A Contract Without an Exit

Key questions

Focused on getting into a deal, almost nobody thinks about how to get out of it. Yet the termination clause, not the price or the quota, is often what really decides who holds the power in the relationship.

So before signing, it is worth asking three groups of questions about the exit.

1. Are the notice periods the same for both sides?

Imagine a contract in which the supplier can end the cooperation at short notice, while the distributor can do so only at much longer notice. On paper it looks like an ordinary contract. In practice one side is bound far longer than the other.

Questions before signing: are the notice periods the same for both sides, or at least reasonably comparable? What happens if one side terminates and the other does not want that?

2. What happens to stock after termination?

After termination you are left with goods you have already ordered and paid for but not sold. If the contract is silent about this, the problem stays with you.

Questions before signing: who takes over unsold goods if the contract ends through no fault of yours? At what price? By when?

3. Is there a sell-off period?

Even when you lose exclusivity, the stock you hold is still your goods. The question is whether you may sell it, and for how long.

Questions before signing: is there a defined period after termination in which you can sell existing stock without contractual restrictions? How long does it last?

4. How to answer these questions

The answers are often outside the contract itself: in how much stock you hold, how fast it sells and how much the supplier actually needs you. For each question write down what the contract says, what you assume and what still needs checking.

A contract that does not consider its own end is not a contract that protects you. It is a contract written from the perspective of the side that drafted it.

Warning

This article is a business analysis, not legal, tax or financial advice. The decision is always yours.

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