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An Overview of the Commercial Agents Regulations 1993

Friday, 17 May 2013

Businesses or individuals that employ commercial agents or that operate as commercial agents must be aware of the legal regulations they are subject to.

The Commercial Agents Regulations 1993 brought considerable alterations to the agency principle in English law, extending specific rights and liabilities to commercial agents and their principals.

The 1993 provisions are implied into all commercial agency agreements.

What is a Commercial Agent?

A commercial agent is a self-employed intermediary who has on-going authority to conduct sales and enter into agreements on behalf of another legal person. An agent may be utilised to promote or broker sales for a business. Commercial agents can be individuals or companies.

If you are an employee, officer (executive, director or chairman) or a partner authorised to enter into binding agreements for the other partners; you are not a commercial agent. Agents must be self-employed and bestowed with a general authority to introduce customers to the business.

Right and Duties

Both parties have the right to request a signed copy of the agency agreement. The agent must act in good faith and exercise due diligence when conducting business. An agent has a duty to keep the principal informed and must ensure he reasonably accords to the instructions given.

Similarly, a principal must act in good faith and act with due diligence. The principal must also provide sufficient documentation and keep the agent informed of business developments.

These obligations are mandatory meaning that any contractual provisions negating or waiving them will be considered void.

The Right of Termination

Ordinarily, a commercial agency agreement will be terminated by expiration of the specified time period. However, rights to termination also arise for either party, where there has been a breach of the rights or duties owed.

If a contract is indefinite, notice is required to execute a termination. The notice period depends on the length the agreement has been in place whether it be one year (one month), two years (two months) or exceeding three years (three months).

The Right of Compensation or Indemnity

If the principal prematurely concludes the agency agreement, the agent may be entitled to claim compensation for the loss of commission for the remainder of the agreement. Notification must be given by the agent to the principal indicating his intention to claim compensation. If an agent has breached the rights or duties owed, there can be no claim of compensation. Compensation is calculated by working out the value of the agent’s business at the time of termination as if that business had been on-going or had continued until the end of the prescribed notice period.

If indemnity is provided for in the contract; rather than claiming compensation, the agent may claim an indemnity, worked out as the value of one year’s business as an average of the past five years, or shorter if applicable, and applying this valuation to the remainder of the contract. The agent can effectively recover what they can be reasonably expected to receive if the agreement was not terminated.

If you need advice regarding a commercial agency agreement, Rollingsons has experienced lawyers who can assist you. For more information please contact James Crichton via e-mail or by telephone on 0207 611 4848.