drafting a warehousing agreement

Drafting a warehousing agreement 

Legal framework in Belgium 

Depending on its structure, a warehousing contract may qualify as a service agreement, a deposit (bewaargeving / dépôt) or a mixed contract combining storage with logistics and handling services. Belgian warehousing agreements are primarily governed by general Belgian contract law, including the rules on liability, property and insolvency. Where the customer's goods are stored at a third-party facility, ownership protection, segregation and risk allocation are central considerations.

Key elements 

1. Scope of the services to be provided by the warehouse operator: This shall include the core storage services, specifying the nature of the goods to be stored, the storage conditions and the allocated warehouse space. In addition, the handling obligations (if any) should be defined, covering both inbound and outbound movements of goods. Any additional services such as mounting, packaging, order preparation or inventory management obligations must be expressly identified and allocated between the parties.

2. Ownership: All goods stored in the warehouse remain the property of the customer at all times and do not form part of the warehouse operator's estate. The contract should foresee the obligation that the stored goods are clearly segregated from any other goods held at the facility, whether belonging to the warehouse operator or to third parties. As a matter of best practice, third parties should be informed of the customer's ownership through clearly visible signage displayed at the entrance of the relevant premises. The agreement may prescribe the specific wording of such signage, subject to the customer's prior approval. A common approach is to exclude the right of lien in principle, while permitting it in limited circumstances, for example where the customer has outstanding debts towards the warehouse operator. In insolvency scenarios, proper segregation and visibility of ownership are critical to ensuring that the customer's goods can be identified and recovered. The customer or its duly appointed representatives should be entitled to inspect the goods and remove any part thereof from the premises at any reasonable time, and the warehouse operator should not hinder or attempt to hinder such removal or inspection.

3. Allocate risk for loss or damage to the stored goods: Specify the precise moment at which risk passes to the warehouse operator, whether upon delivery at the warehouse premises, upon unloading or upon completion of an inbound inspection. Upon such transfer of risk, the warehouse operator is typically liable for the safe custody and, where applicable, the correct mounting of the goods. The applicable standard of care should be defined, together with any liability caps and any limitation to direct losses, direct costs and direct expenses. The agreement could also address exclusions from liability, including force majeure events and damage resulting from the inherent vice or defects of the goods. Where the goods are inherently defective, the customer should typically bear the associated risk and maintain appropriate insurance coverage. Without clear allocation of risk and liability, courts will revert to general liability standards, which may not reflect the commercial intentions of the parties.

4. Align insurance coverage of both parties: It is best to require the warehouse operator having to maintain professional civil liability insurance relating to its warehousing activities as well as property risk insurance covering the warehouse facility and equipment. The customer, in turn, could be required to maintain all-risk material damage and business interruption insurance for the goods stored at the facility, as well as civil liability insurance including product liability coverage. Waiver of recourse clauses between the respective parties and their insurers should be coordinated carefully to avoid gaps in coverage or unintended subrogation claims. Each party could be required to provide cover letters or certificates of insurance to the other party upon request.

5. Inventory of the stored goods: Warehouse operators typically maintain accurate and up-to-date inventory of the stored goods, showing the description, quantity and dates of delivery to and removal from the premises, optimising product flows and workload. By mutually exchanging relevant data related to inbound and outbound movements, goods can be rotated on a first-in, first-out basis. The parties should agree on the system or portal to be used for inventory tracking and reporting, and any access rights for the customer to the relevant tracking system.

6. Term and termination: Termination triggers can include bankruptcy or insolvency events affecting either party, material breach of the agreement, and/or the expiry of any applicable cure periods without remedy. Where the agreement provides for automatic renewal, the renewal mechanism shall be carefully aligned with the commercial intentions of the parties so as to avoid unintended extensions of the contractual relationship. Where a warehousing agreement is entered into for a fixed term, the warehouse operator may require the customer to pay a fee if the customer terminates before the agreed end date, compensating for lost revenue and investments made in anticipation of the full contract term. Some agreements tie early termination penalties to minimum volume guarantees. If the customer terminates early, the shortfall between actual and committed volumes may become payable. Under Belgian contract law, a penalty clause is allowed, but a court may reduce a penalty clause if it is manifestly excessive compared to the actual or foreseeable damage.