Commercial agency agreement

Where an agent negotiates, or negotiates and concludes, the sale of goods on a principal's behalf in Great Britain, the Commercial Agents (Council Directive) Regulations 1993 apply and cannot be contracted out of. They give the agent minimum notice periods, protection for commission including commission on some orders that arrive from the territory after the agency has ended, and a payment on termination. A principal who drafts as if the Regulations were optional discovers otherwise at exactly the point the relationship is ending.

Indemnity or compensation, and why it matters

On termination the agent is entitled to one or the other. Compensation is the default if the agreement says nothing, and it is assessed by reference to the value of the agency to the agent, which can be a substantial sum. Indemnity has to be chosen expressly, and it is capped at one year's average remuneration over the preceding period. For most principals the indemnity is materially cheaper and considerably more predictable, which is why clause 18 offers it as an option that has to be actively kept.

That single choice is usually the highest-value decision in the document, and it has to be made before signature. It cannot be made later.

Agent or distributor

An agent sells in the principal's name and never owns the goods. A distributor buys the goods and resells them on its own account, carrying the credit risk on its own customers. The Regulations apply to the first and not the second, which is the main reason the distinction is worth getting right rather than treating the two words as interchangeable. This template is also for goods rather than services: an agent selling services falls outside the Regulations.

What to choose in the document

Clause 2 offers exclusive, sole and non-exclusive appointments, which differ in whether the principal may also sell into the territory itself. Clause 10 is del credere, where the agent guarantees the customer's payment, and is optional. Clause 12 covers targets, which is how most principals manage performance, and clause 19 is a post-termination restraint, which the Regulations permit for up to two years and only within the territory and goods covered.

Commission is where disputes start

When it is earned, when it is payable, and what happens to orders placed before termination but delivered after it. The Regulations give the agent rights here that survive the agreement, so the commission schedule should be completed with that in mind rather than drafted as if the relationship will simply stop.

Our commercial contract solicitors advise principals and agents on the Regulations, including on what a termination payment is likely to cost before notice is given.