What Is the Dealer Agreement?
An authorized dealer agreement or dealer contract is a legal document outlining the terms of the engagement between a vendor and a distributor. The agreement can also be referred to as dealerships or a selected dealer agreement, and it generally contains the contract details, including the payment means, delivery date, and the contract’s purpose.
The primary difference between a dealer manager agreement or a dealership and distribution agreements is the parties involved in the contract. In a distribution agreement, a manufacturing concern is involved while in a dealer manager agreement, a trader involved in supplying goods is involved.
Who Takes the Dealer Agreement? – People Involved
The dealership agreement can be vital to two parties with the same requirements and needs. These parties generally include a dealer and a distributor or vendor. In some special cases, more than one distributor can be involved in the agreement. The dealers may be referred to as value-added resellers or retail distributors as well, while distributors can be considered as distributorships.
Purpose of the Dealer Agreement – Why Do You Need It?
This agreement can prove fruitful when there is a coincidence of interests of two parties. The purpose of this agreement is to establish the nature of the relationship both parties will have as part of the agreement. It will describe the rights and responsibilities of the parties in selling the goods. The representation of the seller by the distributor is an important term here.
Contents of the Dealer Agreement
A dealership agreement or dealership has several aspects and components to cover up, and here are the most vital ones:
- The Sale Terms and Conditions: The agreement must conclude every term and condition regarding the sale of the said goods.
- Obligations of the Dealer: The dealer should promise to maintain appropriate stock levels and a good business place with competent staff members who shall be trained periodically. The dealers shall also comply with all the relevant laws.
- Delivery: The dealer shall be responsible for payment of all associated costs involved in transferring the goods to the customer while maintaining adequate end user assistance.
- Assignment: All assignments should go through the approval of the seller. The dealership should not take strategic decisions without involving the seller.
- Credit and Return Policy: The credit and return policy shall be uniform and made in consultation with the seller. It shall be based on a uniform policy across all regions.
- The Time: The dealership should also mention the period it stays in effect.
- Marketing rights: It should also specify the marketing rights of the dealer after entering the agreement.
- Trademark Licensing: The agreement must contain the details about the usage of trademarks.
- Geographical Territory: Every party must be aware of the geographic territory the agreement covers.
- Task Performance: The demanded tasks and actions must be specified, as well.
- Reporting: The means of reporting also needs to be cleared.
- Termination Circumstances: The agreement must showcase the situations that can nullify or terminate the agreement.
How to Draft the Dealer Agreement?
Some points that are important in drafting the authorized dealership agreement are
- The rights that would be granted to the dealer to take decisions for selling the products
- The nature of the products that would be sold in the dealership and whether it would be an exclusive dealership or not
- The particulars and ambiance of the dealership place of business to represent the business
- The terms of sale and the permissions that the seller gives the dealer to do, or the restrictions placed on him for certain activities
- The ratio of splitting the revenue from the sale and any other remuneration that may be offered.
- The marketing campaigns that may be undertaken and the financial responsibility for paying those costs.
- Indemnification policies for the dealer, the distributor and the seller
- Warranty policies and defective pieces and whether those defects have occurred at the dealership or prior to that
- The termination of the contract and the obligations on the termination of the contract.
- Details of assignment powers that might be offered to the dealer or the distributor
- Responsibility of compliance with all the relevant laws.
Negotiation Strategy
The following points must be taken into account before forming a dealer agreement:
- The dealer must be paid adequately for his services.
- No party should be unfairly privileged as part of the agreement.
- The duties must be clearly and equally distributed.
- The consideration amount must be decided before the formation of the agreement.
Benefits and Drawbacks of the Dealer Agreement
A dealership agreement has numerous advantages and disadvantages. Here are some of them:
- It provides an opportunity for the seller to enter new markets
- It reduces logistics costs by having a warehouse in the form of the dealership where the customer wants it
- Since the dealer can be a local person, a dealership agreement helps in promoting the business
- It protects the interests of both parties so that adequate compensation is paid to both.
- Drafting a dealer manager agreement ensures that each party is aware of his obligations
Drawbacks:
- Due to the physical distance between the seller and the dealer, enforcement of the agreement can become a problem
- It can be difficult to identify whether the dealer is adhering to all the terms of the contract.
- Any omissions or misrepresentations can take a long time to be resolved due to the issue of jurisdiction for conflict resolution
What Happens in Case of Violation?
As the dealership agreement is an agreement enforceable by law, it can be considered a contract. This means the violation of a dealership can be considered a breach of contract as well.
After both the conditions are fulfilled, the party can then be sued for damages. In such a case, the affected party gets the right to either continue the contract or cease it. If the party has incurred losses or damages because of the contract, then they may approach the court for restitution(1) or payment of damages.
A dealer agreement is a contract between a vendor or distributor and a dealer. The dealership contract contains key points like termination circumstances, contract period, territory involved, trademark licensing, and duties, among others. In a dealer contract, a dealer agrees to distribute the goods of a seller for a decided price. The agreement is ideal when the interests of both the dealer and vendor meet.