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Commercial Law Distribution Agreements

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Commercial Law. Distribution Agreements

If you are looking for someone to sell on your goods and services that is prepared to hold stock and bear the cost of sales and promotion, then a distribution agreement might be the best way forward.

What is a distribution agreement?

A distribution agreement is where one party (the supplier) sells goods to another (the distributor) for onward sale, either to other companies or to the public.

Unlike an agent, a distributor takes legal ownership of the goods under the distribution agreement and sells them on at a price which they determine.

What issues surround distribution agreements?  As with most commercial contracts there are all kinds of issues that surround distribution agreements but perhaps the most crucial revolve around the granting of exclusive territories and pricing.

A lot of distributors will want to have exclusivity within a certain area so that they know they don’t face competition for the sale of the same goods in that market.  Many suppliers are happy to grant this as part of the distribution agreement, but the parties have to be very careful how they express this exclusivity as, under European law, there are strict rules governing exclusivity within the Europe.

For example, a supplier can stop a distributor from directly selling goods outside of the UK but they cannot stop “indirect” sales and so the same distributor (if approached by a French customer despite there being no advertising in France) is entitled to sell goods to that customer.

As far as pricing is concerned, the golden rule with distribution agreements is that the supplier cannot fix the price at which the distributor sells on the goods.  Suppliers should steer clear of “recommended retail prices” as much as possible in distribution agreements or other methods of influencing the end sale price without taking advice first.   Where do I get more advice about distribution agreements?

If you have a specific question about a distribution agreement, whether you are appointing or becoming a distributor, please either click here to send an email to the team or call David Miller on 01332 226 466 or 07813 203 658.

If you are thinking about entering into a distribution agreement then you may find our free to download Heads of Terms document a useful starting place.  Using this document to record the outline of the distribution agreement between supplier and distributor will be a helpful aide memoir and a good starting point for the drafting of a proper agreement.

To download our Heads of Terms document, click here and I’ll email you.

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