What Is Take Or Pay Agreement
Then come the benefits of the take-or pay contract: the seller is therefore required to invoke and prove that the seller continues to suffer losses related to his contract with the supplier after the conclusion of the contracts with his customers through the take-or pay clause. The type of take-or-pay clauses is without compensation. In principle, these are pre-established compensation clauses when the purchaser is in Mora creditoris, which would otherwise be, in accordance with art. 349 and following of the Greek Civil Code, in particular in connection with Article 381 of the Greek Civil Code, would, under certain conditions, lead to compensation to the seller, but would not result in the payment of the buyer`s pre-agreed financial consideration. A take-or-pay contract is the norm in the energy sector. This is because suppliers incur high overheads to provide energy units such as natural gas or crude oil. Overheads are generally generated in the form of pipelines, oil or natural gas for electricity generation. In addition to overheads, volatile commodity prices are also wreaking havoc on the supplier. (b) the above contracts must not include take-or-pay clauses which, when added to the customers of each party, exceed the sum of their obligations to their own suppliers, and yet, in the light of EU law, the legal assessment of takeover or remuneration obligations should examine their compatibility with the rules of both the sectoral legal framework and competition law. Since a take-pay buyer is at any time free to take the amount of TOP in any year (in many contracts, the buyer even has the right to plan the delivery and then refuse to accept the delivery if he is the subject of a tender) without violating a service obligation or is not – as long as the buyer pays the corresponding payment at the end of the year – a seller must understand that attentive , in the worst case, a take-or pay clause goes up to an entire year without making deliveries to the buyer or receiving payments from the buyer. Therefore, the seller should ensure that he has at least a sufficient guarantee of payment from the buyer to cover a full compensation or payment obligation. It is also important to note that, in most cases, the seller in take-pay contracts under U.S.
law, to which Article 2 of the Single Code of Commerce (UCC) applies, cannot, in most cases, receive “reasonable assurances” to require an additional guarantee from the buyer in the event of a stop-or-pay, since these UCC fees are based on the seller`s “reasonable grounds for uncertainty.” which usually occurs in the event of a real or imminent violation or a delay in payment from the buyer.