Film Contracts and Agreements to Protect Your Film

Film Contracts and Agreements to Protect Your Film

Film contracts and agreements protect the rights of your film and are necessary to avoid miscommunication and risk at every stage from pre-production to distribution. Agreements need to be set in place with your production team, cast and crew even from before principal photography begins.

Pre-Production / Development Contracts

Pre-production refers to the period of a film before production and shooting begins when those in charge of getting the film up and running finalize the rights and the script, get financing in place, put together the cast and crew and prepare for production. The early stages of pre-production are often called “development”. The development stage can last for many years, as rights are acquired and cast and crew are slowly assembled. Agreements that are commonly needed during this period are those for the purchase of rights, the development of the script, and the hiring of writers to finalize the script. Rights purchase agreements, option agreements, writer “work for hire” or collaboration agreements and co-production agreements are among the many types of contracts necessary to engage talented individuals to develop a script for production.

The Production Entity – Company

In order to finance a feature film, producers generally form a production company and sell interests in the business entity. A production company can be any form of business entity, such as a corporation, a limited partnership (“LP”) or a limited liability company (“LLC”). Generally LLCs are recommended as production entities. They are the most flexible in terms of tax treatment and allocation of power among and between members while still providing the benefits of limited liability for the business owners. This means that personal assets of individual LLC members will be protected from the debts of the LLC. To form an LLC, organizational papers must be filed with the secretary of state in the state of formation, along with filing fees. In some states, such as New York, there is also a publication requirement. Members of LLCs can be individuals or other entities, such as corporations or other LLCs.

The basic agreement necessary for an LLC is called an operating agreement, which sets forth the rules that govern the LLC and is analogous to a “shareholders’ agreement” for a corporation. The operating agreement must address keys issues such as management control, the scope of the business of the LLC, the personal role of the filmmakers and their fees, as well as the role and obligations of investors and the priority and allocation of return of their investment. Also, while many people do not like to discuss the dissolution of a business at the time of formation, the operating agreement should nevertheless address what would in the event that the LLC needs to be wound up or if new members need to be added because of death, disability or budget shortfalls.

From the filmmakers’ perspective, it is very important that the operating agreement be drafted to ensure that the filmmaker retains complete control of the company’s management. As films are highly personal to the filmmaker, the operating agreement should include a “contingency plan”, which as the name implies, should lay out the back up plan and consequences in the event that the filmmaker, for whatever reason, cannot complete the project. We also recommend that the filmmakers’ obligations be more specifically set forth in separate employment agreements, so that the filmmakers become employees of the LLC and the intellectual property created is owned by the LLC under traditional “work for hire” principles.

The investor, on the other hand, will try to negotiate so as to protect his investment and allow for continuity in the event that new creative teams or members need to be brought in for the benefit of the project. Counsel for the filmmakers would try to draft the agreement to ensure that their clients maintain creative control at least through the initial production and distribution stages. The operating agreement should further include the investor’s obligations, such as when and how their money will become available to the filmmakers. Typically, these agreements require that the investor’s funds be released to the filmmaker when there is enough money to make “meaningful progress,” in a manner this is defined by the operating agreement. Remember, the best way to prevent misunderstandings is to have the expectations of all parties expressly provided for and written down along with contingency plans.

The next question to be considered is the scope of the business of the LLC. For example, is the film company being created to produce one film or multiple films? Generally, LLC operating agreements are drafted to allow the LLC to participate in “any lawful business” but it may offer more protection to small investors if the LLC is limited to a single film project given the risks of motion picture investment.

Finally, and perhaps most importantly, are the terms regarding the wrap-up or “winding down” of the business. As mentioned earlier, many producers do not wish to discuss the wrapping up of a business at the time of its formation because they consider it bad luck. However, it is very important to address these issues before problems actually arise so that producers will know what to do in the event of dissolution. The operating agreement may also provide for mandatory repurchase of the investor’s ownership interests at some point in the future. Often this is triggered by the fact that the production company does not have any financing for a certain period of time.

An operating agreement is not only necessary for the formation of an LLC, but it is also an extremely important tool used to address certain issues in writing before the problems come to fruition in reality. If the operating agreement provides guidance for what the parties involved should do throughout the production of a film, it would eliminate the stress and chaos of having to figure out what to do when problems actually arise—and they almost always do.

The Business Entity – Securities Issues

Because a production entity is a business and involves selling passive interests in the business to finance the film, this raises many issues regarding federal and state disclosure requirements set forth by applicable securities laws. The producers and promoters of the business are responsible for providing full disclosure of all the material facts regarding the investment and its risks to their passive investors. Material information is any information that a reasonable person would want to know when deciding whether or not to invest in a film.

It is typical for the producers to hire experienced securities counsel to write an Offering Plan (“Private Placement Memorandum”), which they then either register with the proper federal and state authorities or file for an exemption from registration with those same state and federal authorities. These Offering Plans must include a description of all material elements of the film project including bios of all personnel involved, risk factors, budgets and projections. They must state where all original, underlying agreements relating to the offering are on file and that they can be examined on request. One major risk that must be disclosed is the risk of failure to obtain distribution and to recoup negative costs. For instance, independent films that never obtain distribution do not recover their expenditures, resulting in a loss for the investors. Thus, the producer should be sure to be honest from the beginning, as they can be held criminally liable for knowing misrepresentations of facts. The investors may be entitled to a full refund of their investment if the producer or any of his agents or associates hides or misrepresents facts regarding production.

Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (“Reg D”) contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register with the SEC. For more information about these exemptions, read publications on Rules 504, 505, and 506 of Regulation D. For more information on film financing and securities issues, see Jon Garon’s book The Independent Filmmaker’s Law and Business Guide: Financing, Shooting and Distributing Independent and Digital Films or consult a securities attorney in your jurisdiction. Our firm works with several excellent securities counsel if you need a suggestion or recommendation.

Rights Purchase Agreement

A rights purchase agreement is used when a producer desires to purchase a script or story outright from a writer or other owner. Generally, these agreements are known as “Assignments of Rights” and often include the sale of “the sole and exclusive motion picture, television, photograph record, merchandising and commercial rights and all allied and ancillary rights, throughout the universe, in perpetuity.” Put simply, a rights purchase agreement provides for the purchase of all rights associated with a motion picture, not just the rights to purchase the script.

However, these agreements can, and often are, limited to only certain rights and can exclude others. Which rights are kept by the writer usually depend on the bargaining power of the writer and the desires of those purchasing the property. Rights purchase agreements are the broadest form of purchasing a property from a writer or other owner. They can be used to purchase anything from a movie script to a book to a short story and can be tailored to a myriad of purposes.

Life Rights

Similar to a rights purchase agreement is a life rights purchase agreement. If a producer intends to produce a biography on a person’s life, they may purchase that person’s cooperation with a so-called life rights agreement. These rights can also be purchased from someone who knows the subject well. This is most commonly used when the subject is deceased. In that case, the life rights can be purchased from the subject’s heirs or other immediate family who inherited these rights upon the subject’s death. While story rights of certain deceased individuals may be considered “public domain,” particularly if the individuals did not exploit their right of publicity during their lifetime, there are dangers in producing a “bio pic” without an actual person’s verified story. Included in these dangers is being sued for slander by the deceased individual’s estate and/or being prosecuted for criminal slander against a deceased individual in certain jurisdictions. Clearance of these issues can be critical in obtaining errors & omissions (“E&O”) insurance at the time of distribution.

Option Agreement

An option agreement is a contractual agreement in which a producer buys the right to purchase a screenplay from a writer or other owner. Unlike the Rights Purchase Agreement, which is a flat out purchase of a property, an option agreement is not actually the purchase of the right to use the screenplay. Instead, the producer purchases the “exclusive right to purchase” the screenplay at a later date, for instance, when the producer secures financing. Option agreements are usually used to put a property “on hold”, allotting the producer more time to conduct more research and to explore other avenues relating to the making of the film. Options are generally less expensive than Rights Purchase Agreements, as writers are often happy to get a few thousand dollars for their work.

Options are used often in Hollywood and it is far cheaper to option a screenplay than buy it from the onset. An option agreement is especially useful when a producer is unsure of whether their financing will come through. This is basically a way of hedging your bets in case financing does not come through as anticipated . In such an event, if you purchase the rights to the property outright, you might be forced to purchase a screenplay which cannot be made into a profitable motion picture. With an option agreement, on the other hand, even if you fail to secure financing, you can simply let the option expire and “cut your losses”

Writer Agreement

A writer agreement may be needed in two specific instances. One reason a producer would use a writer’s agreement is when a producer has an idea for a film (for example, based on a book or a Broadway play) and wants to convert this idea into a screenplay. A producer would use a writer’s agreement in order to formally engage the writer’s services to adapt his idea (or “property”) into a screenplay. Another reason a writer’s agreement would be used is when the producer wants to engage a screenwriter for a final rewrite of an existing screenplay. In both scenarios, a writer’s agreement is an excellent option to engage a writer, but producers should use caution when engaging writers belonging to the Writer’s Guild of America. When drafting writer’s agreements for WGA writers, producers should take into account additional protections that the WGA provide for writers.

Production Agreements

Production refers to the period of movie making when “the magic happens” and principal photography starts and the movie physically gets made. Typical agreements needed during this period are engagement agreements for hiring cast and crew, renting a venue for shooting scenes, and other needs.

Crew – Above the Line

There are two types of crew members. Above the line crew members are those who control the aesthetics of a movie, such as the director, producer and cinematographer, just to name a few. Above the line crew members are generally paid a flat fee, as provided in their employment agreements. These agreements most likely contain very complex terms and provisions than those needed for their below the line counterparts due to the nature and extent of their work on a film.

For example, a director’s employment agreement would include compensation for development and production, depending on when the director was hired. The agreement might also include a provision to share a part of the profits if the film does well at the box office. Moreover, it is not uncommon for above the line crew to receive a daily stipend, or per diem, to cover their expenses while on-set. The agreement generally also includes provisions for how above the line crew are credited in a film, which can sometimes become highly contested. Also, an agreement of this type might confer the right for directors to hire other crew members and to decide on the cast. A director might want to have control over the editing and final cut of the film and the extent of such control should also be memorialized in the director’s employment agreement. Finally, an agreement with a director might have a “a right of first refusal” provision that gives the director a right to choose whether to direct any prequels or sequels of the film before the producers can hire another director. Like writers, many experienced directors are members of the DGA. Their agreements would be subject to DGA rules and their Basic Agreement.

An agreement with a producer should also cover the basic terms of employment, such as a description of the producers’ obligations and compensation. The agreement should cover how the producer will be credited in the film. Often, it is wise to have an exhaustive list of applicable terms memorialized in the agreement, rather than risking the possibility of running into problems in the course of the film production which could be catastrophic, especially at or near the end of the filmmaking stage.

Crew – Below the Line

“Below the Line” crew refers to those crewmembers who deal with hands-on aspects of filmmaking, such as lighting and sound technicians and script supervisors. Below the line crewmembers are generally paid hourly, as opposed to the flat fee above the line crewmembers receive. Therefore, agreements with below the line crew are often less complex than those of their above the line counterparts.

Accordingly, a deal memo can be used instead of a full contract for below the line crewmembers. Deal memos include personal information of the crewmembers such as their name, address, and emergency contact information and social security number. The deal memo also discusses individual crewmember’s job title, rate of compensation and expense reimbursement. The memo also covers what if any credit a crewmember will receive. A deal memo is usually only one page long.

Deal memos are often a good idea because they clearly set out all the important information on one page and copies can be made available to all crewmembers. Because of its length, a deal memo is easy for reference, which is especially important in the event a conflict arises.

Cast

Agreements with the cast will vary depending on the type of cast member. For example, a SAG (Screen Actor’s Guild) actor will have a different contract that a Non-SAG actor because the requirements for these two cast members might differ due to the rules and regulations imposed by the guild. Further, if you plan on hiring minors or extras, you might need a different agreement for each group.

A SAG actor’s standard contract includes regular terms such as compensation. However, one wrinkle imposed by SAG is that actors under guild protection are guaranteed a certain amount of compensation (regardless of the actual hours they work) and in return, the producer of the film gets the exclusive right to use their likeness in the film. The producer must also agree to pay all SAG contributions, such as the actors’ health and pension plans. Generally, agreements with SAG actors also provide for how they will be credited and often include a section addressing the dressing room and other similar amenities. Importantly, a SAG contract is explicit about the types of promotion and publicity services to which the actor must be engaged. Also, a SAG actor will also often have approval over the types of publicity photos and other materials the producer can use to promote a film.

Non-SAG cast members can have their agreements memorialized in a cast deal memo, similar to the deal memo for below the line crewmembers. A cast deal memo is one page agreement which includes contact information, job obligation, terms of compensation and other amenities provided to individual cast member, such as travel and accommodation expenses and reimbursement, if any. A cast deal memo for a non-SAG actor will also set forth the type of credit the actor will receive and whether or not the cast member will be paid for the subsequent use of their pictures or likeness for future promotion of the film. Because these actors are not represented by a union like SAG, they enjoy relatively less protection: non-SAG actors negotiate their employment contract terms with less bargaining power and legal knowledge than would a SAG actor or his representative.

An important clause that is often included in all contracts with any type of actor, SAG or non-SAG, is a clause stating that the actor’s services are unique and the producer has the right to seek remedies in the form of injunctive relief if the actor were to breach the contract. These clauses essentially prevent the actor from acting in another movie project during the time frame set forth in the her original employment contract. Generally, New York courts allow these types of agreements so long as they are reasonable in time and scope.

If you plan on employing minors to work on your film, you must use yet another type of agreement and the minor’s legal guardian must sign on behalf of the minor. The agreement, usually one-page in length, gives the producer the exclusive right to use the minors’ image and likeness in perpetuity. Certainly it is possible for child actors to be in SAG and in that case case, the minors would be covered by not only the terms of the employment agreement but also the rights and protections set forth under SAG rules. Consequently, this class of minor SAG actors would require a more complex agreement. Moreover, it is important to be aware of the rules provided in the specific state where the film is being made. Some states, for instance California, require a teacher to be on-set and set a ceiling on the number of hours minors can work at any given period of time.

It can often be very complicated to use too many extras in a feature film, although there are times when doing so is essential. Producers generally use a standard extra agreement which sets forth the rate and credit afforded to the extras. Extras may also belong to SAG and if so, their employment contracts must include terms that meet all requirements set forth in the SAG rules. When actors volunteer on a non-paid basis to be extras in the film, producers should nonetheless have them sign simple release agreements that allow producers to use their name and likeness in the film.

The foregoing is a simple discussion of the agreements used when hiring the cast. Drafting these agreements can often involve complex negotiations because of individual needs and relevant union rules. For a complete list of SAG rules and regulations, please visit their official website.

Locations

Locations are a very important part of filmmaking, as most independent films are not filmed in a studio, but rather are filmed at leased a location. Agreements for locations cover how long and for how much a location is leased. The location agreement also addresses “rain dates”, in case filming needs to be rescheduled or re-shoots are required as a result of unforeseen circumstances. A location agreement will also often grant a producer the rights to use the film shot on the location for other film projects.

Perhaps the most important clause in a location agreement is the one that indemnifies the owners of any damages arising out of the use of the premises for filming and further protects the owners from tort liabilities that might arise as a result of filming. In addition, producers generally include a disclaimer in the location agreement that all depiction of the location is fictional and such filmography does not necessarily represent a true reflection of the actual location.

Post Production

Postproduction refers to the time in the movie production when the shooting is done and the film is undergoing editing which requires the help of editors and composers. Common agreements needed during this time period include editor agreements and composer agreements. Like actors, editors and composers may belong to a guild or union which can impact the nature and complexity of their agreements. However, the agreements will typically include the term of employment, the rate of employment and should also address who will own the finished product. Editors are usually hired on a “work-for-hire” basis, which enables the producer to maintain ownership of the edited product. Often, compensation is divided based on the number of times the film needs to be edited or the number of compositions that are required to be written by the composer. It is not uncommon for a film to use many editors at a time and it is therefore important to split the agreement up in this manner to ensure that the producer can continue to hire more editors as needed.

It is also critically important for the success of a film to use music and other sound to create sound effects. It is equally important to use clips of film and TV to enhance the overall presentation of the movie. This is a very complex area of filmmaking and unsurprisingly involves even more types of agreements, clearances, and licenses, such as sync agreements. For more information in this area, please read our music counsel Barry Heyman’s recent article on the types of agreements needed to use music in a film or television series.

Conclusion

Producing an independent feature film is not an easy task and often involves a lot of negotiation and agreements in all stages of production from pre-production to production to post-production. This article is designed to briefly cover the types and variety of agreements that are most commonly used in an independent feature film. However, this is by no means a complete list of agreements that one might need for the production of a feature film. Would-be producers should be aware that each film has its own independent issues and requires its own list of agreements. At times, it may be necessary and prudent to hire an attorney who specializes in filmmaking and has substantial experience in the field.

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