the statutory written form generally requires a signature. For example, a customer could provide a cancellation notice in the form of a letter that they have personally signed. Where permitted by law, the written form can also be replaced by the electronic form with a qualified electronic signature.

According to Section 309, No. 13 of the BGB, terms and conditions must generally permit customers to give notice of cancellation or withdrawal in text form only. That said, there are exceptions for certain contractual relationships where the law explicitly provides for a stricter form. For example, termination of employment must be made in writing, according to Section 623 of the BGB. Section 568, Para. 1 of the BGB also requires the written form for notice of lease termination.

In addition, Section 309, No. 13 of the BGB that came into effect on 1 October 2016 cannot be applied to older contracts. This regulation applies exclusively to contracts that were entered into after 30 September 2016. This means that contracts concluded prior to this date can still be subject to stricter contractual requirements regarding form.

Therefore, businesses need to check what form was agreed upon for cancellations of older existing contracts and whether this agreement was subsequently amended or replaced by a regulation on the text form.

What is required for effective cancellations?

Whether it is in written or text form, a notice of cancellation must be complete and unambiguous. It must state clearly which contract it refers to and that the customer wishes to end this contract. It also needs to contain the name and address of the contracting party and the customer or contract number. This information can help the business identify the correct contract and process the cancellation.

What regulations apply to cancellations of B2C and B2B contracts?

When establishing cancellation clauses, businesses need to consider the parties that are entering into the contracts. The BGB differentiates between consumer contracts – which also include distance contracts – and contracts between businesses.

According to Section 13 of the BGB, a "consumer" is a natural person who enters into a legal transaction for predominantly private purposes. Section 14 of the BGB defines a "trader" as a natural or legal person or a partnership with a legal personality who, when concluding a legal transaction, acts in exercise of their trade, business, or profession.

For example, if a business sells a subscription to a private individual (i.e., a consumer), this generally constitutes a B2C sale. However, if a business concluded that same contract with another business for the purposes of its trade, business, or profession, this constitutes a B2B contract.

What role do terms and conditions have in contracts?

The differentiation between B2B and B2C contracts is particularly important regarding standardised contract terms. In B2C contracts, terms and conditions are subject to strict legal scrutiny regarding their content. For example, the provisions of Section 309 of the BGB can render certain cancellation clauses invalid with respect to customers.

There are different rules for B2B sales. Section 310, Para. 1 of the BGB states that, in general, the prohibited clauses defined under Section 309 of the BGB cannot be directly applied to business terms and conditions. Therefore, businesses have more freedom with the wording of their B2B contracts. That said, the general requirements of Section 307 of the BGB still apply.

A clause in a set of terms and conditions must not unreasonably disadvantage the contracting party and must be clear and comprehensible. For this reason, businesses with different customer groups must not copy cancellation clauses from B2B contracts to B2C contracts without first conducting reviews.

What notice periods do businesses in Germany need to know?

The notice period establishes how long a contract remains effective after it is cancelled. There are different rules on what notice periods businesses can set for their customers. These depend primarily on whether the contract is a B2C or B2B contract.

Contract terms and renewals in B2C contracts

In contracts for the regular delivery of goods or the regular provision of services or work, initial contract terms cannot exceed two years, according to Section 309, No. 9 of the BGB. Therefore, customers cannot agree to longer contracts in businesses' general terms and conditions.

There are also clear provisions that govern automatic contract renewals. Clauses on automatic renewals are permitted only if the contract renews for an indefinite period of time. Customers must also be able to cancel contracts at any time by giving notice of no more than one month. An automatic renewal for a further fixed term – such as an additional 12 or 24 months – is not permitted in these cases. For businesses in Germany, these regulations predominantly affect long-term contracts and subscriptions.

According to Article 229, Section 60 of the Introductory Act to the Civil Code (EGBGB), contracts entered into prior to 1 March 2022 are subject to the previous wording of the regulations under Section 309, No. 9 of the BGB. According to the previous wording, implicit contract renewals for a period of up to one year were permitted, as long as the notice period was no more than three months.

Greater freedom in B2B contracts

The limits on B2C contracts do not apply directly to contracts between businesses. Businesses have greater flexibility to establish individual contract terms and notice periods in B2B contracts. For example, they can agree on longer minimum terms or notice periods, provided these are properly established in the contracts. This can be particularly useful in long-term business relationships, such as when services are planned over an extended period or investments need to be safeguarded.

It is important that the time frames agreed upon are clearly worded. The contract needs to state the start of the notice period, time frame of the notice period, and consequences for failing to give timely notice. Therefore, it is a good idea for businesses to customise their B2B contracts for each specific situation.

What are the rules on cancel buttons for online contracts?

The BGB stipulates more than the formal requirements for contract cancellations. For certain customer contracts that can be concluded online, businesses must also provide a simple mechanism for cancellation that customers can access via businesses' websites.

Section 312k of the BGB requires businesses in Germany to provide cancel buttons if their websites allow customers to enter into contracts for continuing contractual relationships involving payment (i.e., subscriptions or memberships with ongoing benefits).

Cancel button requirements

The cancel button must be easy to access, permanently available, and clearly marked with a phrase such as "Cancel contract here." The button must take customers directly to a confirmation page where they can clearly indicate the contracts they wish to cancel and the dates on which they want the contracts to end. This mechanism must also facilitate extraordinary cancellations, such as cancellations without notice for good cause.

Confirmation pages must also include additional buttons that customers use to confirm that they wish to cancel their contracts. These buttons must also be clearly marked (e.g., "Cancel now.") The requirements under Section 312k, Para. 2 of the BGB apply to both ordinary and extraordinary cancellations.

Confirmation and consequences of failing to provide cancel buttons

When a business receives a notice of cancellation, it must immediately and electronically confirm the content of the notice, time of receipt, and requested effective date of cancellation in text form. Customers must also save the notices on permanent data carriers with dates and times.

If businesses in Germany fail to provide mandatory cancel buttons and confirmation pages in compliance with the law, customers can cancel their contracts at any time without observing notice periods. Therefore, businesses need to incorporate these requirements into the overall designs of their online presences and review them at regular intervals.

What do businesses need to do after a contract is cancelled?

Receiving a notice of cancellation does not necessarily mean that the corresponding contract ends immediately. Businesses must first check whether notice was given effectively and when the contract will actually end. What matters are the agreed-upon notice period, requested effective date of cancellation, and contractual regulations.

Review and confirm cancellation

Businesses need to match each cancellation to its relevant contract and verify that the customer has provided the necessary information. This could include customer details and contract or customer numbers. If the cancellation is effective and given in good time, the business must notify the customer of the confirmed effective date of cancellation.

Cancellations made using the legally mandated cancel button are subject to additional requirements. Businesses must immediately and electronically confirm receipt of the notice, its content, and the requested effective date of cancellation in text form.

Bill until the end of the contract

Payments can still be due for agreed-upon services up until the contract ends. Therefore, businesses need to check which amounts are outstanding and whether pro-rata billing is required. For example, in the case of a subscription with monthly payments, the final invoice might only cover the period up to the end of the contract.

When a contract ends, the business is no longer entitled to claim further regular payments. Therefore, businesses need to ensure that direct debits, automatic invoices, or other payment systems are terminated on time. With some types of contracts, businesses can still be entitled to certain standalone payments after a contract ends (e.g., payment for services already rendered).

Stripe Billing gives businesses a structured workflow for managing billing after cancellation and can help businesses end recurring payments according to predefined contract and billing conditions.

Return devices and honour other obligations

The ending of a contract can also trigger other obligations. Depending on the subject matter of the contract, devices the business provided must be returned, logins must be deactivated, and documents must be provided. The statutory regulations and specific wording of the contract in question establish what obligations apply.

Businesses need to outline the overall cancellation process in a structured way. Compiling clear documentation of the cancellation, effective date of cancellation, and final billing can help avoid disputes concerning the ending of a contract or further payment claims.

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FAQs about contract cancellations under the BGB