3 types of resale agreements: choosing the right kind for your business
Resale agreements are contractual arrangements governing the relationship between suppliers or manufacturers and resellers, outlining the terms and conditions for reselling specific products.
In most resale agreements, the supplier sells products to the reseller, who then resells them to end customers with a margin for costs and profit.
In this blog, we delve into the various types of rights granted by resale agreements. These agreements encompass different types of appointments, each offering different privileges or barriers to the involved parties.
Rights granted by resale agreements
These agreements come in various types, each granting distinct rights:
• With exclusive rights, the reseller is given exclusive rights to resell the products in a specific geographical location. There can also be several resellers in one territory with exclusive rights (known as selective rights).
• This option is sought after by resellers with strong bargaining power, as it offers a competitive edge and allows them to set profitable prices without undercutting by competitors. The supplier also commits not to appoint other distributors or directly sell to customers in that territory.
• It's essential for suppliers to ensure that exclusive resale agreements comply with the Vertical Agreement Block Exemption Order (VABEO) to benefit from its automatic block exemption from competition laws. For more guidance about VABEO, check out the Government website.
• Due to the rules set out by VABEO, other resellers cannot make active sales in an exclusive territory. However, they can make passive sales, which means they can sell to customers who approach them, but they cannot actively market or solicit sales within the exclusive territory.
2. Sole rights
• Under this type of agreement, the supplier cannot appoint other resellers in a particular territory but the supplier has the ability to directly supply products to end-users.
• This arrangement benefits suppliers by allowing them to promote their products in the territory while maintaining relations with existing customers.
• This kind of resale agreement can also be advantageous for resellers as they can focus on their specific market without concerns of oversaturated competition.
• This is the least restrictive type of resale agreement as the supplier has the freedom to sell directly to end customers and appoint other resellers in the territory.
• The reseller’s obligations are less demanding compared to the other types of resale arrangement, as the reseller needs to compete with both the supplier and other distributors regarding pricing and product promotion.
If you want to create your own resale agreement with the ability to choose the right type of appointment rights for your resale relationship, you can take a look at this template.
Since Brexit, the UK has its own specific framework for assessing vertical agreements, which include resale agreements. Vertical agreements are contracts that operate up and down a supply chain.
Most resale agreements benefit from the automatic block exemption granted by the VABEO, provided they meet certain criteria, falling outside the scope of prohibitions against anti-competitive agreements in the UK. However, competition law concerns may arise if a party holds a substantial market share or if the resale agreement contains hardcore restrictions, such as fixing resale prices, imposing excessive non-compete clauses exceeding 5 years, or absolute bans on internet sales.
Why use Docue’s resale agreement?
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Tags: resale agreement, exclusivity, exclusive resale agreement, non-exclusive resale agreement, sole rights resale agreement
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