The Commercial Agents Regulations

What are The Commercial Agents Regulations?

These regulations apply to the relationship between the person appointing an agent (called the "principal") and the agent appointed to sell the principal’s products (eg windows).

An agent acts on behalf of the principal. An agent can create a contract between the principal (ie. the seller) and the customer without actually being a party to it.

The Regulations – drafted in 1993 – don’t apply to agency appointments which are for the supply of services only, where the agent just introduces customers instead of completing sales or where the agent’s work is their secondary job or source of income.

The principal's responsibilities

Always stick to the terms of the agreement and act in good faith towards the agent. Make sure the agent always has all the documents and information they need to be able to carry out their duties under the terms of the agreement.

The agent may also ask for other conditions to be attached. If you’re not sure about these extra conditions, Ask a lawyer.

The agent’s responsibilities

Always look after the interests of the principal and stick to the terms of the agreement. Always act in good faith towards the principal.

The agent can ask for other conditions to be attached. If you’re not sure what extra conditions you can attach, Ask a lawyer.

How to end a contract

When the principal ends an agreement with an agent for any reason other than for a default by the agent, the agent can claim either a compensation payment or an indemnity payment.

Before the principal ends the agreement, they must also give the agent a notice period equal to one month for the first year, two months for the second year, three months for the third year or longer.

The amount of compensation the agent can claim is the same as for the notice period.

What is the difference between compensation and indemnity payment?

Indemnity payment

An agent will only be entitled to an indemnity payment if there's a provision to that effect in the sales or commercial agency agreement;
The indemnity payment is capped at a maximum of one year’s commission, calculated based on the agent’s average annual remuneration over the preceding five years or the period of the agency agreement if shorter; and
The indemnity payment is calculated based on the business the agent has built up (i.e. if and to the extent that the agent brought the principal new customers or has significantly increased the volume of business with existing customers).

Compensation payment

If nothing in the contract allows for an indemnity payment, the agent will only be entitled to a compensation payment;
Compensation payments are not capped; and
A compensation payment is not linked to the agent's performance, but is intended to reflect the loss suffered by the agent as a result of the termination of contract.