Agency and distribution agreements
What is a commercial agent?
A commercial agent whose activities falls within the Commercial Agents (Council Directive) Regulations 1993 is a self-employed intermediary who has authority to negotiate, and possibly conclude, contracts for the sale or purchase of goods on behalf of a business. In this context, the business appointing the agent is known as the ‘principal’. The definition is important, because in almost all cases the agent will be entitled to a compensation payment on the termination of the agency agreement, calculated to reflect the value of the goodwill they have built up for your business.
A commercial agent can be an individual, partnership or company. They must have continuing authority to act rather than a one-off permission, and they must have been retained to buy or sell goods rather than services.
What is the relationship between a principal and an agent?
It is up to you and your agent to decide how your relationship will work and your obligations to each other. However, there are some duties under the law that will apply in every case. For example, an agent will be obliged to act in your best interests, to carry out your instructions and to not exceed their authority. You will be obliged to give the agent all the information they need to perform the contract, to pay them the remuneration, commission and compensation agreed, and to let them know if you expect a fall in business.
How do we agree remuneration?
It is for you and your agent to agree remuneration and how and when it should be paid. However, in the absence of agreement the default position under the law is that the agent will be entitled to commission on:
- all transactions concluded because of their efforts;
- with a customer originally secured by them; or
- if they have an exclusivity arrangement with you in respect of a certain geographic area, any transactions concluded with a customer in that area.
Unless you have agreed the rate of payment, the amount they receive will be fixed by reference to what other agents dealing with similar goods in the area receive or, if there are no comparable agents, a reasonable amount for the service provided.
Commission is payable during the agreement, but also sometimes following termination unless when appointing the agent the contract between you provides otherwise.
What happens if the agent or principal wants to terminate the agreement?
It will be up to you to decide when the agency agreement can be terminated and whether, upon termination, the agent will be entitlement to be paid commission for any contracts they have negotiated but which have not yet been concluded. In almost all cases the agent will be entitled to a compensation payment, calculated to reflect the value of the goodwill they have built up for your business.
For further information on the termination of an agency agreement, please click here.
Can the principal impose restraint of trade restrictions after termination?
If you want to prevent the agent competing with your business once your agreement has ended, you will need to include provision for this in the agency agreement. Any restriction must be reasonable and should generally be limited to restricting the agent’s activities in relation to the:
- geographical area they have been responsible for;
- type of goods they have been trading in; and
- customers they have dealt with.
A restraint of trade provision should only be imposed for a maximum of two years following termination.
Does a commercial agency agreement need to be in writing?
There is no legal requirement for a commercial agency agreement to be in writing, but there is a right for you or your agent to insist that a written agreement is prepared.
Recording the terms of the agreement in writing is obviously sensible because it enables you to set out clearly what you and your agent expect of each other and what will happen in the event those expectations are not met. It is especially important to have a written agreement if you want to restrict the ability of an agent to compete with you after the agency agreement has ended as restraint of trade provisions must be in writing to be enforceable.
Call us today on 01782 577000 for a confidential chat about whether a commercial agency agreement may be right for you, or to discuss any concerns you have about an existing commercial agreement.