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Drafting a distribution agreement involves fully documenting the commercial arrangements between the supplier and the distributor: the product, the territory, any exclusivity, the purchasing conditions, the duration, and termination. Because the law does not regulate distribution separately, the contract determines virtually everything. Two topics require extra care: the demarcation from agency, so that the distributor does not unintentionally fall under mandatory agency rules, and competition law regarding exclusivity and price agreements. What should be included is listed below.
The short answer
- Describe the product: which products and which versions.
- Determine the area: the sales area and whether it is exclusive.
- Manage purchasing: prices, discounts, minimum order quantities, and delivery.
- Specify the term: duration, renewal, and notice period.
- Rule on termination and customer value: because the law does not.
- Test against competition law: no price fixing, exclusivity within limits.
Drafting a distribution agreement: the core provisions
Start with a clear description of the products and the territory. Specify which products are covered by the agreement, in which country or region the distributor may sell, and whether this is exclusive. In the case of exclusivity, you agree that the supplier will not appoint other distributors within that territory, and sometimes that the distributor only carries those products.
Next, arrange the purchasing conditions: prices or price list, discounts, payment terms, delivery, and transfer of risk. Include agreements regarding a minimum purchase quantity if you expect a certain volume, and what happens if this is not met. Also, do not forget the practical aspects, such as inventory management, warranty, returns, and the use of the brand and promotional material.
Prevent the distributor from becoming an agent
A distributor acts in his own name and on his own account and therefore does not fall under the mandatory agency rules of Articles 7:428 to 7:445 of the Dutch Civil Code. This saves the supplier, among other things, the statutory compensation for damages under Article 7:442 of the Dutch Civil Code. When drafting, you want to keep that dividing line clear.
Therefore, pay attention to provisions that steer the distributor toward the role of an agent. Consider an obligation to surrender all customer data, remuneration that effectively resembles commission, or strong control where the distributor bears hardly any own risk. The more the actual conduct resembles agency, the greater the chance that a distributor will claim compensation at the end by analogy with the agency rules. If you want an arrangement regarding accumulated customer value, formulate it explicitly and as a separate contractual agreement, not as a disguised agency structure.
Stay within competition law
Distribution is a vertical agreement and falls under Article 6 of the Competition Act and Article 101 TFEU. Two pitfalls require attention during drafting:
- Price fixing: do not impose a fixed or minimum resale price. This is a serious restriction and is prohibited. A maximum price or a non-binding recommended retail price is generally permitted.
- Exclusivity: an exclusive territory is allowed, but you may not completely prohibit distributors from responding to customers from outside their territory.
- Market share: under the European block exemption for vertical agreements, many agreements are exempt as long as both parties remain below a 30 percent market share.
- Non-competition: a non-competition clause during and after the term is permitted, but is limited in duration and scope.
A clause that violates competition law may be void, and sometimes this affects the entire agreement. Therefore, review these elements carefully.
Term, cancellation and termination
Since there is no statutory termination provision for distribution, the contract itself must regulate this. Agree on whether the agreement applies for a fixed or indefinite period, the notice period, and the grounds on which you can terminate it prematurely. Bear in mind that in a long-term distribution relationship, a judge may require a reasonable notice period, even if you have agreed on a short term, especially if the distributor has invested significantly. Furthermore, regulate what happens to stock, outstanding orders, and the use of the brand at the end of the agreement.
Practical example
A manufacturer of garden tools appoints a distributor for the Belgian market. In the agreement, he grants exclusivity for Belgium, with a minimum annual purchase volume. He includes a recommended retail price but no fixed price, as price fixing is prohibited. Regarding customer data, he agrees that it will remain the property of the distributor, so that no agency-like transfer obligation arises. The term is three years with a notice period of six months, which is appropriate given the investment made by the distributor.
Honest recommendation
For a small, non-exclusive supply of limited scope, clear purchasing agreements and good general terms and conditions are often sufficient. An extensive distribution agreement is excessive in this case, especially if you are still testing whether a market is receptive.
Have a lawyer draft the contract as soon as exclusivity, a long term, or major investments are involved, or as soon as you go international. At that point, it comes down to the demarcation from agency, the limits under competition law regarding price and exclusivity, and a watertight termination arrangement that the law does not provide for you. A specialized SME lawyer ensures that no clause violates Article 6 of the Competition Act and that the distributor cannot later claim compensation by analogy with the agency rules.
Want to read more? View the distribution agreement product page, first read what a distribution agreement is and see what it costs to have a distribution agreement drafted.
Frequently Asked Questions
A description of the product and the territory, any exclusivity, the purchasing conditions with prices and minimum purchase quantity, the duration and notice period, and a termination clause. Since the law does not regulate distribution, the contract determines virtually everything.
Require the distributor to act in its own name and on its own account, and avoid provisions resembling agency, such as a mandatory transfer of all customer data or a commission-like remuneration. This way, the mandatory rules of Art. 7:428 et seq. of the Dutch Civil Code remain out of the picture.
No. A fixed or minimum resale price is vertical price fixing and is prohibited under Article 6 of the Competition Act and Article 101 TFEU. A maximum price or a non-binding recommended price is generally permitted.
Yes, an exclusive territory is allowed, but you may not completely prohibit distributors from responding to customers outside their territory. Under the European block exemption, this is often permitted with a market share of less than 30 percent.
Do this yourself, as there is no statutory termination provision. Specify the duration, notice period, and grounds for dissolution. Bear in mind that in the case of a long-standing relationship, a judge may require a reasonable notice period, especially following significant investments by the distributor.
Yes. A clause that violates competition law may be void, and depending on the context, this can affect the rest of the agreement. Therefore, carefully review exclusivity, price, and the non-compete clause.
For a small, non-exclusive supply, a simple agreement based on a good template may suffice. In cases of exclusivity, a long term, or international distribution, it is advisable to have a lawyer draft the contract.
