Without a break fee, costs and confidentiality still need rules.
If each party bears its own costs, the LOI should say so and also cover confidentiality, return of documents and exclusivity.
Agreement & warranties
Break fees in Austrian M&A: expense reimbursement and failed deal risk
Break fee in Austrian M&A: expense reimbursement, contractual penalties, reverse break fee, exclusivity and failed deal risk.
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29 July 2026 · Mag. Bernhard Brandauer, Rechtsanwalt
Not every acquisition reaches closing. Due diligence, financing, approvals or closing conditions may stop the deal. A break fee allocates certain costs or an agreed payment.
This is not another LOI overview. It focuses on break fee clauses, expense reimbursement, contractual penalties, reverse break fees and their link to exclusivity, termination and failed conditions.
The clause must fit Austrian contract law and should not be copied blindly from international templates. For the pre-contract framework, see LOI, NDA and confidentiality.
Assess failed deal risk
Does your break fee match the risk?
Answer two questions on payment obligation and trigger.
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Should one party pay costs or a fixed amount if the deal fails?
Then the clause needs a clear trigger, amount and rationale.
All paths at a glance
Overview of all answers.
The clause seems workable. Now the mechanics matter.
With clear triggers, define due date, evidence, relationship to damages and possible moderation of contractual penalties.
The break fee needs more precise triggers.
A generic payment for every failed deal can be disproportionate. Define cases such as breach of exclusivity, financing failure or refused approvals.
What a break fee does in an M&A process
What a break fee does in an M&A process
A break fee addresses effort, opportunity cost or wrongful conduct. It may protect a seller granting exclusivity or a buyer if the seller sells elsewhere.
Legally, it matters whether the clause is expense reimbursement, contractual penalty or risk allocation. The label alone is not decisive.
Which triggers should be stated in the clause
Which triggers should be stated in the clause
Typical triggers include breach of exclusivity, failure to cooperate, failure to procure financing despite commitment or termination after final approval.
A negative due diligence finding should not automatically trigger payment. If the data room reveals a serious risk, the buyer must be able to walk away. The link to closing conditions is important.
How amount and proportionality are documented
How amount and proportionality are documented
The amount should reflect expected adviser fees, data room effort, management time and blocked sale opportunity. Fantasy amounts create pressure but are dispute-prone.
If the payment works like a penalty, contractual penalty rules must be considered. MAC and termination clauses should say whether the break fee is additional or exclusive. See our article on the MAC clause.
Clause review
Separate break fee from deal risk
The table shows common designs and dispute points.
| Element | Purpose | Risk |
|---|---|---|
| Expenses Advisers and data room | Actual effort | Evidence problem |
| Break fee Buyer termination | Fixed amount | Disproportion |
| Reverse break fee Seller termination | Buyer protection | Unclear trigger |
| Exclusivity Negotiation lock | No parallel process | Too broad commitment |
| Approvals Boards and authorities | Risk allocation | Unclear responsibility |
A break fee does not replace clear termination rights. It only helps if trigger and amount fit.
Caution: Do not copy break fee templates from other jurisdictions without review. In an Austrian contract it must be clear whether the clause is expenses, penalty or risk allocation.
FAQ
Break fees in Austrian M&A.
What is a break fee? +
It is an agreed payment for defined failed-deal scenarios, such as breach of exclusivity or failure to comply with transaction obligations.
Is a break fee always enforceable? +
It must be proportionate, justified and clearly drafted. Generic penalty payments without a fitting trigger are dispute-prone.
Where is a break fee documented? +
Often in the LOI, process letter or SPA. It must align with exclusivity, termination rights and closing conditions.
Further reading
Further topics on failed deals
Topics
Break feeFailed dealContractual penaltyLOIExclusivity
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