Ten top tips for appointing or becoming a commercial agent

Following Brexit, the Commercial Agents (Council Directive) Regulations 1993 (Regulations), which implemented in the UK the EU’s Commercial Agents Directive 1986, remain in force in Great Britain and continue to apply to existing and new commercial agency relationships.

As we might have expected, a UK government consultation on the future of the Regulations (completed earlier this year) revealed that agents liked the security offered by the Regulations, arguing the Regulations make negotiating terms with larger principals easier and the prospect of acting as a commercial agent more attractive.

Principals, on the other hand, felt the Regulations unfairly benefitted agents and made it harder to terminate contracts with underperforming agents.

So, what should you bear in mind if you are planning on appointing or becoming an agent? Robin Adams and Daniel Montana, both in our commercial team, set out ten top tips below:

1. Be clear about what the relationship is.

Agency is not the same as distribution. An agent negotiates and possibly concludes sale agreements in the name of the principal; a distributor buys product from the principal and sells it on in its own name.

2. Make sure the Regulations apply to you.

The Regulations apply to agents who have the power to negotiate, or negotiate and conclude, the sale and purchase of goods on behalf of the principal but they do not protect agents selling services. They can also apply to a marketing or introduction agent, without authority to negotiate or conclude sales of goods.

3. Remember that minimum notice periods apply under the Regulations

For indefinite agency agreements or fixed-term agreements that have continued beyond the fixed term. Each party is entitled to a month’s notice in year one, two months in year two, and three months in each subsequent year of the agreement. Longer notice periods can be agreed as long as the principal cannot give shorter notice than the agent.

4. Don’t forget about termination payments.

An agent is entitled to a termination payment under the Regulations. The payment is determined on one of two bases: the compensation basis and the indemnity basis.

The compensation basis is generally preferred by agents and will apply by default; principals, who generally prefer the indemnity basis, need to set out in the agreement that the indemnity basis applies if that is what they want.

5. Be clear in the agreement about commission rates.

If the agreement is silent on commission and remuneration, the Regulations provide that an agent is entitled to "reasonable remuneration taking into account all aspects of the transaction".

6. Understand when commission can be due.

Commission can be due on sales post-termination, where the sale is attributable to the agent’s activity pre-termination or is a sale concluded post-termination for an order placed pre-termination. The right to post-termination commission can be excluded by agreement.

7. Know your restrictive covenants.

Usual common law rules about restrictive covenants will apply but for agency relationships caught by the Regulations, any such restrictive covenant must not restrict the agent beyond the geographical area, customers and goods covered by the agency.

8. Always aim for a written agency agreement.

A written agency agreement in clear terms is advisable although it is not required under the Regulations. An agent is nonetheless entitled to a written statement of terms under the Regulations.

9. Make sure the scope of the agent’s authority is clear.

Is it to negotiate terms or also conclude contracts on behalf of the principal or simply market the principal’s goods?

10. Ensure territories covered by the agency are clearly described.

Use a list of countries instead of vague terms such as the “far East” or even “Europe” and specify whether the agent has exclusive, sole or non-exclusive rights in those territories.

For help with your agency agreement please contact Robin Adams at [email protected] or on 0191 211 7949 or Daniel Montana at [email protected] or on 0191 211 7823.