What is an exclusive agreement?

For the average citizen, who has been involved in no more than a couple of real estate transactions in his life, the concept of “ exclusive agreement ” evokes associations with something privileged or special. However, in real estate practice, this term is interpreted in a slightly different sense: with such a contract, the owner or his authorized representative allows only one specific person to work on the sale of real estate. This role is usually played by a real estate agency in any organizational and legal form.

What does cooperation under an exclusive agreement mean?

There are no strict requirements for the content of an exclusive agreement: every self-respecting agency in Russia has its own layout of this document. But regardless of its form and execution, the agreement carries the meaning of a declaration of the contractor’s obligations to find a suitable buyer for the real estate sold by the client, support in the future at showings, organize the transaction and transfer of related documentation to the registration authorities. In turn, the customer of the service undertakes:

do not involve other real estate agencies to complete the sale transaction;
fulfill the requirements of “your” realtor within the framework of the contract concluded with him;
provide the opportunity to demonstrate the property being sold to persons interested in purchasing;
show up with all the documents on the day appointed for the transaction;
pay for the work of the performer, and the amount of remuneration is calculated individually and fixed in the contract.

In the specialized business community, exclusive work falls into the category of progressive practices that provide transparent and mutually beneficial conditions for interaction between the customer and the contractor. These advantages become even more relevant in light of the absence in Russian law of any specific regulations governing real estate activities. In fact, the conclusion of such a contract becomes a guarantor of a civilized format of communication in the seller-broker-buyer system.

Contract price

Alienation of exclusive rights presupposes the conclusion of a paid transaction. That is, for the alienation of rights to a work, the Copyright Holder receives a monetary reward, which is provided for in the contract. Moreover, if the Copyright Holder is an employee of the Acquirer’s organization, his remuneration may be included in his salary or bonus. So, the section on the cost of the contract looks like this:

In accordance with this agreement, the copyright holder's monetary remuneration is included in his salary. The salary amount is specified in the employment contract concluded between the Copyright Holder and the Institute.

Why is it beneficial to work with an exclusive agent?

Competition between realtors is high, and therefore at first glance it may seem that “tying” a client to a particular agency is primarily beneficial to the agency itself. However, this position is amateurish for a number of reasons:

An agreement is a guarantee of receiving payment for the organizational and legal work done. Nobody wants to give all their best for the benefit of the client for free, and therefore making exclusive transactions is a priority for any real estate company. For the seller, this results in confidence that his property will be sold quickly and at an expensive price. The possibility of receiving a larger amount in this case is explained simply: the higher the price the realtor can negotiate, the more money he will receive in the end.
Transferring the functions of selling real estate to only one organization eliminates the risk of duplicates appearing in real estate databases. Such repetitions are harmful, again due to the high competition of agents who, in an effort to sell an object, can reduce its value. As a result of many realtors working simultaneously with the same apartment, its price inevitably drops, which is unprofitable for the seller.
In recent years, integration processes between agencies have intensified, so the search for a buyer traditionally begins with communication with colleagues from other firms. In this case, the presence of a signed exclusive agreement is the guarantee of paying part of the remuneration to the agent who can bring a reliable buyer. Indirectly, this circumstance affects the speed and reliability of the transaction.

Item

The inclusion of a section on the subject in the text of the document is an essential condition of this type of contract. In our case, the subject is understood as that object, the exclusive rights to which are alienated in favor of the Acquirer. The object of intellectual property can be various works. These may be:

Musical works;
Lyrics;
Books (fiction);
Manuals and articles (for example, scientific literature).

Thus, many works can be considered as the subject of intellectual property. So, below we give an approximate example of the design of a section about the subject:

In accordance with this agreement, the Copyright Holder alienates into the ownership of the Acquirer, for a fee specified in the agreement, the exclusive rights to the following object of intellectual property: Educational and educational manual “Music Theory”, containing educational and methodological materials. The manual includes 17 chapters and consists of 54 pages. The original work is transferred to the Buyer in paper form, a copy is sent by email as an electronic file in PDF format. The copyright holder guarantees that he is the author of the work.

Are there any pitfalls?

If the contract states that the property will be sold at the highest possible price, this does not guarantee the seller will receive an amount higher than the average market value. Here you need to think sensibly and proceed from the characteristics of the property.

A particularly advantageous location, excellent layout or other bonuses increase the price tag, but not every apartment or house can boast of such advantages. Therefore, even with a competent approach to an advertising campaign or the use of special sales channels, such an average object is in no hurry to sell. If the exclusive period expires, the realtor will begin to reduce the price to ensure his obligations to the customer.

In such a situation, it makes sense to extend the contract, but sometimes it is better to terminate it. In the second case, you need to be careful: some companies stipulate penalties for customers who terminate the agreement ahead of schedule and unilaterally.

When choosing a company to cooperate under an exclusive agreement, you must take a very balanced approach to assessing its professionalism and business reputation. This type of work is very popular in the specialized environment, and therefore has ceased to be a guarantor of integrity.

Features of distribution agreements under Singapore law

1. DISTRIBUTOR AGREEMENTS UNDER SINGAPORE LAW

There is no specific regulation for distribution agreements in Singapore. Basic principles of contract law apply to such contracts. The legal system of Singapore is based on English law, and situations in which Singapore courts, when considering a case, rely on English court decisions, including on distribution agreements, are a common occurrence.

A distribution agreement is an agreement under which a distributor purchases goods from a manufacturer or supplier and resells them on its own behalf. Distribution agreements may vary depending on the conditions under which the distributor is granted the right to resell goods in a certain territory:

A regular distribution agreement with a direct indication of the lack of exclusivity (“ Non - exclusive distribution agreement ”) allows the manufacturer to both appoint an unlimited number of other distributors and sell the goods independently;
A distribution agreement with an exclusivity clause (“ Exclusive distribution agreement ”) provides for the right of the distributor to be the only person authorized to make sales;
An exclusive distribution agreement (“ Sole distribution agreement ”) limits the manufacturer's ability to appoint other distributors, but allows him to make sales simultaneously with the distributor.

Distribution agreements differ from a purchase and sale agreement because they include additional rights and obligations of the distributor and the manufacturer: provisions for the distributor to promote the manufacturer’s goods, conduct advertising campaigns and market research, non-competition obligations, etc. Distribution agreements also differ from an agency agreement, in which a resale situation does not occur: the agent sells goods on behalf of the principal, while the distributor acts on his own behalf.

A distribution agreement may be mistakenly called an agency agreement, and vice versa. In this case, the courts will find out the true nature of the agreement, without taking into account how it was named. If an agreement is called a distribution agreement, but in fact it is an agency agreement, the courts will consider it precisely as an agency agreement.

2. NEGOTIATIONS ON CONCLUSION OF A DISTRIBUTOR AGREEMENT

During the negotiation process before concluding a distribution agreement, the parties often exchange oral opinions regarding the commercial terms and procedure for executing the future agreement. All promises made by the parties should be carefully recorded, as they may be perceived as representations . Violation of assurances about the circumstances, even if they were not recorded in writing in the distribution agreement, may lead to termination of the contract and the recovery of damages from the violating party.

In Honey Secret Pte Ltd v Atlas Finefood Pte Ltd & others [2016] SGHC 164, the Singapore High Court found that, before entering into a distribution agreement, a supplier made false representations to the distributor regarding (1) the existence and size of a customer base in Singapore; (2) the terms of the agreement: the supplier promised that 60% of the volume in each order of the distributor would already be pre-sold to its customers; and (3) the cost: the supplier claimed that the distributor would be able to sell the goods with at least a 20% markup.

These assurances were given orally during negotiations to enter into an exclusive distribution agreement. During the trial, it turned out that the supplier’s customer base was much smaller and that it was impossible to ensure pre-sales of orders in these volumes. In addition, the supplier did not provide the distributor with a list of clients, and also did not deliver part of the already paid orders. The court supported the distributor, recognizing his unilateral refusal of the contract as valid, and recovered damages from the supplier.

3. CONCLUSION OF A DISTRIBUTOR AGREEMENT

In Singapore, as in most jurisdictions, for the terms of a distribution agreement to be enforceable, the contract must be agreed to, executed and in force at the time of the specific supplies. Otherwise, the order for a batch of goods will be recognized as a separate agreement for the one-time purchase and sale of goods, not related to the distribution agreement.

a signature on a contract is not in itself a determinant of the existence of a contract[1], and the court must take into account the entire sequence of negotiations to determine whether the parties have reached an agreement. In William Jacks & Co (Singapore) Pte Ltd v Nelson Honey & Marketing (NZ) Ltd [2015] SGHCR 21, the Supreme Court of Singapore considered whether an agreement was concluded by virtue of the existence of a draft exclusive distribution agreement which the parties had negotiated. . The court concluded that there was no agreement between the parties. It was found that in order to conclude an agreement, one of the parties required the approval of a higher office, which was not received at the time of completion of negotiations.

In the same case, the court indicated that actions aimed at fulfilling the contract also do not confirm the fact of its conclusion. The order, which the distributor demanded to be recognized as related to the distribution agreement, did not comply with its terms in terms of delivery territory, trademarks, Incoterms® delivery basis, etc.

If expired , the supplier has the right to appoint another distributor, even if it continued to supply goods to the previous distributor for some time. In Citrus World Inc v Neotrade Marketing Pte Ltd [2000] SGHC 283, the distributor believed that the supplier's conduct constituted a renewal of the contract. The distributor claimed that the supplier had wrongfully terminated the exclusive distribution agreement and declared that the supplier's claims for payment of the purchase price were set off. The court, however, stated that regardless of the distributor's motivation and investment in promoting the product, the supplier was entitled to appoint another distributor since the distribution agreement had expired.

4. NON-COMPETITION OBLIGATION AND CONSEQUENCES OF ITS VIOLATION

One of the characteristic obligations under a distribution agreement is the non-competition obligation (“ Non - Competition Clause ”). It is especially common in distribution agreements with an exclusivity clause and in exclusive distribution agreements. This obligation prohibits the distributor, during the term of the agreement (and sometimes for some time after its termination), from purchasing and selling goods of the supplier’s competitors in a certain territory.

The non-compete covenant is intended to protect the interests of the supplier. These measures are taken to avoid competition that would interfere with the distribution of the supplier's products in the distributor's market. However, if a non-compete clause is worded incorrectly, it may invalidate the non-compete clause under Singapore law. The non-competition covenant must be intended to protect the legitimate interests of the supplier (for example, customers), be reasonably necessary and sufficient, and must not be contrary to the public interest.

In some cases, a non-competition clause, although not expressly stated in the contract, may be recognized as an implied term arising from the situation and circumstances of the case.[2]

subject to damages for violating the non-compete covenant . In the Supreme Court case of Slide & Hide System (S) Pte Ltd v Chua Seng Guan [2009] SGHC 191, the contract contained a non-compete clause that applied both during the term of the contract and for two years after its termination . The distributor violated the non-competition obligation, as a result the supplier recovered damages from it in court.

5. TERMINATION OF THE DISTRIBUTOR AGREEMENT

The distribution agreement may contain a list of grounds upon which the agreement is terminated or ceases to be valid. Such grounds can be divided into two categories:

Termination of the distribution agreement “without fault” (“no-fault”). In this case, termination of the contract may be associated with the sending of a notice of termination by one of the parties or with the expiration of a certain period agreed upon by the parties (for example, for extending the contract).

Termination of the distribution agreement “for cause”. These grounds for termination of the contract are associated with certain actions of one of the parties or events, for example, failure by the distributor to fulfill minimum order quantities, bankruptcy of the supplier, violation of obligations to pay for goods, etc.

The mere breach of a contract does not allow the non-breaching party (the "innocent party") to claim termination. In the judicial practice of Singapore[3], a multi-stage test has been developed to determine the right of the innocent party to terminate the contract:

Situation 1: if the contract expressly states that the occurrence of certain events gives the party the right to terminate it;
Situation 2: If the party breaking the contract repudiates the contract by his words or behavior because he clearly makes it clear to the innocent party that he will not fulfill his contractual obligations;
Situation 3a: if the violated provision of the contract is a condition , and not a guarantee. Under the so-called condition-warranty approach, the innocent party has a right to terminate if the breached provision is a condition rather than a warranty. Here, unlike the next situation discussed below, the focus is not so much on the consequences of the violation, but on the legal nature of the violated provision.
Situation 3b: If the breach of contract deprives the innocent party of substantially all the benefits that were intended to be obtained from the contract. Unlike the previous situation, the focus is on the nature and consequences of the breach of contract.

Since Situations 3a and 3b use mutually exclusive approaches, Situation 3a should be applied first, and if it turns out that the breached contract provision is not a condition, then Situation 3b.

In Sports Connection Pte Ltd v Deuter Sports GmbH [2009] 3 SLR(R) 883, the Supreme Court of Singapore decided whether a breach of a non-compete covenant . The distribution agreement contained a provision that the distributor had no right to sell goods that compete with the supplier's goods without the supplier's prior written consent. The supplier cited a violation of this condition by the distributor and declared the contract terminated.

The court applied the Case 3a test above and found that the non-compete covenant as contained in the distribution agreement was not a condition . Based on the circumstances, the parties, and especially the supplier, did not intend to consider this condition a strict prohibition. Applying the Case 3b test, the court found that the distributor's breach of this obligation did not materially deprive the supplier of the benefit it intended to receive under the distribution agreement. Consequently, violation of this condition cannot be considered a sufficiently serious reason for terminating the distribution agreement.

In another case, Parfums Rochas SA and others v Davidson Singapore Pte. Ltd and another [2000] 1 SLR (R) 397 distributor was severely late in paying for goods supplied. Although the parties entered into a settlement agreement to pay off the debt, the supplier wanted to terminate the distribution agreement. The court stated that the distributor's failure to fulfill its obligations was either not proven or was not a serious enough breach to give the supplier a right to terminate the contract.

[1] Lim Koon Park and another v Yap Jin Meng Bryan and another [2013] 4 SLR 150

[2] Gentali (M) Sdn Bhd v Kawasaki Sunrock Sdn Bhd (No 3) [1998] 5 MLJ 409

[3] Sports Connection Pte Ltd v Deuter Sports GmbH [2009] 3 SLR(R) 883; RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR 413; Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR 663 et al.

When is it profitable to enter into it?

When many people think of the word “dealer,” the first thing that comes to mind is the car dealership industry. What are the benefits of such a transaction and why is a dealer agreement concluded, for example by an automobile concern? Thanks to this agreement, it becomes easier for the manufacturer to sell its products:

there is no need to open a store yourself;
if there is a dealer agreement from the manufacturer of the product, the buyer has more confidence in the product;
the seller does not bear the cost of advertising in a certain region; promotion throughout the country is sufficient.

Such deals are beneficial to large concerns that supply products throughout the country; it is easier for them to sell products through an intermediary. Such a deal is especially beneficial for foreign companies selling goods through an intermediary; he knows the local market better and the characteristics of purchasing power in the desired territory.

Existing legal structures of transactions named in the Civil Code of the Russian Federation do not allow the parties to use a specific type of contract and specify all the conditions and obligations of the parties, since the conditions are specific.

Other conditions

General conditions that do not fall within the scope of the above sections are indicated here. These include the following provisions:

• Exclusive rights are alienated in favor of the acquirer at the time of signing this agreement. • The parties are responsible for failure to comply with the conditions specified in the text of this agreement.

The parties to the agreement may prescribe other conditions depending on their will.

At the end of the agreement, the signatures of the parties are placed, and after this the agreement on the alienation of exclusive rights is considered concluded.