Drafting a transitional services agreement

Drafting a transitional services agreement

TSAs often govern complex interdependencies between buyer and seller in the period following closing. Their drafting requires balancing business continuity, regulatory and data protection requirements, and an orderly separation of systems and functions. This article provides an overview of the key elements to consider when drafting a Belgian law transitional services agreement.

A. Legal framework in Belgium

TSAs are primarily governed by Belgian contract law, which provides the framework for the formation, performance and termination of service agreements. Where personal data is processed in the context of the transitional services, the GDPR and its Belgian implementing legislation impose specific obligations on both parties, particularly concerning role allocation, security and international data transfers. Depending on the sector and nature of the services, additional regulatory regimes may apply, such as financial sector outsourcing rules or cybersecurity obligations under NIS2-related Belgian legislation. The TSA must also be consistent with the share purchase agreement and any ancillary transaction documents to avoid conflicting obligations.

B. Key elements

1. Scope and catalogue of transitional services: The starting point of any TSA is a clear and comprehensive description of the services to be provided by the seller (or, as the case may be, by the buyer) after closing. These typically include IT infrastructure and applications, payroll, accounting and reporting, tax compliance, procurement, logistics or customer service functions, often mirroring the pre-closing operating model.

2. Service levels, performance standards and remedies: Service quality under the TSA is expected to reflect the standard provided by the seller to its own business immediately prior to closing. This “business as usual” benchmark should be translated into concrete service levels, including availability, response and resolution times, capacity and throughput. The TSA should specify reporting obligations, measurement methods and governance mechanisms for addressing service failures.

3. Term, extension and exit planning: TSAs are, by definition, temporary. The agreement must state the initial duration of each service, which may differ across service lines, and provide mechanisms for extension where the separation or integration takes longer than initially anticipated. At the same time, the seller will generally wish to avoid open-ended obligations, and may seek to limit extensions or link them to cost adjustments.

4. Pricing, cost allocation and change mechanisms: TSAs often adopt a cost-plus model, under which the buyer compensates the seller for its costs in providing the services, plus an agreed mark-up. Alternatively, fixed fees or hybrid structures may be used. The agreement should clearly describe the pricing methodology, invoicing and payment terms, and any minimum charges or volume assumptions. Over the life of the TSA, the scope or intensity of services may evolve, requiring a structured change control mechanism to adjust services and pricing. This is particularly relevant where the integration takes place in phases or where external factors (such as regulatory changes or third-party cost increases) affect the cost base of the seller.

5. Data protection, confidentiality and IT security: TSAs typically involve the processing and sharing of significant volumes of personal and confidential business data between buyer and seller. The agreement should identify the parties’ respective roles under GDPR (as controllers or processors) and either incorporate, or be accompanied by, appropriate data protection clauses or a separate data processing agreement.

6. Liability, limitations and interaction with the SPA: The liability regime under a TSA should be coherent with, but not necessarily identical to, the liability and indemnity framework of the SPA. Caps, exclusions of indirect or consequential damages, and specific carve-outs (for example, in respect of data breaches, wilful misconduct or gross negligence) need to be calibrated in light of the criticality of the services and the contractual risk allocation in the wider transaction. It is important to avoid inconsistencies between the TSA and the SPA that could give rise to overlapping or conflicting remedies.

Liability, limitations and interaction with the SPA: The liability regime under a TSA should be coherent with, but not necessarily identical to, the liability and indemnity framework of the SPA. Caps, exclusions of indirect or consequential damages, and specific carve-outs (for example, in respect of data breaches, wilful misconduct or gross negligence) need to be calibrated in light of the criticality of the services and the contractual risk allocation in the wider transaction. It is important to avoid inconsistencies between the TSA and the SPA that could give rise to overlapping or conflicting remedies.