Agency agreements are a cornerstone of many commercial arrangements. They allow one party (the principal) to appoint another (the agent) to act on their behalf in specific matters. For example, to market, negotiate, or sell products in defined territories. From franchised operations to international distributors, these agreements enable businesses to grow efficiently without direct local presence. Yet, while the concept of agency may seem straightforward, its legal and practical complexities mean that careful drafting and management are crucial to avoid costly disputes.

Understanding Agency Agreements

An agency agreement is not merely an administrative document, it defines the legal and fiduciary relationship between the parties. The agent is entrusted to act loyally and in good faith for the benefit of the principal, while the principal must provide the agent with the authority and information required to perform their duties effectively.

Typically, an agency agreement will cover:

· Scope of authority – setting out precisely what the agent can and cannot do.

· Commission and payment terms – including when commissions are earned and how they are calculated.

· Duration and renewal – defining the term of the arrangement and how it may be extended or brought to an end.

· Obligations of each party – such as reporting requirements, marketing duties, and confidentiality.

· Termination and post-termination rights – including notice periods and compensation entitlements.

Each of these clauses should be drafted with precision to avoid uncertainty about the parties’ respective rights and obligations.

Common Pitfalls in Agency Arrangements

Even with a well-drafted agreement, disputes can and do arise. The following are among the most common areas of contention:

1. Exceeding Authority – Agents occasionally act outside the authority granted to them, binding the principal to unauthorised commitments. Clear boundaries and written instructions help prevent this.

2. Commission Disputes – Arguments often centre on how commissions are calculated, when they are payable, or whether an agent remains entitled to commission after termination. Vague or inconsistent provisions can quickly lead to disagreements.

3. Breach of Contract – Either party may fail to perform their obligations, such as the agent neglecting to promote the goods or the principal failing to pay commission on time.

4. Termination Conflicts – Where termination provisions are unclear or not compliant with law, disputes may arise over whether the agreement was properly ended and what compensation is due.

5. Fiduciary Duties – Agents must act honestly, avoid conflicts of interest, and not profit secretly from their role. Breaches of these duties can have serious legal and reputational consequences.

Preventing Problems Before They Arise

The best way to deal with agency disputes is to avoid them altogether. Businesses should:

1. Ensure Clear, Comprehensive Documentation. Every aspect of the relationship, from commission triggers to termination procedures, should be precisely defined and unambiguous.

2. Comply with the Regulations. Understanding the statutory rights and duties imposed by law is essential before entering into or terminating any agency arrangement.

3. Act Promptly When Issues Emerge. Addressing potential breaches or ambiguities early, with legal input where necessary, can prevent escalation.

4. Keep Accurate Records. Detailed documentation of communications, sales, and commission calculations will prove invaluable if a dispute arises.

Conclusion

Agency agreements play a vital role in enabling businesses to operate and expand efficiently, but they also carry inherent risks if not carefully managed. Understanding the scope of authority, complying with regulations, and maintaining transparency between principal and agent are key to a healthy, dispute-free relationship.

Whether you are appointing an agent or acting as one, professional legal advice at the outset can help safeguard your commercial interests and avoid the common pitfalls that too often arise in agency arrangements.

Get in touch with us today to discuss your agency agreements on 02920 345511 or at commercial@berrysmith.com.