What is an agency agreement?
The basics: An agency agreement outlines the rights and responsibilities between a supplier and an agent to give the agent the authority to act on behalf of the company to sell products to third parties in a certain geographical location. In most cases, the supplier will often be the product owner, manufacturer or developer. Once an agency agreement is signed by both parties and the agent has found a prospective customer to purchase the supplier’s products, the supplier will enter into a separate supply agreement directly with the customer.
Protects both parties: A well-drafted agency agreement protects your business by clearly setting out the rules between a supplier and an agent to market and build relationships to sell the supplier’s goods or services in a particular territory. It can help a supplier boost sales without the need to have a physical presence or local knowledge, and all the additional costs and risks that setting up in a new territory usually entails.
What are the benefits of using an agency agreement template?
To reach new markets and reduce costs: Agents will often already have knowledge of their target market and have access to established sales channels to resell the products. An agent can enhance a supplier’s reach to new customers without the need for local market knowledge in the territory.
Cost-effective: Using an agent can be more cost-effective than building a physical presence in the territory, such as incorporating a new entity and hiring employees.
Increase revenue: An agency agreement can help agents to earn a commission for their services by using their established sales channels without the need to manufacture or provide the products.
Expertise: An agent with specialised knowledge and expertise in a particular market or industry can provide valuable insights and advice to the supplier. This can help the supplier to make informed decisions and improve their sales and marketing strategies.
What are the key terms that an agency agreement should include?
Key clauses: This agency agreement template contains key provisions in relation to:
Exclusivity: This agency agreement template contains three different types of appointment that can be selected through the optional clauses:
1. Non-exclusive - appointing an agent on this basis gives the supplier the most freedom as the supplier can continue to appoint other agents to resell the products in the territory.
2. Sole rights - this is less restrictive on the supplier than non-exclusive rights as the supplier cannot appoint any other agents, however, the supplier can still sell products in the agent’s territory.
3. Exclusive - this is typically the most favourable type of appointment for the agent as the supplier cannot appoint any other agents in the territory, nor can it sell the products directly to customers in the territory.
How does competition law impact an agency agreement?
A genuine agency (i.e. an agency agreement where the agent does not take on any significant business or financial risks when it comes to the contracts it concludes on the company's behalf) will generally fall outside the scope of competition laws. However, if the agency is not a genuine agency and is subject to UK competition laws, the Vertical Agreement Block Exemption Order (VABEO) provides an exemption from certain competition laws.
Is the agency genuine?
The VABEO guidelines (which can be found here) offer detailed guidance and indicates that a genuine agency agreement is one in which the agent:
- Doesn't own the goods or supply the contract services themselves;
- Doesn't pay for costs relating to transport, stocking, or financing the goods/services;
- Isn't responsible for customers' bad debt, except for their own commission;
- Isn't responsible for damage caused by the goods or services, unless it's the agent's fault;
- Doesn't have to invest in equipment, premises, or training for the products;
- Doesn't have to carry out any other activities required by the company;
- Isn't responsible for damage to the goods;
- Isn't responsible for other types of financial risk; and/or
- Doesn't have to invest in customer support services, unless the company reimburses the agent for these activities.
Vertical Agreement Block Exemption Order Criteria
This template has been drafted on the basis that the agent will not take on any significant business or financial risks as set out above. However, if you are required to deviate from Docue's standard template formatting which results in the agency not being a genuine agency, then it may be exempt from competition laws under the VABEO.
To benefit from the exemption, amongst other factors set out in the VABEO, the parties must ensure:
No hardcore restrictions: The agency agreement doesn’t contain any "hardcore" restrictive terms that are considered to be anti-competitive (e.g. fixing resale prices or imposing non-compete post-termination clauses that last for 5+ years, etc.); and
Market share: The parties’ market share is small enough for the agreement not to have a significant impact on competition (i.e. their market share is less than 30% of their respective markets).
Subject to limited exceptions, typically unless the agent bears a significant amount of commercial or financial risk, it will usually benefit from the exemption from competition laws provided in the VABEO. If an agency agreement is in breach of UK competition laws and is not exempt under the VABEO, the Competition and Markets Authority (CMA) can impose serious penalties on offenders. You can check out the CMA's guidance here.
Jurisdiction of this agency agreement template
Since the UK left the EU, the UK now has its own regulations for governing vertical agreements such as agency agreements. Although the UK’s VABEO has taken an approach that is similar to the EU Vertical Block Exemption Regulation, there are notable differences between the two regulations.
As the EU and UK have separate regimes for governing vertical agreements, this template is drafted in compliance with UK rules and does not take into account considerations of another jurisdiction’s competition laws. Therefore, if this template is used in another jurisdiction, it may not be compliant with the laws of that jurisdiction.
Docue gives you options to tailor this agency agreement template to meet your needs
Customised for your business: This agency agreement template contains alternate clauses depending on whether you are the supplier/manufacturer of the products (known as the company) or the agent.
Pro-agent terms: In the pro-agent optional terms, you have the option to select terms that are more favourable for the agent. Choosing the pro-agent terms in the template will help you to steer clear of limiting the ways in which the agent can market the products.
Pro-company terms: Alternatively, if you choose the pro-supplier/company optional terms, the company is able to choose how strict or relaxed the obligations of the parties will be and if agreed, it can also include a minimum sales target that must be achieved by the agent. A list of “reserved customers” can also be included to allow the company to negotiate contracts with certain customers in the territory even where the agent has exclusive rights.
This agency agreement template can be used for B2B arrangements between a supplier and agent, where both companies are incorporated in the UK. Please note, this template assumes English law applies.
Other templates and supply of services agreements
When should this template not be used: This agency agreement template should not be used where a supplier or manufacturer is looking to appoint a reseller or a distributor to resell products in a particular territory. If the products will first be sold to the reseller or distributor, then the following templates would be more suitable:
Reseller Agreement template. This template is typically used where software products or services will be resold; or
Distribution Agreement template. This template is popular where the products being resold consist of goods rather than software or services.
When should the supply of services agreement template be used: The products that are sold under the agency agreement will be governed by their own terms and conditions that are separate from the terms of the agency agreement. A supply of services agreement will contain the commercial terms and conditions relating to the products, whereas the agency agreement defines the arrangement between the supplier and agent to market the products. If you will be creating the agency agreement from the supplier’s perspective, check out our Services Agreement Please note, if the products will consist of software, please see the below paragraph.
When should the software as a service template be used: If the products that are being marketed by the agent consist of software, a software as a service agreement template would be suitable to govern the terms between the agent and customer. Our Software as a Service Agreement template can be found here.
Why use Docue?
Dynamic: Looking for an easy-to-use agency agreement template that’s drafted by legal experts? Look no further - Docue has you covered! Our cutting-edge technology and lawyer-drafted content make it simple to create, customise, e-sign, store and manage your contracts - all in one place.
Easy to use with favourable terms: Thanks to Docue’s automated drafting process, the terms in this agency agreement template are automatically tailored to the party that you are representing - whether that’s the agent or supplier.
Transparent pricing: At Docue, we believe in transparent and cost-effective pricing without any hidden fees. Sign up with Docue and see how easy it can be to create a professional-quality contract in no time.
Tags: sales agency contract, sales agent agreement, principal-agent agreement, commission-based agreement, non-exclusive agreement, exclusive agreement, sales compensation agreement.