Agency Agreement

Agency Agreements are contracts that form a relationship between an individual, who acts as an agent in order to sell products, services or goods, in exchange for commission and a business which is usually known as the principal. The purpose of an agency agreement is to set out the relationship between the agent and the principal so that it is clear what each party expects from the other in the relationship.

Building

The key clauses in an agency agreement should include:

  • The duties and obligations of both parties
  • Whether the agent has sole, exclusive or non-exclusive rights. These terms can often mean different things to different people and be misunderstood; therefore, it is prudent to spell out what rights the agent should actually have including defining what they mean.
  • Are you allowing the agent to hold any stock?
  • The rate, matrix and timing of payments.
  • Any restrictive covenants.
  • Protection of confidential information.
  • Whether there is any geographic restrictions on where the goods or services are being supplied.
  • Who has authority to make the commitment under the agreement, can the agent be given that authority?
  • The duration, any termination rights or break clauses.
  • Dispute processes where there is a disagreement.

Commercial Agents Regulations

The Commercial Agents (Council Directive) Regulations 1993 apply to some agreements where you are selling goods (it does not apply to services), these regulations are highly significant and are primarily designed to protect the interests of the agent, they act as if the agent is an arm of the principal, therefore the principal needs to be aware of the directives impact and protection will need to be provided for in the agreement.

A summary of the criteria for the regulations applying are (i) the agent is a “commercial agent”, (ii) the agent is buying or selling goods, (iii) the sale takes place within the territorial scope of the regulations, and (iv) none of the exclusions apply.

Many terms cannot be excluded from an agency relationship or may only be excluded if it operates in the agents favour. It considers any cross-border elements as there may be differences as to how member states in the EU have implemented the directive, it may also be wise to seek advice from local lawyers in this regard.  It is noteworthy that the regulations may apply whether oral or in writing therefore principals should be wary when discussing deals with potential agents.

Is the principal responsible for the agent’s actions?

If an agent performs an illegal activity or acts mistakenly whilst representing the principal, the principal may be technically considered to have committed the act, since the agent was essentially considered as acting as the principal. A principal will also be bound by any contracts an agent enters into on their behalf and may be liable if they injure a person or damage property. The agency agreement must therefore be in writing with clear terms and conditions. The agreement should explicitly limit the principal’s liability if the agent does something that wasn’t authorised or acting in good faith.

What is the difference between an agency agreements and distribution agreements?

Agency and distribution agreements are a necessary part of business growth but they can be confused with one another. An agent is usually granted authority (or ‘agency’) to negotiate and enter into contracts or sales on behalf of the principal business.

Agency agreements usually limit an agent’s debt liability as the business assesses the credit risk of the customer.  In addition, when products or services are purchased, there is only one contract between the principal and the end customer as the agent does not own the goods during the agency and the agent gets paid through a commission from the principal.

Distribution agreements do not give a distributor any authority to negotiate or complete sales on behalf of the principal business. Instead, the distributor buys the products outright from the principal and resells them to a reseller or an end consumer. The distributor owns the goods bought from the principal and there are two sales contracts in a supply chain, the distributor buys the products from the principal business and the end customer buys the products from the distributor.  In distributor agreements, it is all about their profit from the margin on the sale of the goods or services to the end customer.

How can Richardson Lissack help?

If you require assistance with creating an Agency Agreement for your business, please feel free to contact our expert lawyers to discuss.

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