Whether you are a supplier or purchaser, an exclusivity clause within a contract can be used to protect the best interests of all the entities involved.
An exclusivity clause between two parties requires one party to exclusively partake in business dealings with the other. Also known as a non-compete provision, an exclusivity clause will provide security for a business by mitigating the risk of the other party purchasing goods or services from competitors.
What Is An Exclusivity Clause?
Exclusivity clauses restrict a signatory from engaging in business with competing companies. These clauses are frequently employed in business dealings between supplier and purchaser.
For instance, a buyer might sign a supply agreement with a particular vendor because that vendor has a commodity that is crucial to them. The two may want to ensure that they only do business with each other during the term of the contract. This could be accomplished by including an exclusive condition in the supply contract which either:
- Restricts the channels and areas in which the provider may market their products to other buyers (area clause);
- Prohibits the buyer from purchasing the same products from a different source (product clause).
Why Do We Use Exclusivity Clauses?
Exclusivity agreements are employed to safeguard vendors and protect enterprises. An exclusivity condition might prevent a company from looking for similar goods from another provider at a reduced rate.
The purchasing industry is no different. A company would suffer if its supplier began doing business with someone else instead of them. Therefore, if properly written, an exclusivity agreement protects both entities legally.
What Is A Supply Agreement?
A supply agreement refers to a pact between two parties whereby one entity (the provider) agrees to give the other entity (the buyer) certain goods or services for the duration of the contract.
Typically, a supply agreement would contain the following details:
- The goods that will be delivered;
- ’The quality of the goods;
- The dates that the contract will begin and finish;
- Delivery procedures and rates; and
- Dispute resolution.
What Is An Exclusivity Clause In A Supply Agreement?
According to the written contract, an exclusivity declaration in supply contracts would:
- Stop the vendor from selling the same goods to another company.
- Stop the customer from promoting your business to a different provider.
- Unless stated otherwise in the term itself, these provisions would apply throughout the length of the contract.
Restrictions On Exclusivity Clauses
Exclusivity agreements may cause financial hardship for the company being held. They cannot benefit from any pay or other advantages that may come with greater opportunities. This disadvantage is detrimental if the project you are working on is lengthy. Exclusivity clauses can be detrimental to a business if the term of the contract is lengthy, as it prevents the parties from trading with other entities that may propose a better offer. As such, it is essential to be weary of signing any legally binding contract containing an exclusivity clause if you are considering upcoming opportunities that may be more fruitful for your business. Be sure to explore your options and seek the opinion of a solicitor.
Legal limitations to exclusive dealing in trade or commerce can be found in section 47 of the Competition and Consumer Act 2010. In order to avoid monopolisation, the law regulates the use of exclusivity clauses where there is an intent to remove all competitors.
Three crucial considerations will be taken into account when determining whether and exclusivity clause is lawful:
- If there are changes in the level of competitiveness for that product category;
- Whether a failure to deliver would result in the reduction of that commodity;
- If it adversely affects that product’s availability to other customers.
Exclusivity Clauses For A Supplier
A provider in a contract can pick from a variety of popular exclusivity clause variants, including:
- Dealing restrictions
- Clauses in a channel
- Products clauses
- Pricing provisions
Key Takeaways
- Exclusivity clauses safeguard your company and can lessen market rivalry
- Any exclusivity provision you draft or consent to can not be used only to create a monopoly. Exclusivity clauses help guarantee protection for stakeholders, but this requires careful wording of the provision.
- To ensure that an exclusion clause is legally binding and to avoid future disputes, consult a solicitor to draft the supply agreement for you.
Hire An Expert
Our solicitors can assist you in crafting a supply agreement containing an exclusivity clause that is both legitimate and in line with your company’s goals. With Lazarus Legal’s packages, you can consult with one of our knowledgeable lawyers for the best course of action for your company.
There are additional strategies to control your market rivalry. Our business lawyers also provide solutions for non-compete contracts, which forbid individuals from joining your rivals and, if properly structured, can continue to be in force long after they leave your employment.
Our team at Lazarus Legal is able to assist with a variety of exclusivity clauses, specialized laws, and corporate services. Contact us on +61 (02) 8644 6000 to discuss how we can assist you with your legal needs.
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Mark Lazarus, the visionary behind the business and the fresh blood of the Lazarus Legal team, Mark (or Laz as he is often known) owes much of his success to his past experiences. And he’s made it his personal goal to bring that wisdom and formula to the firm.