Understanding Fuel Supply Agreements for Gas Stations in Michigan

If you are buying or operating a gas station in Michigan, one of the most important, and often overlooked, parts of the business is the fuel supply agreement.

These contracts not only cover where your fuel comes from, they also directly impact your pricing, branding, and overall profitability.

What Is a Fuel Supply Agreement?

A fuel supply agreement is a contract between a gas station owner and a fuel supplier.

It typically outlines: 

• Where the fuel must be purchased from 

• Pricing structure and delivery terms 

• Branding requirements (if tied to a major brand) 

• Length of the agreement

These agreements are often long-term and can be difficult to modify / terminate once signed.

Why These Agreements Matter

At a glance, a fuel contract may seem straightforward. But in reality, it can control a large portion of how your business operates.

Depending on the terms, it may: 

• Limit your ability to shop for better fuel pricing 

• Require specific branding or image standards 

• Include volume requirements or minimum purchase obligations

These factors directly affect your margins and flexibility.

Key Terms to Look For

Not all fuel supply agreements are the same. Some of the most important provisions to review include:

Pricing Structure

Is pricing fixed, market-based, or tied to a specific index? Understanding how fuel costs are calculated is critical to predicting profitability.

Exclusivity Clauses

Many agreements require you to purchase fuel exclusively from one supplier, even if better pricing becomes available elsewhere.

Term Length and Renewal

Long-term agreements lock you in for years. Pay attention to renewal terms and whether they are automatic.

Termination Provisions

Exiting a fuel contract early can come with significant penalties. Knowing your options upfront is key.

Risks to Be Aware Of

Fuel supply agreements can create challenges if not carefully reviewed.

Common risks include: 

• Being locked into unfavorable pricing 

• Limited operational flexibility 

• Unexpected fees or penalties 

• Difficulty selling the business if the agreement is restrictive

These issues often do not become obvious until after the agreement is already in place.

Protecting Your Investment

Before entering into a fuel supply agreement, it is important to fully understand how it can affect your business long-term.

That means: 

• Reviewing all terms carefully 

• Understanding your financial obligations 

• Identifying any restrictions on operations or future sale

A well-structured agreement can support your business; a poorly structured one can limit it.

If you are buying, selling, or operating a gas station in Michigan, the right legal guidance can help you avoid costly mistakes. Contact Sadecki & Associates at 248.328.1300 to discuss your situation.