8 LOCATIONS FOR
resources. Companies can avoid litigation regarding termination
by including a termination for convenience clause. Seasoned distributors and manufacturers understand that sales performance,
not words in a contract, ensure a long-term relationship.
Technically, if an agreement includes a termination for convenience clause, there is no real need for a termination for cause
clause. However, some people feel more comfortable when the
agreement includes a termination for cause clause. Although it
isn’t necessary, its presence does not represent a problem, provided that the contract also includes a provision for terminating the
relationship for convenience.
Distributors and suppliers have preferred term periods ranging
from months to decades. The majority of distributor agreements
nowadays specify an initial term of one or two years, with semiautomatic renewal that continuously adds one additional year to the
life of the agreement. The program is semiautomatic because renewal occurs automatically unless one of the parties sends a notice
of intention not to renew within 60 days of the end of the current
agreement. The benefits of such a regimen are threefold.
First, the agreement reminds the parties once per year that
there is a real possibility that the agreement and relationship may
end. Such a reminder is an opportunity to consider alternative
arrangements. Second, the agreement affords the parties an op-
portunity to terminate the agreement without calling a meeting
for purposes of announcing termination; an event that some peo-
ple tremendously dislike. Third, once per year, both parties have
an opportunity to discuss their contract face-to-face, and to make
minor revisions to the terms and conditions of the agreement.
Parties have the opportunity to propose and request signature on
a new agreement. When amendments are slight, parties are likely
to accept the new terms and conditions.
If the distribution agreement contains a termination for conve-
nience clause, having a term of more than one or two years serves
no purpose. A term of one or two years merely sets initial expec-
tations. Beyond the initial term, actual sales performance deter-
mines the duration of the relationship.
When negotiating your next distribution agreement, focus on
sales, profits, and market share. Use the agreement as the foundation on which to build a durable relationship. Never approve or
sign a one-way or unbalanced distribution agreement. Ensure that
either party may terminate the agreement for convenience, without stating cause. Build an agreement that, after the initial term
of one or two years, semi-automatically renews for an additional
one year term on a repeating basis.
Glen Balzer is a widely published author on distributor and representative relationships and agreements, sales organizations, and
commissions. He can be reached at email@example.com.