What is an Agency Agreement in England? 

If your business retains agents, you must have adequate agency agreements with the necessary provisions. Businesses that trade internationally often use commercial agents to help them facilitate transactions. An agent is a middle-man that assists a business owner in obtaining or selling certain goods. They are selected for their specialist knowledge of that industry. Additionally, agents can also perform certain business functions that can help your business bring in a profit. An agency agreement is a legal instrument you might use to hire and utilise an agent. This article will explain what an agency agreement is and what provisions you should include. 

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What is an Agency Agreement?

Agency agreements are legally binding contracts that form a relationship between an agent and another business. Typically in a contract, the business retaining the agent is known as ‘the principal’ and wishes to use the agent’s knowledge or expertise to buy, sell or acquire specialist services. The agent is the intermediary and acts on the principal’s behalf. 

Who Might Use an Agency Agreement?

Agency agreements are more common than most people realise. Businesses enter agency contracts when they instruct their lawyers to advise them or act on their behalf in a commercial dispute. Similarly, they may instruct a sales agent to acquire or sell goods or property for them. 

Pros and Cons of Agency Agreements 

The obvious benefit of agency agreements is that they allow someone with specialist skills to work on your behalf. Therefore, you no longer need to perform particularly complicated functions yourself. For example, most people are untrained in the realms of consumer law. Therefore, for a retail business, it is wise to employ a contract lawyer to act as an agent. Additionally, they can advise you on how to ensure your retail business’ daily functions comply with consumer law. 

However, there are drawbacks to agency agreements. Notably, your business can be liable for the conduct of your agent. For example, if an agent acts inappropriately or unlawfully, they may face legal action. Subsequently, as the company hiring the agent, your business may ultimately bear responsibility.

What Provisions Should I Include in My Agreement?

You should look to include the following terms when drafting your written agency agreement. Doing so will help you avoid the threat of legal disputes from those businesses you work with and from the agents you employ.

Definitions of Agent and Agency

As with any contract, it is always important to define the key terms and main parties transacting in that contract. Especially with agency agreements, this can help ensure both parties are aware of the main functions the agent is due to perform under the contract. That is why it is wise to define the terms agency, agent and principal at the start of the contract. 

For example, in a contract for accounting services, the agent and principal should be identified at the beginning of the agreement. The agent will most likely be the accounting firm, and the principal will be the organisation receiving accounting services.

Agent’s Authority 

After defining who each party is, it is necessary to define the agent’s duties. For example, a contract may require a lawyer to act as the legal agent for a financial business. This role involves the lawyer advising the principal on disputes arising in their daily business functions. A well-drafted agency agreement will also define how the business can instruct its lawyers to deal with these problems and when the lawyer may need to take action on behalf of the principal without their instruction. The agreement should also define the duration of the contract and how long the agent will perform these services. 

Where Can the Agent Operate?

Your agency agreement should also clarify where an agent can operate. This is useful to prevent misunderstandings between both entities. For example, companies placing international orders for goods and services should specify where their agents have the authority to act.

Agent’s Reporting Obligations to the Principal

Particularly if the principal and agent are working to buy and sell goods, it is very important to impose obligations on the agent to disclose those sales and their general operations to the principal. This can help the principal understand how much profit or loss they are making, as well as ensure the agent is conducting their work lawfully and thoroughly. 

Payment Clauses 

For a contract to be legally binding, payment must be made from the principal to the agent. In an agency agreement, agents such as lawyers or accountants who continually perform specialist services will be paid on a retainer or subscription basis. Meanwhile, an agent contracting for the sale of goods may receive a commission or a payment for the performance of those services.

Key Takeaways

An agency agreement is a legally binding contract that allows a business to hire a specialist to perform certain functions. Those functions can extend to anything from providing legal services to buying or selling goods for that company. A poorly drafted agency agreement can open you up to various legal disputes. Therefore, it is important to be clear on the obligations you bestow on an agent and try to limit your liability in that agreement as much as possible. Getting a lawyer’s advice is advisable if you’re looking to draft an agency agreement. 

If you also need more advice on enforcing the terms of an agency agreement, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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