Checklist: Drafting an agency agreement (UK)

Introduction

This checklist highlights key considerations for in-house counsel and private practitioners when drafting an agency agreement involving UK-based parties. It covers essential elements such as the scope and term of the agency, applicable restrictions, the parties' responsibilities and liabilities and termination provisions.

Before drafting an agency agreement, a thorough analysis of the specific facts and context of the relationship is necessary. This checklist provides an overview of the framework for drafting that can be adapted to reflect the specific requirements of the principal and agent. Although this checklist may slightly favour the principal, it covers important drafting considerations that are relevant to both parties.

This checklist addresses the following steps:

1. Assess the parties
2. Consider specific terms and conditions applicable to the principal/agent
3. Address general terms and conditions applicable to the agency relationship

The checklist is presented as a list of requirements to check off as they are reviewed and addressed. At the end of the document there are explanatory notes and specific notes corresponding to the relevant step in the checklist.

This checklist can be used in conjunction with the following How-to guide: How to assess competition law risks in an agency agreement and Quick view: Comparing agents and distributors: key differences, advantages and disadvantages.

Step 1 – Assess the parties

Step 2 – Consider specific terms and conditions applicable to the principal/agent

Step 3 – Address general terms and conditions applicable to the agency relationship

Explanatory notes

Overview

An agency agreement sets the terms for the relationship between an organisation (the principal) and a third-party intermediary (the agent) to perform certain functions with customers on behalf of the organisation. Consequently, the agreement will cover a range of topics – setting out the duties of the agent, the way the agent carries out those duties and the consideration (normally in the form of a fee or commission) due to the agent. The precise provisions of the agreement will depend on the nature and requirements of both the principal and the agent (and the purpose or scope of the agreement). While some principals prefer to broadly outline duties and may be happy to allow their agents a wide degree of freedom and flexibility in the performance of their obligations, others may prefer to set out the required standards of the agent’s obligations in precise detail. This may be the case when working with new or untested agents where the principal may want to seek to limit its potential liability for the actions of its agent. See Quick view: Agents and agency agreements. An agency agreement does not need to be in writing to be legally binding, but it helps to provide clarity for both parties (and potentially avoid unnecessary disputes) to put the terms in writing.

In addition, in the UK, the Commercial Agents (Council Directive) Regulations 1993 (Commercial Agents Regulations) imply certain conditions into arrangements with commercial agents (see ‘Legal Framework’ for a definition) that may be unfavourable so it is always preferable to expressly set out agreed terms in writing.

Legal framework

The law governing agency relationships is derived from a combination of common law and legislation. Common law generally dictates when a principal–agent relationship has been formed and the implications of that relationship. The Commercial Agents Regulations govern relationships where a commercial agent is engaged and imply certain rights and duties between a principal and a commercial agent with respect to the contractual arrangements between them, including payment of compensation (or providing an indemnity) to an agent on termination of the relationship – see section 2.1.5.

For the purposes of the Commercial Agents Regulations, a ‘commercial agent’ is a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the principal), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal.

If a commercial agent is being appointed, specialist advice is recommended to ensure that any agency agreement is compliant with the Regulations.

Key considerations

In addition to any duties implied by common law and any duties expressly set out in the agency agreement, agents are deemed to have equitable duties, intended to ensure that they only act for the benefit of the principal. Therefore, an agent should act in good faith and in the interests of the principal at all times, avoiding potential or actual conflicts of interest, disclosing matters relevant to the principal’s interests, and accounting to the principal in respect of any financial gains.

Step 1 – Assess the parties

Step 1 of the checklist helps the parties to determine whether agency is appropriate and, if so, to help the principal determine the necessary due diligence needed before appointing the agent. Additionally, check if the correct entities are entering into, as well as providing services under or receiving the benefit of, the contract.

1.1 Consider whether agency is the appropriate arrangement

When entering new (unfamiliar) territories and exploiting new products and services, organisations often use third-party intermediaries, such as agents or distributors, to benefit from their market knowledge and industry experience. A number of factors will need to be considered when deciding whether to use an agent or a distributor and it is essential to evaluate the specific commercial goals and strategic objectives of both parties. See Quick view: Comparing agents and distributors: key differences, advantages and disadvantages.

1.2 Consider what due diligence is appropriate prior to the appointment of the agent

Undertake comprehensive due diligence prior to engaging a prospective agent. Include checks on the financial standing of the agent, background checks (eg, obtaining testimonials from clients or partners in respect of the agent’s track record), as well as checking with the agent any existing agency arrangements the agent must ensure there is no conflict (especially if the agent is acting for a competitor of the principal).

If appointing an international agent, consider seeking local legal advice as different local and international agency laws may apply.

1.3 Consider whether the correct legal parties are identified

Clearly identifying the parties to the agreement is key to understanding whether the agreement is being completed as intended. Only those named in the contract or benefiting from the services (and identified in the contract) can claim for breach of contract, so it is essential to include language in the agreement that identifies who is responsible for performance. It is advisable to include the full legal names of the contracting entities, along with their registered company number and office details to accurately identify them.

1.4 Consider whether other parties, such as affiliates, should be named as parties to the agreement

If other parties (such as affiliates) intend to benefit from or to fulfil the contract as well as or instead of the principal and agent, it is important that the actual beneficiary or beneficiaries and/or service providers are clearly identified and acknowledged within the terms of the agreement together with an understanding of their roles, responsibilities and performance obligations. In addition, consider where responsibility or liability sits if the affiliate does not perform in line with required standards (eg, is the agent primarily liable, or is the affiliate directly accountable to the principal?).

Step 2 – Consider specific terms and conditions applicable to the principal/agent

The principal should clearly and expressly set out its requirements of an agent in the agreement. This is important as these express requirements will form the framework should a court ever need to rule on a dispute between the parties (eg, determining whether an agent is acting in good faith and in the principal’s best interests).

The specific terms of an agency agreement are matters for negotiation between the principal and the agent. Key areas to be considered are listed below.

2.1 Determine the term of the agreement

It is important to clearly specify the term of the agreement (ie, when each party will commence their respective obligations and when those obligations will end). While some agreements are terminable at will, most agency agreements have a definite or an open-ended term or end on the happening of a specific event.

2.1.1 Fixed term

An express and finite term, which provides that an agreement will terminate on a specific date, has the advantage of a definite ending. This is useful if the parties know that they only intend the relationship to last for a specific period, which allows for better financial budgeting and forecasting.

2.1.2 Rolling term

Parties sometimes prefer a rolling term that automatically renews annually after the end of the initial term unless either party gives notice to terminate at the end of the current term. This is useful when the agent is in the middle of ongoing negotiations with potential customers of the principal to enable those negotiations to continue without disruption or interruption simply because the parties have inadvertently overlooked that the term of the agency has ended. However, there is a risk that a party might miss the opportunity to terminate at the relevant time, causing the agreement to continue for another year.

2.1.3 Option to renew

If the parties prefer flexibility, an option to renew could be factored into the agreement. Any such option would normally be linked to the agent meeting specific targets, such as introducing the principal to new markets or soliciting sales of the principal’s products or services up to a certain value by a specific date. Either party has the option to terminate at the end of the initial term and there is no certainty that the relationship will continue. It allows both parties the opportunity to regularly review the relationship.

2.1.4 Termination on a specific event

Whether the agreement has a fixed or rolling term, or an option to renew, it typically includes automatic termination clauses. These clauses specify that the agreement will terminate on the happening of a specific event, for example, on a material breach by the agent, on the agent’s insolvency or a change of control.

If the agency agreement is intended to terminate when a particular event occurs, it is important that the agreement describes such event in detail to avoid any misunderstanding. For example, if termination is due to the agent’s breach (a one off less severe breach perhaps that is able to be remedied), or a material or persistent breach (in such cases, state which clauses constitute a material breach by the agent), specify whether the agent is to be given a reasonable time to try and rectify the breach (if capable of remedy) or if termination is automatic.

In addition, particularly for new agents, it may be advisable for the principal to include a termination for convenience right so that it can terminate the agency at any time on reasonable notice (without liability) if, for whatever reason, the relationship does not work out as planned.

2.1.5 Termination and the Commercial Agents Regulations

Please note that, where a UK commercial agent is appointed, the Commercial Agents Regulations will apply on termination of the relationship (for a definition of commercial agent see ‘Legal framework’).

On termination of a commercial agent agreement, the Regulations imply certain rights and duties between a principal and a commercial agent including that an agent may be entitled to potential compensation or an indemnity from the principal if the principal terminates the agency agreement. The parties do have the ability to modify within the agency agreement certain provisions of the Regulations to be more limited and balanced, for example, capping the compensation payable by the principal on termination, but the effect of the Regulations cannot be excluded altogether. If a commercial agent is being appointed, specialist advice is recommended to ensure that any agency agreement is compliant with the Regulations. See also Quick view: Comparing agents and distributors: key differences, advantages and disadvantages.

2.2 Specify the products or services covered by the agent’s activities

It is important to clearly define the products or services covered by the agent’s activities (ie, specify whether broad categories are to be covered such as toiletries, or specific sub-categories, such as skincare). This is particularly important if the principal engages multiple agents or wants to continue soliciting sales themselves. Establish clear guidelines if multiple agents are being appointed for the same products to avoid disputes over commission payments. See also Steps 2.3 and 2.4 below. Note the Commercial Agents Regulations do not cover services.

2.3 Consider agent rights of representation

It is important to be clear about the parties’ rights and duties in the agency agreement as often the terms ‘sole’ and ‘exclusive’ are used interchangeably.

There are three types of rights defined in an agency agreement:

• Non-exclusive – where the principal itself retains complete freedom to appoint multiple agents, in addition to the agent named in the agreement in a particular territory, for a particular product, service or market and all are given the right to sell the same products.
• Sole – where the principal retains the right itself to sell such products or services but cannot appoint anyone else (aside from the sole agent) to do so.
• Exclusive – only the agent has the right to sell the products or services in a particular territory, to the exclusion of all, including the principal.

Companies considering exclusivity for agents or any restrictions on the rights of agents should seek specialist competition law advice and caution is recommended. For more details, see How-to guide: How to assess competition law risks in an agency agreement and Quick view: Agents and agency agreements.

2.4 Determine restrictions on agent activities

The restrictions placed on the activities of agents need to be detailed clearly in the agreement, along with the consequences of breaching those restrictions. If the restrictions are not clear, there is a risk that the scope of the agent’s authority could be deemed to be wider than that intended by the principal, for example as a result of actions taken by the principal, which may be deemed to give the agent implied actual authority or even apparent or ostensible authority, for which the principal may be liable. See Quick view: Agents and agency agreements.

Examples of restrictions to consider are outlined in the following paragraphs. Provided that the agreement is a ‘genuine’ agency agreement, restrictions can be placed upon the geographic territory within which an agent may operate and the customers to whom an agent may sell and these will fall outside the scope of Chapter I of the Competition Act 1998 (for further information see How-to guide: How to assess competition law risks in an agency agreement and seek advice from specialist counsel as necessary).

2.4.1 Territorial limitations

An agency agreement may state that the agent is the appointed agent only for certain territories (or geographical areas).

Careful drafting is essential to ensure the defined territory reflects the parties’ intentions. The agreement should expressly prohibit the agent from operating outside the designated territory or geographic area, particularly where exclusivity is granted to other agents. This is crucial to avoid potential liability for the principal. The agreement should clearly specify the consequences of any unauthorised sales or marketing activity by the agent outside the designated territory or geographical area with defined consequences and remedies for breach. See section 2.3.

2.4.2 Customer-specific

An agent may be limited to dealing only with certain named customers, or a certain type of customer. For example, the agent for a company that sells toiletries may be limited to dealing with pharmacies only, while other agents may be allowed to handle any other retail accounts.

2.4.3 Restricting agent interaction to specific organisation size

There may be a good reason why an agent may be permitted to deal only with customers of a certain size. For example, larger organisations may have more complex needs that pose higher risks, and the principal may prefer to handle larger accounts to manage these on its own, leaving the agent to build strong personal relationships with other customers to maintain consistent service and quality. Alternatively, an agent may simply not have the capacity or resources to provide the necessary attention and service to handle larger accounts.

2.4.4 Actions permitted by the principal

In the agreement the principal should make it clear which actions are within the agent’s scope of authority. For example, the actions could simply be to solicit and introduce the prospective customer directly to the principal, for the principal to then negotiate and finalise a contract with the customer; or, the agent could be given authority to negotiate and finalise on behalf of the principal (with or without consent for minor or material amendments). Regardless of what is set out in the agreement, the principal should be mindful to ensure that its own conduct does not inadvertently result in the agent having implied authority.

2.5 Identify the standards of expected performance

While every agent is expected to exercise good faith in performing its obligations under an agency agreement, setting out clear and explicit standards for performance will provide a metric for determining whether those efforts are sufficient for the principal’s needs.

2.5.1 Incorporate goals into the agreement

Incorporate specific goals, such as sales quotas, into the agreement (eg, ‘that total sales of the principal’s products to any customers the agent has introduced to the principal must by [date] have reached or exceeded £[XX]’). It is good practice to set out the consequences for the agent in not meeting those goals, such as a reduction in commission payable by the principal, coaching, additional training or even termination or loss of exclusivity (if the agent was appointed on an exclusive basis). Seek specialist competition law advice on the design of such terms.

If specific goals are set, consider including an incentive for exceeding these goals, such as a bonus if sales quotas are exceeded by a certain percentage and/or before a specified deadline.

2.5.2 Establish requirements and procedure to report progress against standards

It is advisable to include a regular reporting obligation from the agent to the principal on fulfilment of the agent’s obligations, for example setting out details of any current negotiations, prospects and any pipeline. This will help the principal’s own interests in terms of working out cashflow, but also to determine if the agent needs additional support and/or if there are any fulfilment issues that need to be addressed. It may also help in deciding whether to renew an agent’s agreement (if the agreement is subject to an auto-renew clause – see Step 2.1.2).

2.6 Payment of fees and reimbursement of costs

It is essential to set out details of how, what and when the agent will be paid any fee or commission.

2.6.1 Basis of compensation (eg, hourly, commission, etc)

An agent will often be compensated by way of a fee or percentage commission based on sales. The basis for financial compensation must be set out clearly in the agreement. In addition, it is important to set out whether or not the agent will charge the principal for reasonable costs it incurs in performing its obligations under the agreement.

2.6.2 Timing of payment of fees or reimbursement of costs

Payment or reimbursement may be made at scheduled intervals, upon completion of specific milestones or may be made at the request of the agent. Typically, a principal will seek to tie payment to its own financial calendar, for example, at quarter end or 30 days following the month end in which sales payments are received, so that the principal has actually received and processed the sale funds before becoming liable for fee or commission payments to the agent. The agent may however try to seek upfront payments based on estimated sales and/or a fee in advance to cover any initial costs. Take care to consider any rights or liabilities regarding late payments; a principal will want to include an express stated percentage, whereas an agent will normally prefer the agreement to be silent and rely on the statutory minimum, which is normally weighted in its favour. See GOV.UK – Late commercial payments: charging interest and debt recovery.

2.6.3 Internal process of reporting by agent to determine fees or reimbursements

Payment on an hourly or commission basis requires some basis for calculating the amount due. Regular reports by the agent will provide such a basis. Consider also including an audit provision, to verify claims for payment, if necessary. See also Step 2.10.

2.7 Determine appropriate warranties

Consider appropriate warranties to include in the agreement. For example, to ensure that the agent:

• will exercise reasonable care and skill in performing any services (this is implied under the Supply of Goods and Services Act 1982 but the agent may seek to try and exclude all implied warranties, so it is advisable to set it out as an express warranty);
• has informed the principal of all laws and regulations applicable to the relevant products or services in the territory;
• has the appropriate authority and/or licences to enter into the agreement (it would be reasonable for an agent to seek a reciprocal warranty from the principal); and
• complies, and will at all times during the term of the agreement comply, with all applicable laws and regulations relating to the agency relationship (eg, those relating to data protection and modern slavery).

It is sensible to also include a warranty from the agent that it will comply with all applicable laws concerning anti-bribery, tax evasion and fraud. Various UK laws provide for corporate liability where certain corporate entities fail to prevent their associated persons from committing certain acts. At present the laws cover the failure to prevent bribery and the failure to prevent the criminal facilitation of tax evasion. On 1 September 2025, the law will also provide for corporate liability for failure to prevent fraud. Agents can be deemed ‘associated persons’ for the purposes of these laws and companies (in this case the principal) may be liable if they do not put in place reasonable prevention procedures. See further How-to guides: Understanding the Bribery Act 2010 offences and Understanding the failure to prevent fraud offence. See also Step 3.6.

2.8 Notice of interaction with third parties

An agent is normally appointed to interact with third parties (ie, customers) on behalf of the principal transparently and in good faith. However, an agent can sometimes be appointed on an undisclosed principal basis (where the customer is not made aware of the principal’s identity) and the scope of its authority can range from being very broad, or very narrow and specific. The scope of that interaction should be expressly set out in the agency agreement.

2.8.1 Limitations

Unless the agent is to have complete discretion in their dealings with third parties (which would be unusual), any limitations on their dealings should be set out clearly in the agreement. These limitations may be geographic or may depend on the size of the business, or other conditions. The products or services offered and territories granted may be limited by agreement. See Steps 2.2 and 2.4 above.

2.8.2 Approval of third party

Transactions involving an agent may be subject to further approval. For example, an equipment lease may be subject to approval by a lender who will finance the transaction. If approval will or may be required, the party responsible for the agent obtaining that approval from the principal must be specified, as well as the consequences for not obtaining the relevant approval.

2.9 Consider the potential liabilities of, and remedies available to, the parties

2.9.1 Liabilities

Both parties will normally seek to either exclude or limit their liability under the agreement. To do so, it is sensible to include a limitation of liability clause to manage and allocate risk between the parties. This clarifies the position for both parties. See How-to guide: How to draft and negotiate an exclusion and limitation of liability clause.

Typically, in respect of any liabilities between the principal and the third-party customer, an agent is not liable as the relationship is a direct one between the principal and the third party. However, this may not always be the case if, for example, the agent has not made it clear to the customer that it is acting as agent, or if it is typical within the custom of the trade, for the agent to be liable.

The principal and agent should carefully review any exclusions or limitations of liability in the agency agreement to ensure they are reasonable, including:

• the services to be provided by the agent;
• any fee or commission payable to the agent; and
• any mandatory policies or guidelines (or approval levels) the principal has in respect of exclusions and limitations of liability, the potential risk or loss that may be suffered and the likelihood of that risk or loss occurring (whether it is a theoretical risk more than a practical one, or vice versa).

Any caps or exclusions should be relevant and appropriate to the nature of the contract, the parties’ respective positions, rights and obligations and should consider where the greater risk should lie having regard to the commercial value as well as the strategic value of the relationship.

Further information on limitations of liability can be found in the following Checklist: What to consider when reviewing terms and conditions for the purchase of goods and services (buyer’s perspective) – B2B and How-to guide: How to draft and negotiate an exclusion and limitation of liability clause.

2.9.2 Remedies

When negotiating remedies, consider what the parties would reasonably expect if the other party were to breach the terms of the agency agreement – for example, poor performance or non-performance by the agent, the principal’s failure to pay or lateness in paying the commission. The option for each party to be able to terminate on the occurrence of a specific event is always sensible to include – see Step 2.1.4. However, this might not be that party’s preferred first option, especially if there are extenuating circumstances (such as change in market conditions, lack of essential information or support from the principal, or otherwise). In this case, the parties may wish to first discuss the issues to see if they can be resolved without having to resort to termination, for example, the agent may be afforded more time to complete the relevant services or be given more training by the principal, or the principal may be granted extended payment terms. Ensure that the available remedies are clearly stated in the agreement.

2.9.3 Indemnities

Indemnities from the agent may be useful to transfer the risk of certain losses or damage, for example if the principal suffers any loss as a result of the agent breaching applicable laws in the performance of its obligations under the agreement. An indemnity that the agent complies with all laws and regulations in favour of the principal, if lawful in the relevant jurisdiction, may provide protection to the principal if the agent fails to do so. If, however, the agent is not financially able to provide full indemnity for any resulting penalties or fines (or does not have appropriate insurance in place to bear the costs), the clause may be virtually meaningless. This is the reason thorough due diligence of an agent prior to engaging them is so important – see Step 1.2.

2.10 Clarify any audit rights of the principal

It is advisable for the principal (or its auditors) to have rights to be able to audit the agent’s records, to include remediation plan obligations as well as escalation processes to senior management if discrepancies are identified from the audit. This is especially important if any proceeds of sale are being paid directly to the agent on the principal’s behalf as well as to ensure that the agent is being paid the correct amount of commission and not claiming commission for work done by another agent (where the principal has engaged multiple agents for the same products).

2.11 Incorporate definitions of key terms

When interpreting an agreement, courts look at the ordinary meanings of terms. If a term is used in the agreement in a way that differs from the most common dictionary usage of the term, then it is important to set out the meaning assigned to the term for the purposes of the agreement. This is normally done by including an ‘interpretation’ clause within the agreement (eg, that use of the singular also implies the plural, or that the word ‘includes’ is illustrative and not exhaustive). If there is no one accepted definition, include the intended meaning of the term.

Step 3 – Address general terms and conditions applicable to the agency relationship

Agency agreements are governed by the same rules as all contracts. Step 3 addresses some points that bear special mention in the context of an agency agreement.

3.1 Boilerplate-type clauses

Many standard (boilerplate) clauses should be included in the agency agreement. The following clauses are commonly included in commercial contracts:

• Amendments/variation – for maximum flexibility, the parties will usually want to set out an agreed process in the agreement that enables them to vary the terms of the agreement to reflect, for example, changing market conditions, changes to laws, etc.
• Compliance with laws – these include anti-bribery legislation, modern slavery legislation, data protection and the principal’s policies or code of conduct (if applicable – see Step 3.6).
• Notices – are these sufficiently addressed and clear? Is email notice permitted?
• Rights of third parties – are third parties able to enforce the terms against the principal or agent? For example, principal affiliates may need the ability to enforce directly against the agent.
• Force majeure – is force majeure sufficiently covered in the agency agreement, with a right for the principal to terminate if the force majeure event continues for a prolonged period?
• Entire agreement – does the agency agreement expressly exclude the applicability of other documents or terms from the scope of the agreement? If not, should they (eg, to exclude any agency standard terms on the back of their invoice)?
• Dispute resolution clause – consider forum for dispute resolution, whether a particular court or alternative methods such as arbitration and mediation should be included.

Further details on these clauses are outside the scope of this Checklist – see the Additional Resources section for further information.

3.2 Governing law and jurisdiction

The agreement should clearly state the governing law that applies to the parties and the courts that have jurisdiction to hear any disputes arising under the agreement. From the perspective of a UK-based principal, the agreement is likely to be subject to the exclusive jurisdiction of the English courts.

Where there is a cross-border element to the agreement, the agent may seek to make the agreement subject to foreign jurisdiction. Seek advice from suitably qualified local counsel as to the implications – both legal and practical – of accepting a choice of foreign governing law or the jurisdiction of foreign courts.

For further information, see How-to guide: How to negotiate and draft governing law and jurisdiction clauses in a commercial agreement.

3.3 Assignment of responsibilities of the parties

If either party wishes to have the option in the future to allow other parties (such as their respective affiliates, if applicable) to perform their obligations or to subcontract their obligations, this should be clearly stated within the agreement. Either party may not wish for the other party to be able to assign or subcontract its responsibilities under the agreement as, for the principal, it is likely to have chosen the agent specifically for its skill and experience and, for the agent, it may have a preference to deal with the specific principal only and not any organisation. Consider whether it would be appropriate to include an outright prohibition on assignment, or if the parties may be allowed to assign either with the consent of the other party and/or to an entity within its group (if it is part of a group of companies) and clearly define what aspects of that party’s duties can be assigned and what cannot and how assignment will impact that party’s obligations under the agreement. Consider whether it is appropriate for a party to be able to terminate the agreement if any potential assignment may have a material adverse effect on performance of the agreement. In any event, from the principal’s perspective, it will want to conduct thorough due diligence of any assignee before they take over from the agent – see Step 1.2.

3.4 Intellectual property rights

In performing services for the principal, it is likely that the agent may need a limited licence to be able to use certain of the principal’s intellectual property rights, such as trademarks or copyright. The terms of the licence should be clearly stated within the agreement, including to clarify the extent of the licence, namely whether it is exclusive or non-exclusive, revocable, royalty-free, worldwide or limited to certain territories (this should match the territory or territories covered by the agent – see Step 2.4.1), and any licence given must be expressed to terminate automatically on termination of the agency agreement.

In granting a licence of this nature, the principal may also consider including other clauses to ensure sufficient protection of its intellectual property rights, namely that the agent does not obtain any rights in or to such rights other than the limited licence granted, that it is not allowed to sub-licence those rights to third parties, it will promptly notify and assist the principal in respect of any third-party infringements of the principal’s rights, and will assist the principal (at the principal’s cost) in obtaining or maintaining appropriate protection of its rights.

3.5 Confidentiality

The nature of an agency agreement means that the agent will often have access to highly sensitive and commercially valuable information that the principal may prefer to keep confidential. It is important to ensure that the agent is bound by confidentiality obligations and is aware of the extent to which it can use or disclose any such information to a third party (including if that third party itself needs to enter into a confidentiality agreement with the principal). It is also important to ensure that the obligations extend beyond the end of the term of the agreement for as long as possible (and subject to any legal restrictions preventing it from being kept confidential) as the principal will not want the agent to be able to use this information for its own benefit or for the benefit of other third parties. See How-to guide: How to draft a confidentiality agreement and Checklist: What to consider when reviewing a confidentiality agreement.

3.6 Policies and procedures of principal to be followed by agent

If there are certain procedures and policies that the principal expects the agent to follow, for example, relating to anti-bribery, data protection or codes of conduct, these should be specified in the agreement. In the absence of specific requirements, an agent will often be assumed to have discretion in determining how to perform its duties. At the same time, the principal should be aware that the degree of control exercised over an agent by a principal will be one factor taken into consideration by a court if a dispute arises as to the principal’s responsibility for the agent’s actions and the scope of the agent’s authority.

3.7 Non-compete clause

When an agency agreement comes to an end, the general rule is that neither party will have any continuing obligations towards the other (unless the agreement contains any express clauses stating that certain provisions will continue in force after the end of the term, for example, auditing requirements and data protection obligations). This rule means that the former agent is usually free to compete with the former principal, either by starting a competing business, or by agreeing to act as agent for a competitor of the principal. This is not ideal for the principal as the agent will have gained valuable experience and information of the relevant market for the principal’s products and services and may be able to use that for its own benefit or for the benefit of any new principal (subject to any confidentiality obligations that may prevent it from using the former principal’s confidential information – see Step 3.5).

Many agency agreements therefore include non-compete clauses that aim to prevent the agent from being able to act in a way that competes with the former principal or its business. However, unless very carefully and specifically worded to protect valid business interests of the principal and not unreasonably long in duration, a non-compete clause may be seen as being in restraint of trade, which has the potential to invalidate the entire agreement (not just the non-compete clause). Specialist legal advice is recommended before drafting a non-compete clause.

Additional resources

Unfair Contract Terms Act 1977
Supply of Goods and Services Act 1982 
Late Payment of Commercial Debts (Interest) Act 1998
Competition Act 1998
Contracts (Rights of Third Parties) Act 1999
UK Bribery Act 2010
Data Protection Act 2018

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