What Is a Vending Machine Agreement?
Generally speaking a vending machine agreement is the contract between the company that places and services the vending machine and the business owner that contracts to host the vending machine in their place of business.
The vending machine agreement is an important document for all involved. For the vending company it is important because it defines the terms of service and establishes the rights and duties of itself and the hosting business. The vending machine agreement is important to the business owner because it should clearly define how the business owner and employees can and cannot use the vending machine , the obligations of the vending company to keep the vending machine stocked, adjustments to the contract in the event vending machine is unsuccessful or the need to remove the vending machine, and insurance obligations.
There are two common types of vending machine agreements. The most common is where the hosting business receives a commission for allowing the vending company to place a vending machine at its location. A much less common type of vending machine agreement is a lease agreement. The leasing agreement transfers possession of the vending machine and the obligation to service it to the business owner.
Provisions to Include in a Vending Machine Agreement
Your vending machine agreement should include a number of crucial clauses, which are necessary in running a professional vending business. First, a clause should clearly set forth location rights. These rights should state where the vending machine will be installed and under what conditions. For instance, what happens if you move the machine after one year — would you need to reapply for a new agreement?
Second, a vending machine agreement should address maintenance of the machines by the operator. Should the vending machine you place in a location stop working, how long until you replace it with another? Additionally, how would you address machine malfunctions by consumers? For instance, if a consumer puts a dollar into a soda machine and presses the button only to have the machine return their dollar but deny them their drink, how will you address this? Would you refund them their dollar or offer to give them a drink free of charge?
Third, a vending machine agreement should also address how revenue will be handled. In other words, will you pay the owner of the property a flat monthly fee to place your vending machine on their property, or will you pay them a percentage of your total sales? Will you charge a handling fee per product? Will it matter what type of product you sell?
In addition to these three clauses/vending machine agreement provisions, you may also want to consider addressing termination and dispute resolution procedures.
Legal Protections for a Vending Machine Agreement
There are several legal considerations to keep in mind when providing vending machine service or signing a vending machine service agreement. For example, service providers must be aware of any restrictions that a client may have that are specific to the state or states in which vending machine services might be performed. Some states regulate the amount that vending machine service providers can charge and how competition for vending locations is regulated in that state. While many vending machine service providers are not enthusiastic about these regulations, they must be followed. A determination that a vending machine service provider has not followed them may impact the provider’s business for years to come, including through damages, fines, injunctions, or other means.
Other legal issues to keep in mind include whether the service provider can comply with state or local health laws and safety regulations for the locations where the vending machines may be placed. A vending machine service provider cannot simply place machines at locations it likes. Many states prohibit servicing vending machines in certain locations (e.g., schools) and/or require health inspections and permits. If the service provider does not comply, revenues may go down, and there may be significant fines.
Also, prior to entering into a vending machine agreement, the parties should take steps to determine whether there are any special laws or regulations that apply to the product or service that the vending machine will provide. For example, the retailer may be required to obtain special licenses or permits to sell certain products through vending machines.
Advantages of Having a Vending Machine Agreement
Perhaps the most important aspect of any vending machine business is the vending machine placement agreements. The risk inherent in operator/vendor/retailer disputes is not to be underestimated. Entering into a comprehensive vending machine agreement that can mitigate many of these risks is essential.
For starters, and perhaps most importantly, a well-drafted and comprehensive vending machine agreement outlines the respective rights and obligations of the vending machine operator and owner of the premises on which the vending machines will be placed. This is critical to avoid dealing with disputes about basic rights, such as whether notice must be provided if the owner wants to remove his vending machines and set up a competing snack bar. In many disputes, the goal of the landowner is to have an even playing field, meaning both parties should have similar rights. While the landowner may not wish to grant any rights to the vending machine operator other than the right to occupy a certain portion of the premises, that is often not possible. Even if it were possible, it would not be wise as a large portion of the value of the vending machine operator’s business is based on his machine placements and the good will generated by such placements. Indeed, a large portion of the value of the entire vending machine business is based upon the place where the machines will be located (location, location, location).
A thorough vending machine agreement defines the relationship between the parties. A landlord may want to control the vending machine business on its premises in order to ensure that no one gets an unfair advantage. Both landlords and vending machine operators can control certain aspects of their respective businesses through well thought-out agreements which can assure both that reasonable terms will apply to the placement and operation of the equipment.
Another critical aspect of every vending machine agreement is a provision that allows the parties to modify the agreement in writing. This is especially important, as many agreements are negotiated and signed at different times. Vending machine operators can operate in several or many states, causing the need for many individual agreements and negotiations. By including a modification clause in each agreement, there can be no argument over oral agreements, side agreements, or non-written understandings. All modifications to the agreement must be in writing.
The vending machine business has always been and likely will continue to be a competitive business. Operators can protect their positions and preserve the value of their equipment through well-drafted vending machine placement agreements.
Common Errors to Avoid
For both parties, failing to read and understand the full agreement is arguably one of the biggest mistakes that can be made in creating one for vending machine placement on business or residential property. In addition to whether certain uses of the machines will or will not be allowed, a less obvious example of this involves whether or not an amount that is paid to the property owner for allowing the placement of the machines is considered "rent." A placement fee that officially designates itself as "rent" can make a difference to the Internal Revenue Service for purposes of taxation.
Other common mistakes include:
- Failure to specify in the vending machine portion of an agreement exactly what the vending machines will dispense, and relatedly, failure to specify that outside vendors cannot set up their own vending machines to dispense different items .
- Failure to address who will supply stock or inventory to the vending machines. Will it be the vending company or the property owner? Make sure the placement agreement specifies this information and that both parties are in agreement.
- Failure to address who is responsible for periodic routine maintenance and upkeep of the vending machines. Be sure to address this in the agreement – and both parties should be familiar with what the routine maintenance will entail for the machines and the costs involved.
- Failure to address what the procedure will be when equipment is damaged. Who is responsible for making repairs? Can the damaged equipment be replaced? Again, if you have questions or concerns, address them in the vending machine placement agreement.
How to Negotiate an Agreement for a Vending Machine
Once you have selected a franchisor for your vending machine business, you need to negotiate the terms of your relationship. Make sure that any negotiations are held in writing, and you should also consider getting your attorney involved in the process. A lawyer could draft or review the agreement, to help you avoid unanticipated issues down the line. Be sure that you fully understand every term of the vending machine owner-franchisor agreement. If something is not clear, keep asking questions until you receive an answer that satisfies your understanding. Pay close attention to each obligation, especially what sort of training is provided, the territory that has been granted, and all other aspects of the vending machine operator-franchisor relationship.
How to Terminate a Vending Machine Agreement
While most states require only a 30-day notice of termination, some contracts include provisions that provide for a longer time frame, i.e. a 60-day notice or more. Violating these terms could result in a claim for breach of contract.
Some vending machine agreements include a period during which the parties can only terminate the agreement for cause, for example, if one of the parties is in breach, goes bankrupt, or has been convicted of a felony, or the vending machine stops working. Breaching any of the provisions of the vending machine agreement could subject you to significant liability.
Whether a vending machine agreement is early-terminable by default is determined by the language of the contract. If the language is ambiguous or is missing a necessary clause , then a court may rule in favor of the party harmed by the early termination due to ambiguity. In some cases, a court may even rule that a party can terminate the vending machine agreement early if it gives the party on the hooked a specific amount of advanced notice, usually 30 days.
If you wish to terminate a vending machine agreement, it is best practice to use the method specified in the agreement. However, the current amount of notice by the non-terminating party will control, even if it is not the method required by the vending machine agreement.