Commercial Agency Agreement template

Overview

A commercial agency agreement governs a relationship in which a self-employed agent has continuing authority to negotiate the sale or purchase of goods on behalf of a principal, or to negotiate and conclude such sales on the principal's behalf, in return for commission. This relationship is specifically regulated in England and Wales by the Commercial Agents (Council Directive) Regulations 1993 (the '1993 Regulations'), which implement EU Directive 86/653/EEC and continue to apply as retained UK law after Brexit. The Regulations only cover agents dealing in goods, not services, and only self-employed agents, not employees. The defining feature of the 1993 Regulations is that they confer mandatory rights on the agent that cannot be excluded or reduced by the agreement, however the parties label their relationship. Most significantly, on termination of the agency (other than in specified circumstances, such as the agent's own repudiatory breach), the agent is entitled to either compensation for damage suffered as a result of the termination, or an indemnity, whichever regime the agreement specifies (compensation applies by default if the agreement is silent, and is generally more generous to the agent than the indemnity, which is capped at one year's average commission over the preceding five years). The Regulations also impose mandatory duties of good faith on both principal and agent, minimum notice periods for termination, and restrictions on post-termination restraint of trade clauses (limited to two years and to the agent's allocated territory or customer group). When to use it: whenever a business appoints a self-employed agent with real authority to negotiate, or negotiate and conclude, sales of goods on its behalf — as opposed to a mere introducer with no negotiating authority, for which a separate, non-regulated arrangement is more appropriate. Parties: the principal (on whose behalf the agent negotiates or concludes sales) and the commercial agent (a self-employed intermediary, not an employee). Key clauses: the agent's authority (negotiate only, or negotiate and conclude) and territory or customer group; the products covered; commission structure and when it is earned and becomes due; the principal's and agent's mutual duties of good faith; minimum statutory notice periods for termination; the choice between the compensation and indemnity regimes on termination, expressly stated; and any post-termination restraint of trade, kept within the statutory two-year and territorial limits. Pitfalls to avoid: attempting to exclude the agent's compensation or indemnity rights by contract — any such clause is void, since the 1993 Regulations are mandatory; leaving the choice between compensation and indemnity unaddressed, which defaults to the (generally more generous) compensation regime; and drafting a restraint of trade clause exceeding the two-year statutory maximum or extending beyond the agent's actual territory or customer group, which risks being unenforceable.

Information to customize

• Principal's registered name

• Principal's registered address

• Agent's name or registered name

• Agent's address

• Products the agent is authorised to sell

• Territory or customer group allocated to the agent

• Scope of authority

  Negotiate only, or negotiate and conclude sales on the Principal's behalf.

• Commission rate

• Event when commission becomes due

• Compensation or indemnity regime on termination

  If left unspecified, the compensation regime applies by default under the 1993 Regulations.

• Termination notice period

  Subject to statutory minimums under the 1993 Regulations (generally 1/2/3 months depending on length of the agency).

• Post-termination restraint of trade terms, if any

  Statutory maximum: 2 years, limited to the agent's territory/customer group and the products covered.

• Date of signature

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Frequently asked questions

What makes someone a 'commercial agent' under English law?

A commercial agent is a self-employed intermediary with continuing authority to negotiate the sale or purchase of goods on behalf of a principal, or to negotiate and conclude such sales, as defined by the Commercial Agents (Council Directive) Regulations 1993. It applies to goods, not services, and to self-employed agents, not employees.

Can the compensation or indemnity right be excluded by contract?

No. The right to compensation or an indemnity on termination is mandatory under the 1993 Regulations and cannot be excluded or reduced by the agreement, regardless of what the parties write or intend.

What is the difference between the compensation and indemnity regimes?

Compensation covers the damage the agent suffers as a result of termination, assessed broadly and generally more generously; the indemnity is a capped, formula-based payment limited to one year's average commission over the preceding five years. If the agreement does not specify, the compensation regime applies by default.

How long can a post-termination restraint of trade last?

The 1993 Regulations cap any restraint of trade clause at two years from termination, and it must be limited to the agent's allocated territory or customer group and the products covered by the agreement — anything wider risks being unenforceable.

Does a mere introducer with no negotiating authority fall under these Regulations?

No. Someone who only identifies and refers prospects, without authority to negotiate terms or conclude contracts, is not a commercial agent under the 1993 Regulations and has no statutory termination rights — that relationship should instead use a separate introducer/referral agreement.

What notice period is required to terminate a commercial agency?

The 1993 Regulations set statutory minimum notice periods that increase with the length of the agency (broadly one month in the first year, rising to three months from the third year onward), and the agreement cannot provide for shorter notice.

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