Contract Glossary
Most Favored Nation Clause
Definition
A contract provision guaranteeing that one party will receive terms at least as favorable as those offered to any other customer or partner. If the offering party gives better pricing, terms, or conditions to a third party, they must extend the same advantage to the MFN-holder. Named after the trade principle used in international agreements, it prevents preferential treatment that disadvantages the protected party.
In Practice
You're a major retailer signing a supply agreement with a manufacturer. Your MFN clause guarantees you'll never pay more per unit than any other retailer for the same product. Six months later, the manufacturer offers a 15% discount to a competing retailer to win their business. Under the MFN clause, you're automatically entitled to the same 15% discount. Without the clause, you'd be paying full price while your competitor gets a better deal — a competitive disadvantage created by your own supplier.
Example Clause
Supplier represents and warrants that the pricing provided to Buyer under this Agreement is no less favorable than the pricing offered to any other customer of Supplier for comparable products in comparable quantities. If Supplier offers more favorable pricing or terms to any other customer during the Term, Supplier shall promptly notify Buyer and extend such favorable pricing or terms to Buyer for the remainder of the Term.
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Frequently asked questions about most favored nation clause
Enforcement typically requires transparency: the protected party needs to know when better terms are offered to others. Well-drafted MFN clauses include audit rights, mandatory disclosure requirements, and penalties for non-compliance. Without audit rights, the clause relies on trust — which isn't a legal strategy. Include a provision requiring the offering party to certify compliance quarterly and grant audit access to verify.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.