All About Exclusive Contracts (includes Exclusivity Template)
Written by Julian Canlas
Like its name suggests, an exclusive contract is one that restricts a party from providing the same goods/services to others for a specified period of time. This can also be applied in the context where a company obtains exclusive rights and agrees to do business exclusively with another company.
We’ll examing exclusive contracts in some more details – as well as providing you with a template and checklist of what you should include in an exclusive agreement.
When Should You Propose An Exclusive Agreement?
Exclusive contracts are more commonly associated with vertical business partnerships involving the trading of products.
This contract is particularly useful when you are looking to be the exclusive supplier for a particular company and vice versa, where you hope for a supplier to be exclusive to your company.
Alternatively, exclusive contracts can be used to obtain a competitive advantage in the industry. This is done through restricting the number of partners your contractors can engage with.
Downsides Of Exclusive Contracts
Exclusive contracts require incentives to motivate the other party to enter into an agreement since you are restricting the business they can do with others engaging in a similar field. Usually, exclusive contracts are structured such that when the contract is terminated, a minimum fee is triggered if the requirements were not met.
A best practice is to set the minimum fee at 20% of the initial agreement. The aim of this is to cover the expenses or offset the costs of the exclusive contract. Otherwise, it is generally advised to not go ahead with the exclusive agreement as it will be too expensive to afford.
This gives you a safety net and motivates the other party to fulfill their contractual obligations. Parties that lack the confidence to deliver what they promise will be hesitant in committing to such agreements. Hence, it is important to conduct thorough checks and shortlist the right party before entering into an exclusive agreement.
What do you need to include in an exclusive agreement?
- Parties involved
- Exclusivity period
- Subject matter involved in the exclusivity agreement
- Resell cost – Is there a minimum manufacturer’s recommended sales price (MSRP) that the buyer needs to adhere to?
- Standards to maintain (quality, customer service, etc.) – What is the minimum standard to maintain and are there any consequences if standards are not met?
- Payment and terms – Include discounts, late fees, consequences of non payment, etc.
- Delivery – When should delivery be handled, lead time, and what happens if delivery is late? Can the shipments be expedited in any situations?
- Taxes and additional costs (import and export duties, tariffs, etc.)
- Inspection and reporting – Include a reasonable amount of time for inspection of goods received. What happens when there are issues with the shipment received after inspection?
- What counts as a default and what happens when there is one?
- Force majeure clauses – When will both parties not be held liable for violations of the exclusive agreement? (Eg: terrorism, natural disasters, etc.)
- Dispute handling
- Early termination/severability terms
- What happens when there are amendments to the contract?
- Assignment of rights
- Relevant laws and statutes
Exclusive Contract Template
This Contract is made this day of 2021
hereinafter referred to as “Buyer” which expression shall where the context so admits include its personal representatives and assigns on the first part; AND
hereinafter referred to as “Seller” which expression shall where the context so admits include its personal representatives and assigns of the other part.
All the parties herein agree that this contract is enforceable under any circumstance and by executing the same they have decided to abide by the terms and conditions herein.
IN CONSIDERATION OF the matters described above and of the mutual benefits and obligations set forth in this contract, the receipt and sufficiency of which consideration is hereby acknowledged, all parties agree as follows:
1. PRODUCT (S)
Buyer and Seller desire to enter into an exclusive agreement with regard to the purchase and sale of: –
List Description –
Unit Price of Items Being Purchased –
2.1 Exclusivity Period shall mean the period starting at [ ] and ending on [ ]. During the Exclusivity Period, the Buyer will not directly or indirectly, through any employee, agent, or otherwise, and will not permit any of its agents to solicit, initiate or encourage, any offers or proposals relating to the purchase of the above-mentioned Product.
2.2 Buyer and Seller agree that during the Exclusivity Period, Buyer shall purchase Product exclusively from Seller and not from any other vendor. The Seller hereby gives the Buyer the exclusive right to sell the product upon the terms of this contract.
3. RESALE PRICE
The Seller hereby gives the Buyer the exclusive right to sell the product at the Purchase price stated in clause 1 or at any price and upon such different terms as may be accepted by the Seller.
Unit Price –
Total Price –
4.1 Payment shall be made to , in the amount of upon delivery of all Goods described in this contract.
4.2 In addition to any other right or remedy provided by law, if Buyer fails to pay for the Goods when due, Seller has the option to treat such failure to pay as a material breach of this contract and may cancel this contract and/or seek legal remedies.
5. PAYMENT OF TAXES
Both parties herein agree that the Buyer shall be obligated to pay for all taxes related to the purchase of the Goods with the exclusion of income tax.
Time is of the essence in the performance of this contract. The Seller will arrange for delivery by the carrier chosen by the Seller. Delivery shall be completed by____________.
Seller represents and warrants that all of the Goods shall be in accordance with industry standards and all applicable government rules and requirements.
Seller makes no other warranty other than the one expressly provided for herein, Seller makes no express or implied warranty of merchantability or fitness for a particular purpose as to the Goods.
Buyer, upon receiving possession of the Goods, shall have a reasonable opportunity to inspect the Goods to determine if the Goods conform to the requirements of this contract. If Buyer, in good faith, determines that all or a portion of the Goods are non-conforming, Buyer may return the Goods to Seller at Seller’s expense. Buyer must provide written notice to Seller of the reason for rejecting the Goods. Seller will have days from the return of the Goods to remedy such defects under the terms of this contract.
The occurrence of any of the following shall constitute a material default under this contract:
a. The failure to make a required payment when due.
b. The insolvency or bankruptcy of either party.
c. The subjection of any of either party’s property to any levy, seizure, general assignment for the benefit of creditors, application or sale for or by any creditor or government agency.
d. The failure to make available or deliver the Goods in the time and manner provided for in this contract.
10. FORCE MAJEURE
Neither the Buyer nor Seller shall be liable for any failure or delay in performance of its obligations under this contract arising out of or caused directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; acts of terrorism; sabotage; strikes; epidemics; riots; power failures; computer failure and any such circumstances beyond its reasonable control as may cause interruption, loss or malfunction of utility, transportation, computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation.
Both parties acknowledge that during the course of this Agreement, each may obtain confidential information regarding the other party’s business. Both parties agree to treat all such information and the terms of this contract as confidential and to take all reasonable precautions against disclosure of such information to unauthorized third parties during and after the term of this contract. Upon request by an owner, all documents relating to the confidential information will be returned to such owner.
Buyer agrees that it will not, during the Exclusivity Period plus one year immediately following the Exclusivity Period, make comments, whether oral or in writing, that tend to disparage or otherwise injure the Seller or any person associated with or representing the Seller, unless ordered to do so by a court of competent jurisdiction or otherwise required by law. This clause shall include, but not be limited to, any third-party media outlet, website, or forum. Any and each violation of this non-disparagement provision shall constitute a breach of the contract by Buyer and entitle the Seller to bring a legal action for appropriate relief in equity, including damages.
All forms of communications including notices under this contract shall be reduced into writing and be served through hand delivery or by way of registered mail, whichever means is deemed effective.
14. LIMITATION OF LIABILITY
Buyer and Seller have agreed on the rewards and risks related to this contract and have mutually consented to allocate certain of the risks so that one contracting party’s total aggregate liability to the other contracting party will not exceed the “Total Price” value of this contract listed above, for any and all injuries, damages, claims, losses, expenses or claimed expenses arising out of this contract from any cause or causes, regardless of any warranties or indemnifications to the contrary in this contract.
15. ENTIRE AGREEMENT
This contract alongside any accompanying documents entail the entire agreement of the Buyer and Seller with respect to the goods herein and is superior to all previous agreements whether written or oral.
This contract is subject to amendment after the mutual consent of the Buyer and Seller.
The parties hereto agree that in the event any article or part thereof of this contract is held to be unenforceable or invalid then said article or part shall be struck and all remaining provision shall remain in full force and effect.
Neither the Buyer or Seller may assign their obligations, rights and interests in this contract without the written acknowledgment of the other party.
None of the clauses in this contract shall be waived, modified or discharged unless the said waiver, discharge or modification is reduced in writing and signed by the Seller and Buyer.
20. APPLICABLE LAW
This contract shall be construed in accordance with the laws of , without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.
IN WITNESS WHEREOF this contract has been duly executed by the parties hereto the day and year first herein before written.
SIGNED BY BUYER
SIGNED BY SELLER
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