Principals

The Commercial Agents Regulations 1993 lay down the minimum requirements of a contract between an agent and principal, for example, minimum periods of notice, when commission is due and the right to claim compensation on the termination of the contract.

Commercial Agents are entitled to statutory compensation on termination of their agency agreements. This compensation can be substantial and is in addition to any existing contractual rights.

As a result of the Commercial Agents Regulations, there are important questions for principals to consider before entering into or terminating agency agreements. These include:

  • Do the Commercial Agents Regulations apply to the contract?
  • How much compensation is payable and what is the basis of the assessment?
  • In what circumstances is compensation payable?
  • What steps can be taken (both on negotiating the contract and on terminating it) to limit the amount of compensation on termination?

There have been a number of changes in relation to the matter of compensation, the most recent being as a result of the House of Lords case of Lonsdale v Howard & Hallam Ltd when it was decided that the level of compensation payable to an agent on termination of the agency agreement should be based on the market value of the agency, this value being determined by specialised valuations.

Some Principals have historically been advised that the Commercial Agents Regulations do not apply to their contracts and, whilst this advice may have been correct at the time, the way that the courts interpret the regulations has changed in recent years. It used to be the case that the provisions of the Regulations could be circumvented by restricting the Agent’s ability to ‘negotiate’ contracts. However this is no longer the case and the Regulations (including the provisions that apply to compensation) apply to all Agents that make introductions and play a significant role in persuading the purchaser to be interested in purchasing the Principals products.

As a result, the Commercial Agents Regulations are far more wide-reaching than originally considered to be the case and now apply to a number of contracts, which were thought previously to be exempt.

If you need help drafting an agency agreement, or you simply want more information about commercial agencies in general, Ashby Cohen can help you. We specialise in commercial agency cases, and our years of experience as lawyers make us uniquely qualified to assist you with any commercial agency issues you may have. Please contact us for an initial free consultation.

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