Quick Tip #3: Common traps of interrelated clauses: Finding yourself locked into the deal
This is the second of three common traps of interrelated clauses. If you’d like to know why we’re talking about these see Quick Tip #1.
Sometimes interrelated clauses will operate to lock a party into a deal. The interrelated clauses relevant to this are exclusivity, minimum commitments and termination charges when terminating for convenience.
Below are some of the common traps:
You may have a non-exclusive deal but onerous minimum commitments which would stop a customer from being able to engage any other supplier.
There could be a statement that a customer has a non-exclusive deal without minimum commitments, but that party is unable to terminate or exit the deal without very high termination charges that include a significant profit component. This would amount to a minimum commitment anyway and at worst, it actually benefits the supplier if you terminate for convenience because they get paid for not doing anything.
The charges schedule is often a commercial document reviewed by the commercial members of the team and not the lawyers. The legal terms may provide that the deal is non-exclusive, but the customer may later find that in the pricing schedule there are lots of mechanisms locking it into the supplier, like minimum commitments. The key message here is to ensure that each of the members of the negotiation team have a holistic view of the deal rather than a siloed approach to different parts of the contract.