The Basics of a Commercial Agency Agreement

An agency agreement can be an effective way to break into a new market. It can be used by a manufacturer or supplier to have a direct relationship with the End User (usually a consumer). It can be used to cover contracts for the sale of goods and services.

The Principal (the manufacturer or supplier) enters into an agreement with an Agent (an intermediary),  authorising them to enter into a contract on the Principal’s behalf. Thus, the contractual relationship is formed between the Principal and the End User.

  1. Between the Principal and Agent

This agency agreement is between the Principal and the Agent. It will govern their respective duties and stipulates the level of authority that the Agent will have when concluding contracts on behalf of the Principal to the End User. It is essential that the Agent does not act outside of the authority in the agreement, and if it they do, the Principal addresses this promptly.

If the Principal and Agent will be operating in the UK (not including Northern Ireland) or a Member State of the EU, the Commercial Agents (Council Directive) Regulations 1993 (the ‘Directive’) is likely to apply. Reg 2(1) of the Directive defines the following components of a commercial agent as:

  1. Being a self-employed intermediary;
  2. Has been given the continual authority to negotiate the sale/purchase of goods on the Principal’s behalf; or
  3. Can conclude the sale/purchase of goods on behalf of the Principal.

Consequently, the Directive will not apply to an Agent who only aids the Principal to locate the End User for the Principal.

Furthermore, Reg 2(2) of the Directive will not cover an agreement where (a) the Agent is not paid, (b) they operate on commodity exchanges or in the commodity market and (c) they are Crown Agents for Overseas Governments and Administrations, or its subsidiaries. Also, the Directive will not apply to an agency agreement involving the sale or services and not goods.

  • Between the Agent and the End User

There is no legal contractual relationship between the Agent and the End User. This means that if there is a defect or other alleged breach of contract concerning the goods, the End User will seek a remedy from the Principal and not the Agent (the Agent is only acting on behalf of the Principal). 

There are other factors that need to be considered when entering an agency agreement and the advice of a solicitor should always be sought.

If you have any queries regarding the above article or would require assistance with a similar matter please do not hesitate to get in touch with a member of our expert solicitor team at Lawdit today.

Tel: 023 8023 5979


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