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.