Agency Agreement UK: Key Terms & How They Work

What this document is

At its core, an Agency Agreement is a commercial contract that authorises one party to act on behalf of another in finding customers or negotiating sales. The Agent does not usually buy the goods and resell them. Instead, they introduce or negotiate business, and the Principal remains the party that contracts with the end customer.

The Agent is paid, typically by commission, for the sales they bring in. This structure is different from a distributor arrangement, where the distributor buys stock and takes the resale risk, and different again from an employment contract, because an Agent is normally self-employed and runs their own business.

In the UK, where the Agent sells goods (not services) and has continuing authority to negotiate on the Principal's behalf, the Commercial Agents (Council Directive) Regulations 1993 may apply. These regulations give commercial agents significant statutory rights, including compensation or indemnity on termination, which cannot be contracted out of.

That is why a properly drafted agreement matters so much: it sets commercial expectations while navigating statutory protections that sit behind the contract.

How to use this document

1. Decide the type of appointment. Work out whether the Agent will be exclusive, sole, or non-exclusive in their territory. Exclusive means the Principal cannot appoint another agent or sell directly into that area. Sole allows the Principal to sell directly but not appoint others. Non-exclusive leaves everything open. Each option has different commercial consequences for both sides.
2. Define the products, services and territory clearly. Specify exactly what the Agent is authorised to sell and where. Ambiguity here causes more disputes than almost any other clause. If the Agent operates across multiple regions or online, think carefully about how to handle cross-border enquiries and house accounts that the Principal wants to keep for itself.
3. Set the commission structure in writing. Detail the commission rate, how it is calculated, when it becomes payable, and what happens to commission on orders placed before termination but fulfilled afterwards. Also address whether commission is due on repeat orders from customers the Agent originally introduced, which is a common flashpoint.
4. Address duties, reporting and performance. The Agent typically owes duties of good faith, including protecting confidential information and acting in the Principal's interests. Build in realistic performance targets, reporting obligations, and how often the parties will meet or share sales data. Clear expectations early on prevent resentment later.
5. Plan for termination from day one. Set out notice periods, grounds for immediate termination, post-termination restrictions, and how final commission will be calculated. Where the Commercial Agents Regulations apply, remember the Agent may be entitled to compensation or indemnity regardless of what the contract says, so factor that into your commercial thinking.

Common questions