Network Contracts
ADVISER BEWARE – Read the contract fully!
Before finalising any network or principal contract, it’s crucial to thoroughly review the terms and seek independent legal advice. This can save you from potential pitfalls and costly mistakes. Below are some important clauses to pay attention to.
Firstly, it may seem counterintuitive to consider exit or termination terms at the beginning of a relationship, but it is imperative. As relationships, propositions, or businesses evolve, it is essential to have the flexibility to adapt with minimal disruption and cost to your business.
- Contract Term: Be aware of the full contract term, whether it’s an initial or fixed term.
- Auto-Renewal: Understand if the contract renews automatically and note the end date.
- Penalty Clauses: Exiting early could involve significant penalties—renegotiate or request more favourable terms.
- Notice Period: Notice periods can vary widely. Make sure you’re informed to avoid being overly restricted.
- Client Solicitation/Marketing Rights: Know your rights regarding client contact, especially for clients provided by the firm versus self-generated ones.
- Restrictive Covenants: Some may be unenforceable if they are overly restrictive, but some could delay or even end your plans before you start.
- Commissions in Clawback Period: Be mindful of potential repayment obligations when exiting, there are examples where any commission in claw-back period having to be repaid.
- Pipeline Freezing During Notice Period: Frozen pipelines equals no payments being made and can greatly impact your plans if the notice period is long.
If the contract is overly restrictive or one sided, do not be afraid to walk away. Ask yourself if you would like to work with a company long term if they are prepared to put such a contract in front of you.
While this isn’t a fully comprehensive list, it serves as a starting point to help you make informed decisions. Always align your decision in choosing a principal with your requirements, values and professional goals.
For further guidance, contact network consulting.
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