Solicitors in London for agency agreements
The law of agency in the UK is complicated. We have experience in helping both agents, distributors and principals.
How to negotiate your agency agreement
Agency contract negotiation
We work with agents, distributors, and the principals. Our expertise is the knowledge of the law of agency and what works and does not work in business. We backup our knowledge with practical and commercial advice.
The usual benefit of an agency agreement is that the principal, who created the product or service, gains access to new markets without employing additional local sales staff.
The basics of an agency agreement
The common features of a principal and agent relationship include:
- The principal retains control over the agent’s transactions;
- The agent usually earns commission by selling the principal’s products; and
- The principal, not the agent, bears the commercial risk and direct responsibility for transactions with customers.
Good faith – implied into any agency agreement
An overriding requirement of the agency agreement is that the principal and agent act dutifully and in good faith. Without care and attention, it is easy to fall foul of this requirement.
Provision of information under the agency agreement
The principal should provide the agent with documentation that meets certain standards. Principals should take care, as agents have a right to know where sales are likely to drop. This is often sensitive information and it requires protection to prevent misuse. It can be difficult for principals to predict what information to reveal if obligations are not set out and negotiated as part of the agency agreement.
Terminating agency agreements
We provide solutions for agents or principals to recover their position. The issues usually revolve around:
- Notice periods;
- Return of stock; and
- Post-termination restrictions.
Effects of termination
Common scenarios we cover include:
- Return of information: is the agent required to return all information to the principal, whether confidential or not?
- Competition: is the agent precluded from working for a competing principal following termination?
- Duties: is the agent entitled to perform duties on behalf of the principal for a specified time following termination?
- Collection of monies: who collects in the debts following termination of the agency agreement.
We will consider how to stop a dispute from erupting that could result in business disruption and expensive court cases. Typical solutions we will often suggest to avoid disputes are ensuring that the agency agreement has an escalation procedure and referral to an independent mediator. Mediation is an attractive method of alternative dispute resolution. Mediation is used where the overriding objective is to preserve and maintain the business relationship.
Representation for the agent under an agency agreement
If acting for the agent, we will consider whether the agency agreement protects the agent from risks. Typical risk can include the following:
Exclusivity under the agency agreement
Is the agency contract exclusive to the agent? This consideration is to stop the principal from using an alternative agent whether in the same country or elsewhere. This can held protect the agent’s value in the agreement.
Does the agency agreement include payment terms and strict deadlines for payment? We review for any detriment to commission receipts from the principal.
Safeguarding the agent’s interests
We address risks before they become real problems. For example, as an agent, you might create business relationships with customers who place regular orders. The principal might believe the agent just services existing customers and doesn’t pursue new customers. So the principal might wish to fire the agent, sell direct to those customers, and perhaps invest in aggressive sales and marketing campaigns. Many problems can be avoided if the agency agreement has been planned out before signature.
Tailoring the agency agreement for the particular agent
What we do is take the time to understand the background and the reasons for the agency setup. We then tailor our advice accordingly. This can help minimise costs in the event that there is a dispute. Likewise, if a agency dispute does arise, we know how to get the parties back on track.
Representation for principals
Where we act for the principal, we ensure that we protect the value in the principal’s business. Common terms to include in the agency agreement when acting for the principal often include:
The agent’s legal obligations
The agent concludes transactions on behalf of his principal. The agent should comply with documented instructions, such as pricing, and the range of goods/services sold and supported. We will look to see that the agency agreement includes the following key restrictions:
- The agent or distributor must not actively solicit sales outside the agreed geographic area or with defined customers;
- The agent or distributor must not act as an agent for other defined third parties, e.g. competitors; and/or
- The agent or distributor must not manufacture or supply goods or services competing with those covered by the agency agreement.
The protection of your business’s brand and intellectual property will be important. We can review arrangements to make sure you have the best protection of intellectual property in place to stop abuse.
Implied protection for agents
In most countries there are some laws to protect agents. Every country has different rules and regulations. For both the principal and the agent, getting caught by these protections is expensive, and potentially diminishes your business’s valuation.
Typical areas we watch for on behalf of principals include:
Protections in an agency agreement imported by local law or common law can include:
- Notice periods for termination of the agency relationship; and
- Compensation payable following termination.
The protections for agents against principals can apply even if you have not specifically included them in your agency agreement. They are implied and will take effect. You need to know what terms are implied, and what impact they can have on the relationship.
Our network of 800 lawyers across 70 jurisdictions enables us to protect principals and agents using local knowledge, undercutting the costs of a traditional international law firm.
Breach of an agency agreement
The UK has in force regulations that entitle a commercial agent to compensation on termination of an agency agreement. Broadly, the commercial agent is compensated for the damage he suffers as a result of the termination of his relations with his principal.
Situations where damages arise can occur when:
- The termination deprives the commercial agent of the remuneration which proper performance would have entitled the agent to, e.g. fixed remuneration over a specified term under the agency agreement; or
- The agent is prohibited from claiming the costs and expenses incurred under the agency agreement, e.g. marketing costs incurred to the date of termination.
Calculating the damages due on termination of the agency contract
The compensation is often the value that a hypothetical purchaser would have paid for the agency at the date of termination. Various factors assist in arriving at this hypothetical value, including:
- The price/earnings ratios from similar businesses at the date of termination, together with the appropriate multipliers.
- Discounts for lack of market, or an overly competitive market.
- Discounts for the size of the agent’s business.
We do advise on levels of compensation payable to resolve disputes following termination.