Agency & Franchise Agreements UK: Key Terms Explained

What this document is

An agency agreement sets out the terms on which one party (the agent) is authorised to act for another (the principal), usually to find customers, negotiate sales, or conclude contracts on the principal's behalf. The agent typically earns commission rather than a fixed salary, and the principal remains the party who sells the product or service.

In the UK, commercial agents who sell goods are also protected by the Commercial Agents (Council Directive) Regulations 1993, which give them rights that cannot simply be contracted out of, including potential compensation or indemnity when the agency ends. A franchise agreement is different in character.

The franchisor grants the franchisee the right to operate a business using the franchisor's brand, systems, know-how, and often its suppliers, usually in return for an upfront fee and ongoing royalties. The franchisee runs their own business but must follow the franchisor's operating standards.

Franchising in the UK is not regulated by a specific statute, so the contract itself does most of the heavy lifting, which is why the drafting deserves close attention.

How to use this document

1. Work out which structure actually fits. Before drafting anything, decide whether you want a representative selling on your behalf (agency) or an independent operator running a replica of your business (franchise). The answer affects tax, liability, control, and how profits are shared. Getting this wrong at the outset is expensive to fix later, so think commercially about who carries the risk and who owns the customer relationship.
2. Define the territory, exclusivity and duration. Spell out exactly where the agent or franchisee can operate, whether that right is exclusive, non-exclusive or sole, and how long the arrangement lasts. Vague geographic wording is a frequent source of dispute, particularly online where territorial lines blur. Consider renewal mechanics, minimum performance targets, and what happens if those targets are missed.
3. Nail down payment terms and financial obligations. For agency, this means commission rates, when commission is earned versus when it is paid, and treatment of repeat orders. For franchise, set out the initial fee, ongoing royalties, marketing levies, and any required purchases from approved suppliers. Ambiguity here almost always favours the party with deeper pockets, so precision protects the smaller party most.
4. Address intellectual property, confidentiality and post-term restrictions. Franchise agreements in particular depend on controlled use of trade marks, manuals, and know-how, so licensing terms need to be tight. Both types of agreement should include confidentiality obligations and reasonable post-termination restrictions to stop the other party walking off with customer lists or trading under a confusingly similar brand.
5. Plan for termination and what happens next. Set out notice periods, grounds for immediate termination, and the consequences of ending the relationship. For commercial agents selling goods, remember the statutory right to compensation or indemnity on termination. For franchises, cover de-branding obligations, handover of customer data, and any buy-back of stock or equipment. A clean exit clause saves years of litigation.

Common questions