Agency Agreement (UK): What it is, When you need one & Key legal terms
This guide explains what an agency agreement is under UK law, when you need one, and the key legal terms principals and agents must understand before signing.
An agency agreement is a commercial agreement between a principal and an agent - the agent agrees to represent the principal in a given location (territory) and promote the principal’s goods and/or services in that location, in return for commission on the sales.
The principal places a lot of trust in the agent to do a good job, and likewise, the agent frequently has to incur significant time and expense promoting the principal’s products or services, in the hope of securing sales. So, both parties have to invest time and money in the process and trust each other - hence the need for a legal agreement.
Countless times, we have seen the following scenarios:
1. A principal based in the UK contacts us to purchase an agency agreement to use for all their prospective agents across different territories. These territories can be locations within the UK or territories across the world. The advantage for the principal is that they have all their agents working under the same agreement, regardless of where they are located. For the principal, this means all of their legal agreements are enforceable under UK law. This removes a significant administrative and legal burden. It also means that the principal can expand their network of agents with less effort.
2. We also have prospective agents who contact us seeking an agreement. This typically happens when they are representing an overseas principal who does not have an agreement for the agent to sign. The principal frequently asks the agent to supply their own agreement. The clear advantage for the agent is that they can quickly provide a balanced and complete agreement, which is governed by their (the agent’s) home jurisdiction. This provides the agent with much greater reassurance than if they were relying on an agreement drafted in another jurisdiction. For the principal, it means the legal side of things is handled by the agent. Plus, both parties tend to trust the UK legal system above all others, as the UK is frequently the default jurisdiction for commercial agreements.
Key Parts
The key parts of any agency agreement are as follows:
Parties
Parties to the agreement, this is self-explanatory.
The Territory
The territory that the principal grants to the agent. This can range from an area or city, for example, London, to an entire continent, such as North America or Europe. The territory depends upon the nature of the product and what sort of coverage the principal requires. If, for example, the product is heavy plant machinery, the principal will frequently grant an entire country or continent. If, however, the product is, for example, a new type of phone case or another small consumer item, the principal will want far more market coverage, so they may grant only a city to the agent.
Exclusive or Non-Exclusive
Exclusive or non-exclusive. This is a crucial part of any agency relationship, and one that should be clearly addressed in a professionally drafted Agency Agreement. If the principal wants far greater market coverage or saturation, they will usually grant only a non-exclusive agreement. The advantage for the principal is obvious: they spread the risk and have agents effectively competing against each other in the same territory. The disadvantage for the agent is clear: greater competition and potentially a smaller share of the pie. The reality is that we have seen many agreements falter on this point. The flipside is that agents who perform well in one territory can be granted agency agreements in other territories, as they have demonstrated their ability. So it pays for both parties to take a longer-term view of the agreement. This leads nicely on to the next key point.
Agreement Term
The term of the agreement. Both parties frequently want the same thing - a longer agreement. This provides the agent with more incentive and the principal with greater stability and certainty.
Commission
The commission earned by the agent. This is the most important point for both parties. Inexperienced principals may occasionally seek to underpay the agent by offering commission percentages below market rates. Obviously, this will directly affect whether the agent signs the agreement. However, we have also seen agents sign an agreement, but because the commission is so low, they fail to invest time and resources in it and underperform in sales. Experienced principals will always incentivize agents by paying competitive commission rates. We have also seen additional bonuses for meeting certain agreed sales targets.
Duties and Responsibilities of the Agent
The list of what the agent should do is broadly what you would expect:
- Act in the principal's best interests.
- Not work for any competitors during the agreement.
- Do not act for another party at the same time.
- Provide timely information to the principal.
- Carry out all suitable due diligence on customers and prospective deals.
- Promptly pass all orders to the principal.
- Not disclose any confidential information during the agreement and for a period after.
- Not disclose any trade secrets, either during the agreement or at any time after.
The agreement goes into much more detail.
Duties and Responsibilities of the Principal
The principles' obligations include the following:
- Provide all the required and relevant sales and product information.
- The principal must also act in good faith towards the agent.
- The principal must pay the agreed commission and any agreed expenses.
- The principal must also supply the ordered products in a timely manner.
- If any products are shipped directly to the customer, the principal must provide documentation to the agent at the same time.
Again, the agreement goes into much more detail.
The Commercial Agents (Council Directive) Regulations 1993
Even though the UK left the EU, these regulations still apply, as all EU regulations became a permanent part of UK law on leaving the EU. It is important to remember that these regulations will also apply, even if they are removed from the agency agreement. The regulations protect the agent by allowing the agent to claim compensation from the principal when the principal ends the agency agreement early, but the principal continues to derive significant benefit and income from the work carried out by the agent during the agreement period. The aim of the regulations was to stop the previous sharp practice of getting an agent to build income for the principal, only for the principal to terminate the agreement early and take on the customers directly.
The Bribery Act 2010
The Bribery Act 2010 is directly referenced in the agreement (many agency agreements forget to mention it). In essence, the agent is prohibited from offering inducements or bribes to obtain contracts. An obvious example of this is where the principal is based in the UK and the agent is located in another country. The agent (unknown to the principal) offers bribes or inducements to win contracts from others in the country or territory. The risk for the principal is that they are implicated in this and, in the worst case, face a civil claim or criminal charges in the country in question. This could be a claim against the principal’s company, the individual officers or directors of the company, or both.
Intellectual Property
During the agreement period, the principal grants the agent a licence to use the principal's trademarks, product names, logos, and other branding to promote the relevant products. This is a standard and obvious provision within the agreement.
Data Protection
All data relating to the agreement and the ongoing commercial relationship is governed by the Data Protection Act 2018, the General Data Protection Regulation (GDPR), and the UK GDPR.
Termination
This is a key section of the agreement that protects both parties and allows either party to terminate the agreement early in the event of a significant breach. We cannot stress how important this section of the agreement is. This section of the agreement comprehensively protects both parties.
If you need an agency agreement that complies with UK law and the Commercial Agents Regulations, you can view our Agency Agreement here