This legal document sets out the terms under which a sales agent is appointed to sell goods on behalf of another (the principal) in return for commission payments. Agents can be appointed as either exclusive or non-exclusive. It is suitable for use by businesses based in the UK.
An agency agreement (also knows as 'sales agent agreement') sets out the relationship between a sales agent and the business (in legal terms, 'the principal') whose goods it sells. In return for selling the principal's products the agent receives commission payments. Commercial sales agents are typically used by manufacturers and wholesale businesses. Appointing agents can be a good way to grow a business without having to hire more staff.
This particular legal document template is specifically for use by commercial agents who sell the goods of another business in return for commission. This contract includes reference to the Commercial Agents (Council Directive) Regulations 1993, as required by EU law.
What's the difference between a sales agent and a distributor?
An agent represents the principal and often has the legal authority to enter into binding sales agreements on behalf of the principal. An agent does not takes ownership of the principal's goods: he negotiates the sale and the customer takes title directly from the principal. A distributor, on the other hand, buys the principal's goods (which then belong to him) and re-sells them to his customers.
A distributor makes money from re-selling the principal's products for a profit. An agent earns commission from the principal for the products he sells.
If you're looking to appoint a distributor rather than an agent then you may be interested in our Distribution Agreement.
Exclusive and non-exclusive sales agents
An exclusive agency agreement is one where the agent is the only one appointed to sell a particular product or range of products in a certain geographic area. A non-exclusive agency means that the principal can appoint other agents to sell within the same region.
The Clickdocs legal template can be used to appoint either type of sales agent.
What should a commercial sales agency contract cover?
A good legal agreement needs to clearly set out all aspects of the relationship between the agent and the principal including:
- territory - the geographic area in which the agent is appointed to sell and whether or not the agent is an exclusive agent needs to be stated unambiguously.
- products - the agreement needs to clearly specify which of the principal's products the agent is allowed to sell. If the Principal has a wide and/or diversified range then an Agent might be appointed to sell only part of the product range.
- commission - the commission rate (a percentage of each sale) needs to be clearly specified and the method of calculation i.e. whether it is net of any sales tax, shipping, import/export duties etc. If the Principal does not accept the sale then the Agent will usually not earn any commission. If the agent is non-exclusive then a lower commission rate may be paid for sales generated as a result of a lead from another agent.
- termination consequences - when the appointment ends the agreement should specify what happens to any materials and/or information belonging to the principal that is in the Agent's possession. Agents operating within the EU are able to claim compensation on termination of an agency contract.
- term and termination - an agent will typically be appointed for a number of months or years with either party being allowed to end the arrangement under specific circumstances.
- sales targets - exclusive agents may be given sales targets that must be achieved in order to retain exclusive status.
Is a written agency agreement necessary?
The Commercial Agents Regulations says that either party has the right to ask the other for a written statement of the particulars of the agency relationship. So, even though there is no legal requirement to provide a written contract in order to appoint an agent, there is a statutory requirement to provide the details if asked. Also, the EU legislation is biased towards protecting the agent. Some of the provisions can be 'contracted out' i.e. the principal can limit some of the rights and protections given to the agent but only by making alternative arrangements in a written contract.
It is also good business practice to set out the terms of the relationship up front so that both parties are aware of their rights and responsibilities from the start.
The principal would normally draft the contract. Both parties should carefully read the entire contract and discuss any points that arise before signing. The agent and principal should each keep a signed copy of the agreement and follow the terms exactly.
Commercial Agents (Council Directive) Regulations
The legal rights and responsibilities of principals and agents are set out in the Commercial Agents Regulations which came into force in the UK in 1994. This legislation gives significant legal protection to the commercial sales agents operating in the EU. The regulations set out the rights and duties of the agent and principal, renumeration for the agent, and what happens on the termination of an agency contract.
The duties of the principal are:
- to act dutifully and in good faith when dealing with the agent;
- to only act within the limits of authority;
- not to put himself in position where there is a conflict of interest;
- not to make a secret profit or accept bribes;
- not to delegate authority.
The duties of the agent are:
- to act in the best interests of the principal an act dutifully and in good faith;
- to make proper efforts to negotiate and, where appropriate, conclude transactions;
- to communicate to the principal all necessary information available to him;
- to comply with the reasonable instructions of the principal.
If a contract is terminated then there are three types of payment an agent may be entitled to:
- outstanding commission
- 'pipeline' commission
The regulations say that the agent may be entitled to either 'indemnity' or 'compensation' payments if the principal terminates the contract. Indemnity payments reflect the value of the agent's work in building up sales for the principle for example, in finding new customers and building relationships with them. Indemnity payments can be capped at a maximum of one year's commission. Compensation payments reflects the value of what the agent has done and the agent's loss of future earnings. The value of a compensation payment is based on the projected commission the agent would have earned on sales to customers he introducted to the principal.
If the agreement doesn't set out how the payment is to be calculated, the payment will be calculated on a compensation basis.
This legal template document is suitable for use by a business based in the UK (England, Scotland and Wales) and includes clauses covering:
- definition of the goods and/or services being sold
- terms of appointment
- agent's obligations
- principal's obligations
- sales targets.