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how to draft a commercial agency agreement uk

How to Draft a Agency Agreement in the UK

If you need to know how to draft a commercial agency agreement UK businesses can rely on, you are in the right place. A commercial agency agreement is a legally binding contract between a principal and an agent who sells goods or services on the principal's behalf. In the UK, these agreements are governed primarily by the Commercial Agents (Council Directive) Regulations 1993, which give agents specific statutory rights you cannot simply contract out of — including rights to commission and compensation on termination. Getting this document wrong is expensive. Underpay commission and you face a claim. Terminate without proper notice and you owe compensation. Miss key clauses and disputes become costly to resolve. This guide walks through every section you need to include, what UK law requires, and where you have flexibility to negotiate. Whether you are appointing your first sales agent or formalising an existing arrangement, this is the practical starting point. For complex multi-territory arrangements or high-value agency relationships, escalating to a solicitor is worth the cost.

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Why this matters

Most founders appoint an agent on a handshake or a one-page email, then discover months later that the 1993 Regulations gave that agent rights they never anticipated — including a compensation claim worth up to a year of commission when the relationship ends. The problem is not bad intentions. It is that commercial agency law in the UK is unusually agent-friendly compared to general contract law, and standard contract templates often miss the statutory obligations entirely. You need a document that reflects what the law actually requires, not a generic sales rep agreement downloaded from a random template site.

The Atornee approach

Atornee lets you generate a UK-specific commercial agency agreement that is built around the Commercial Agents (Council Directive) Regulations 1993 from the start. You answer plain-English questions about your arrangement — territory, commission structure, exclusivity, notice periods — and get a draft that reflects those specifics rather than a one-size-fits-all template. You can review it clause by clause, ask questions about what each section means, and export it ready for negotiation. It is not a substitute for a solicitor on a high-value deal, but for most early-stage agency appointments it gets you to a solid, legally grounded starting point in under an hour.

What you get

A clause-by-clause commercial agency agreement covering all requirements under the Commercial Agents (Council Directive) Regulations 1993
Commission structure and payment terms drafted to reduce disputes over what is owed and when
Termination provisions that correctly reflect statutory notice periods and compensation or indemnity options
Exclusivity, territory, and scope of authority clauses tailored to your specific arrangement
Plain-English explanations of each section so you understand what you are signing before you send it

Before you sign checklist

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1. Confirm whether your arrangement falls under the Commercial Agents (Council Directive) Regulations 1993 — it applies to agents selling goods, not services in all cases
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2. Decide whether you want an exclusive or non-exclusive arrangement and define the territory clearly before drafting
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3. Agree the commission rate, the trigger for when commission is earned, and when it is paid — document this before opening the template
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4. Choose between the indemnity and compensation models for termination — the default under UK law is compensation, which can be significant
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5. Set the notice period for termination — the Regulations set minimums of one month in year one, two months in year two, three months thereafter
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6. Include a clause addressing what happens to pipeline deals and commission on transactions concluded after termination
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7. Review the final draft against the Regulations checklist and, for high-value or multi-territory appointments, have a solicitor review before signing

FAQ

Do the Commercial Agents Regulations apply to my agreement?

The Commercial Agents (Council Directive) Regulations 1993 apply where a self-employed agent has continuing authority to negotiate or conclude the sale of goods on behalf of a principal. They do not automatically apply to agents selling services, to employees, or to one-off transactions. If your agent is selling goods on an ongoing basis, assume the Regulations apply and draft accordingly.

Can I contract out of the agent's right to compensation on termination?

No. The right to compensation or indemnity on termination is a statutory right under the 1993 Regulations and cannot be excluded by contract. You can choose between the compensation model and the indemnity model, but you cannot remove the entitlement entirely. Any clause that attempts to do so is void.

What is the difference between compensation and indemnity in a commercial agency agreement?

Compensation is the default under UK law and is based on the value of the agency to the agent — typically assessed as what a buyer would pay for the agency business, which can be up to two years' average annual commission. Indemnity is capped at one year's average annual commission and is calculated on the benefit the principal retains from the agent's work. Indemnity is often lower but not always. Take advice if the relationship is high value.

Does a commercial agency agreement need to be in writing?

The Regulations give both parties the right to receive a written document setting out the terms of the agency, but the agreement itself does not have to be in writing to be valid. That said, operating without a written agreement is a significant risk — disputes about commission rates, territory, and termination are much harder to resolve without clear written terms.

Can I use a standard sales rep contract instead of a commercial agency agreement?

Only if your arrangement genuinely falls outside the 1993 Regulations — for example, if the person is an employee rather than self-employed, or if they are selling services rather than goods. If the Regulations apply and your contract does not reflect them, the statutory rights still exist regardless of what your contract says. Using the wrong template does not remove the agent's legal entitlements.

When should I involve a solicitor rather than using a template?

Use a solicitor if the agency relationship involves significant revenue, multiple territories, complex commission structures, or if you are terminating an existing agency arrangement and want to manage your compensation exposure. For a straightforward single-territory appointment with a clear commission structure, a well-built template reviewed carefully is a reasonable starting point.

Related Atornee Guides

Cheap Contract Solicitor Alternative (UK)

Compare broader contract workflow options if you need more than just an agency agreement.

Cheap Solicitor for NDA (UK)

Pair with a confidentiality agreement if your agent will access sensitive business information.

Atornee Use Cases

See how other UK founders use Atornee across different contract and document workflows.

External References

UK Legislation

Primary statutory reference — read the Commercial Agents (Council Directive) Regulations 1993 in full.

GOV.UK Business and Self-employed

Official UK government guidance on business operations and self-employment arrangements.

ICO Guidance for Organisations

Relevant if your agency agreement involves the agent handling customer personal data on your behalf.

Trust & Verification Policy

Authored By

A

Atornee Editorial Team

UK Commercial Contract Research

Reviewed By

C

Compliance Review Desk

UK Business Legal Content QA

Last reviewed on 3/4/2026

"This content is based on analysis of the Commercial Agents (Council Directive) Regulations 1993 and common drafting issues encountered in UK agency arrangements. It reflects practical patterns from reviewing commercial agency disputes and template gaps identified across small business use cases."

References & Sources