A Most Favoured Customer Review clause (sometimes called a "Most Favoured Nation" or MFN clause in the restrictive covenants context) restricts a party's ability to offer better terms to other customers or clients. Specifically, it may require that if one party offers more favorable pricing, service levels, or other benefits to a competing customer, those same benefits must be extended to the protected party. For example, a supplier might agree that if they offer a 15% discount to Customer A, they must offer the same 15% discount to Customer B. In the restrictive covenants context, this clause limits a party's commercial freedom by preventing them from offering differentiated terms based on customer circumstances, volume, or negotiating power.
This clause is significant because it restricts commercial flexibility and can create unintended obligations. While it appears to protect the favored customer from being treated worse than others, it actually constrains the other party's ability to negotiate individually tailored deals, offer volume discounts, or respond to market competition. The clause can also create a cascading effect: if one customer receives a benefit, all MFN-protected customers automatically receive it, potentially eroding margins or creating unsustainable obligations. This is particularly problematic in dynamic markets where pricing and terms need to adjust based on individual circumstances, competitive pressures, or customer-specific factors.
For the party being restricted by an MFN clause, negotiate narrow carve-outs and limitations. Specify that the MFN obligation applies only to customers in the same category or volume tier, or only to direct competitors of the protected party. Exclude promotional pricing, volume discounts, and customer-specific customizations from the MFN requirement. Include a time lag (e.g., "benefits offered to other customers become subject to MFN only after 90 days") to allow flexibility in negotiations. For the protected party seeking an MFN clause, recognize that overly broad MFN provisions may cause the other party to refuse the contract entirely or price the contract higher to account for the restriction. Consider whether the protection is truly necessary or whether periodic price reviews would better serve your interests.
Frequently Asked Questions
What does this clause mean in simple terms?
A Most Favoured Customer Review clause (sometimes called a "Most Favoured Nation" or MFN clause in the restrictive covenants context) restricts a party's ability to offer better terms to other customers or clients. Specifically, it may require that if one party offers more favorable pricing, service levels, or other benefits to a competing customer, those same benefits must be extended to the protected party.
Why should I care about this clause?
For example, a supplier might agree that if they offer a 15% discount to Customer A, they must offer the same 15% discount to Customer B. In the restrictive covenants context, this clause limits a party's commercial freedom by preventing them from offering differentiated terms based on customer circumstances, volume, or negotiating power.
What are my options?
This clause is significant because it restricts commercial flexibility and can create unintended obligations. While it appears to protect the favored customer from being treated worse than others, it actually constrains the other party's ability to negotiate individually tailored deals, offer volume discounts, or respond to market competition.
How does this affect small businesses?
The clause can also create a cascading effect: if one customer receives a benefit, all MFN-protected customers automatically receive it, potentially eroding margins or creating unsustainable obligations. This is particularly problematic in dynamic markets where pricing and terms need to adjust based on individual circumstances, competitive pressures, or customer-specific factors.