What is Distribution agreement?

The first question to settle in any reseller arrangement is whether it is distribution or agency, because the legal consequences diverge sharply. A distributor buys the goods, becomes the owner, and earns the spread between purchase and resale price. A commercial agent never takes ownership, negotiates in the supplier's name, and earns commission. Agency relationships attract mandatory statutory protection across the EU, including a goodwill or indemnity payment on termination. Distribution has no equivalent statutory regime, which means the contract itself does nearly all the work.

Five provisions carry most of the commercial weight. The territory or segment defines where the distributor may sell. The exclusivity terms determine whether the supplier may appoint others or sell directly into the same territory. Minimum purchase or turnover commitments set the volume the distributor must move. The price and discount structure determines the margin. And the termination clause governs notice, remaining stock, warranty obligations, and orders already in the pipeline.

Competition law draws the outer boundary. The Vertical Block Exemption Regulation (EU) 2022/720 treats supplier and distributor arrangements as permissible in principle where both parties hold less than 30% market share. Certain restrictions remain prohibited even below that threshold, most notably fixing resale prices or imposing a minimum resale price. Recommended and maximum prices are allowed, provided they do not operate as fixed prices in practice. Blanket bans on passive sales, where the distributor simply responds to customers who approach it unprompted, are generally not permitted either.

Termination is where these agreements most often end up in dispute. An open-ended distribution agreement with no notice provision must be terminated on reasonable notice, and reasonableness depends on how long the relationship has run, what the distributor invested, and how dependent it became. A distributor that spent fifteen years building the brand, fitted out a warehouse for it, and now draws 70% of turnover from that single brand has a strong case against three months' notice. Writing a concrete notice period into the contract removes that argument entirely.

Stock left at the end belongs in the same clause. A distributor holding 85,000 euros of branded product on the day the agreement ends needs to know whether the supplier buys it back and at what price. Without an agreed mechanism the distributor is left holding inventory it is no longer permitted to sell under the brand. A buy-back clause at purchase price less an agreed depreciation percentage settles the question in advance.

For a wholesaler, the distribution agreement is often the single highest-value contract in the portfolio and also the one that goes longest without review. Terms agreed a decade ago rarely reflect current volumes, margins, or sales channels, and neither party has an incentive to reopen a document that is technically still working.

World Commerce & Contracting puts the average loss from poor contract management at 9.2% of annual revenue. In distribution the loss rarely comes from a missed notice deadline. It comes from discount tiers that no longer match volumes, exclusivity granted in exchange for commitments that quietly lapsed, and purchase obligations set for a market that has since moved.

The practical conclusion is that a distribution agreement needs a review date of its own, separate from its renewal date. A contract that simply continues can still cost margin every year it does.