Unrestricted exit clauses and call options in management equity investments

Given the benefits of aligning the interests of funds, investors, and management, management participation programs (MPPs) are an integral part of private equity structures. The recent decision of the Federal Court of Justice dated February 10, 2026 (Case No. II ZR 71/24) regarding the validity of unrestricted early termination clauses or call options in the context of management participation agreements was therefore received with great interest. The Second Civil Senate overturned the appellate decision of the Munich Higher Regional Court dated March 23, 2024 (Case No. 14 U 5289/23 e) and emphasized that such clauses are not per se contrary to public policy. The factual justification for the termination of a manager’s contract may arise from a comprehensive assessment of all circumstances of the individual case.