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What is a Sunset Clause and why you should care?

What is a Sunset Clause

Author: Burt Gidaro, Entertainment Lawyer

 

What is a Sunset Clause – Introduction

Have you ever watched the sun go down on the beach? I bet you could actually see it wane into a tiny disc on the horizon, like a golden coin, and then evaporate in a whisper.  The sun has officially “set”. Yet, it is not immediately dark.  The afterglow often remains for an hour or two, providing some of the sky’s warmest and most dramatic colours.  And that’s the end of my legal blog, enjoy your evening (signed, Bob Ross).

 

Breakdown

But that is not the end of my blog.   My point is, that although “a thing” may be technically over, there is sometimes a residual period during which elements of the “now over thing” remain. A sunset clause in a contract is an example of this.  A sunset clause provides for a set period of time, after the termination or expiration of a contract, during which one party continues to receive certain benefits (such as a share of revenue) under the contract.  Often, sunset clauses are found in agent agreements in the film and television industry or manager agreement in the music world; however, sunset clauses are found in many other contexts as well.

 

Background

The theory behind sunset clauses is that, even though a contract has ended, a manager or an agent should still be entitled to receive benefits for work done by them during the term of the contract. Without a sunset clause, when a contract ends the artist may continue to benefit from the agent or manager’s work, without compensation to the agent or manager.

For example, a manager works for years to get an artist a big deal, which lands moments after the manager’s contract with the artist ends. The manager, the person responsible for bringing the deal to the artist, may be cut out. A sunset clause protects managers and agents in such a scenario.

 

What is a Sunset Clause – The time debate

How long should a manager be able to share in their former client’s income? Perhaps, like the light of dusk after the sun has set, it should decline after time.  The manager likely has no active responsibilities or obligations to secure the income stream, even if the manager was directly responsible for having created the opportunity.

 

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Leverage

Sunset clauses are not a foregone conclusion in an agreement.  Like any provision, a party is only as likely to get the benefit a sunset provision if they have leverage to make the other party agree to it.  What could such leverage be?  Maybe the agent is a career-maker who greatly increases their clients’ prospects of having a successful career.  Maybe the manager has a direct line to the head of A&R at Republic Records. To an artist, the prospect of paying a continuing revenue stream after having been made successful and wealthy may not seem so bad.  But even managers who are not in the habit of making their clients career superstars may (and still do) ask for a sunset clause.  However, always keep in mind managers need good talent to manage as much as artists need good, smart, connected agents and managers.

We help artists review sunset clauses they are asked to agree to when starting to work with an agent or manager. We also help managers prepare sunset clauses.

 

What is a Sunset Clause – Conclusion

The big question generally is whether a sunset clause is reasonable? One answer is that “sunset clauses are reasonable so long as they’re reasonable.” Helpful? The point is that not all sunset clauses are the same. There are many different ways a sunset clause can be written, just as there many different factors involved in preparing a sunset clause. Questions to consider when planning a sunset clause include how long the sunset clause will last, the scope of the revenues subject to the sunset clause, the commission percentage throughout the sunset clause term, and whether any specific outcomes must have happened during the term in order to trigger the sunset clause.

If you have received an agreement with a sunset clause, or if you want a client to sign an agreement with one, please let us know how we can help.

Check out our related Blog Posts:

Neighbouring Rights in Canada – Being a Musician is a Business
Setting up a Music Publishing Company in Canada
Copyright Protection & Classical Music
Work Made for Hire Explained
10 Co-Production Considerations in Canada – Ask an Entertainment Lawyer
Film Profits & Points – Ask an Entertainment Lawyer
The “Just Trust Me” Legal Agreement
 

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Updated to December 23, 2021

Edwards Creative Law is Canada’s Entertainment Law Boutique™, providing legal services to Canadians, and international clients who partner with Canadians, in the Music, Film & Television, Animation, Interactive Digital Media, Game, Publishing and Software industries. 

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© 2021 Edwards Creative Law

* This blog is for general informational purposes only and is not to be construed as legal advice. Please contact Edwards Creative Law or another lawyer, if you wish to apply these concepts to your specific circumstances.

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