Takeorpay

Takeorpay, often written take-or-pay or take-or-pay clause, is a contractual provision used primarily in the sale of energy and other large-scale commodities. It requires the buyer to pay for a minimum quantity of product over a specified period, regardless of whether the quantity is actually taken. If the buyer fails to take the minimum, they incur a payment obligation to compensate the seller for capacity or commitment.

The clause typically sets a contracted quantity and a minimum uptake schedule, with payments calculated as the difference between the minimum quantity and the actual take, multiplied by the agreed price. Some agreements include true-up provisions at the end of a period, and may allow credits for force majeure or for shortfalls that are compensated in the next period. There are variations, including partial take or buy-through rights, and some deals distinguish between take-or-pay and take-or-release.

Take-or-pay is commonly used in natural gas and electricity supply contracts, as well as in LNG and large industrial projects, where substantial capital investments in pipelines, plants, or storage capacity create an incentive for revenue certainty. The mechanism helps developers recover capital costs and maintain project financing by guaranteeing a minimum revenue stream.

Critics argue take-or-pay reduces buyer flexibility and can create stranded costs if demand declines or market conditions change. Regulators and courts may scrutinize term fairness, especially in utility markets or where there is consumer price protection. Negotiations frequently seek carve-outs, force majeure relief, cure periods, or convert minimums into take-and-pay structures with credits for non-delivery.