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Craft Beverage

from waiving its rights), there are ways an attorney
may help bring balance to the supplier/distributor
relationship. Some of the key terms to negotiate
include termination, territory, brand scope, and
exclusivity.

Termination

The most critical section of the agreement sets
forth the manner and circumstances under which
a supplier may terminate the distributor. In a fran-
chise state, the law typically says that a supplier
may terminate for “good cause.” If good cause is
defined in the law, it is paramount that the distri-
bution agreement mirror the language of the law,
because in many cases, a contract that contradicts
the law will be held invalid, leaving the supplier in
the position of effectively not having an agreement
at all.

For example, the Virginia Beer Franchise Act states
that good cause includes “failure by the wholesaler
to substantially comply, without reasonable cause
or justification, with any reasonable and material
requirement imposed upon him in writing by the
brewery.” Further, the Act provides, “good cause
shall not be construed to exist without a finding of
a material deficiency for which the wholesaler is
Distribution Agreements: responsible.” Tracking that language, a distribution
agreement in Virginia should clearly define certain
of the distributor’s obligations as “material require-

Negotiate Your “PreNup” Carefully ments” and explicitly define certain actions as
“material deficiencies.” For example, the Virginia
law identifies failure to “maintain a sales volume”

By: Brian D. Kaider, Esq. of a brewery’s brands as being a reasonable and
material requirement. But, the law does not spec-
ify what volume is required. So, the distribution
agreement should clearly lay out specific minimum
sales volumes (preferably on an escalating scale)
and identify the requirement to hit those volumes
as a material requirement of the contract.

When the law does not define good cause, and
in non-franchise states, it is essential for the dis-
tribution agreement to do so. The contract should
clearly set forth the distributor’s requirements
that are critical to the business relationship and
for which failure to perform will be grounds for
termination. Examples of common requirements
include: meeting specified sales and marketing
goals, maintaining appropriate records and reports
regarding inventory and sales, transporting and
storing the product under specified temperature

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