Distribution Agreement template

Overview

A distribution agreement governs a relationship in which a distributor buys products from a supplier and resells them, in its own name and for its own account, to end customers or sub-distributors within an agreed territory. Unlike a commercial agent, who negotiates or concludes sales on the principal's behalf without ever taking title to the goods, a distributor takes ownership of the products and bears its own commercial risk on resale — this is an important structural distinction from the separate commercial-agency-agreement template, and means the Commercial Agents (Council Directive) Regulations 1993 do not apply to a genuine distribution arrangement. The Sale of Goods Act 1979 governs the supply of goods from supplier to distributor, implying terms as to satisfactory quality, fitness for purpose and correspondence with description, which for a B2B sale can be excluded or limited subject to the reasonableness test under the Unfair Contract Terms Act 1977. Where the distribution arrangement is exclusive or involves territorial or customer restrictions, it must be checked against UK competition law — principally the Chapter I prohibition under the Competition Act 1998 (mirroring, since Brexit, the equivalent EU rules but now applied and enforced separately by the UK's Competition and Markets Authority), which prohibits agreements that restrict competition unless they qualify for an exemption. The vertical agreements block exemption generally permits standard exclusive distribution and territorial protection clauses provided the supplier's and distributor's market shares each remain below 30%, but hardcore restrictions — such as fixing the distributor's resale prices (as opposed to recommending a resale price) or an absolute ban on passive sales outside the territory — are not exempted and risk being void and unenforceable. When to use it: whenever a supplier appoints a distributor to buy and resell its products, whether on an exclusive, sole or non-exclusive basis, within a defined territory. Parties: the supplier (who manufactures or sources the products) and the distributor (who buys and resells them in its own name and for its own account). Key clauses: the products covered and the territory or customer group; exclusivity (or not) and any minimum purchase or sales targets; pricing and payment terms for supplier-to-distributor sales; the distributor's obligations (stocking, promotion, after-sales support); intellectual property and trade mark usage in marketing; competition law compliance (no resale price maintenance, no absolute territorial or customer restrictions beyond what the block exemption permits); warranties and product liability allocation; and term and termination, including notice and stock buy-back on termination. Pitfalls to avoid: fixing the distributor's resale prices (as opposed to suggesting a recommended retail price), which is a hardcore restriction under UK competition law regardless of the parties' market shares; imposing an absolute ban on the distributor responding to unsolicited (passive) sales requests from outside its territory, rather than only restricting active sales; and failing to address what happens to unsold stock and outstanding orders when the agreement ends.