What is a Concession Agreement

A concession agreement is a negotiated contract between a company and a government that gives the company the right to operate a specific business within the government's jurisdiction, subject to certain conditions. Concession agreements may also refer to agreements between the owner of a facility and the concession owners or concessionaires that grant the latter exclusive rights to operate a specified business in the facility under specified conditions.

BREAKING DOWN Concession Agreement

Also referred to as concession arrangements, concession agreements span a variety of industries and sizes, from mining concessions valued in the hundreds of millions to a small food and beverage concession in a movie theater. The terms of a concession agreement also depend on its desirability. For example, a popular concession in a sports stadium may not offer much to the concessionaire in terms of incentives. On the other hand, a government that is looking to attract mining companies in an impoverished area may offer significant inducements, such as tax breaks and a lower royalty rate. Regardless of the type of concession, the concessionaire usually has to pay the party that grants it the concession ongoing fees as identified in the contract.

Concession Agreements and Railroad Track Usage

A common area for concession agreements between governments and private businesses include rights to use certain pieces of infrastructure, such as railways. Rights may be given to individual businesses, resulting in exclusive rights, or to multiple organizations. As part of the agreement, the government may have expectations regarding the maintenance and construction of the railways, as well as operational standards.

For example, a concession agreement exists between the governments of France and the United Kingdom and the private companies The Channel Tunnel Group Limited and France-Manche S.A. regarding operations through the Channel Tunnel. This tunnel connects the two countries under the English Channel.

Common Retail Concessionaires

Vendors in a variety of locations are officially operating under concession agreements. This can include restaurants and retail stores located in large airports, vendors at state fairs, or the selling of food and beverages from stands within state parks. Concession agreements for these activities specify the length of the contract, defining the period under which the concessionaire may operate, as well as any fees that will be assessed by the property owner. Payments to the property owner may include rent for the location, a percentage of sales revenue or a combination of the two. Any additional expectations can also be included, such as identifying which party is responsible for certain maintenance activities in order to formalize the terms being requested.