Don’t Pay Commissions on Sales to People You Already Know in Your Commission Sales Agreements

Commission-based sales contracts require the payment of a commission to a sales representative when a sale is made.  These contracts are commonly used in the sale of goods and services and real estate.

If you are the seller (i.e., commission payor), you should should try not to pay a commission on sales made to third parties with which you have an existing relationship.  The rationale is that the sales representative earns the commission only on those sales to customers that the representative introduced to the seller by the representative’s efforts.  The representative will generally agree to the carve-out as long as it is limited to the seller’s bona-fide pre-existing relationships, such as those customers to which the seller already sells on a regular basis.  If the representative is savvy, it will ask that an itemized list of excluded persons be set forth in the contract.

A simple carve-out to a commission sales obligation could be drafted as follows:

Unless [SELLER] otherwise agrees in writing, [SELLER] will not pay a commission on any [purchase orders from] [sale[s] made to] [NAMES OF EXISTING RELATIONSHIPS].

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