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Commercial Agency Agreement

A commercial agency agreement engages an independent agent to negotiate (and possibly conclude) sales of goods on behalf of a principal, in return for commission. UK commercial agents enjoy substantial statutory protection under the Commercial Agents (Council Directive) Regulations 1993, retained in UK law after Brexit — most importantly, an inalienable right to indemnity or compensation on termination. This template is drafted under English law and structures the agency to comply with the Regulations while giving the principal the commercial flexibility it needs.

When do you need this?

Typical use cases

  • You are appointing a sales agent to sell your goods in a defined market
  • You are an independent commercial agent needing a compliant framework
  • You need to choose explicitly between compensation and indemnity on termination
  • You are formalising an informal agency arrangement that has been running
What the contract includes

The contract covers

Identification of principal and agent
Description of goods (Regulations apply to goods, not services)
Defined territory and customer group
Exclusive or non-exclusive appointment
Commission rate and payment cycle
Statutory reporting under Regulation 12
Post-termination commission on Regulation 8 transactions
Agent's duties under Regulation 3
Principal's duties under Regulation 4
Statutory minimum notice under Regulation 15
Election between compensation and indemnity (Regulation 17)
Restraint of trade limited to 2 years and to the territory/goods (Regulation 20)
Governing law and jurisdiction — England and Wales

Legal basis

This template is drafted under English law and gives effect to the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053), which continue to apply in UK law post-Brexit. The Regulations apply to agents selling goods (not services), impose non-excludable duties on both parties, provide statutory minimum notice periods, and — most importantly — guarantee the agent either compensation or indemnity on termination. The choice between compensation and indemnity must be made in writing before termination; if not made, compensation applies by default.

Questions about commercial agency agreement

Frequently asked questions

What is the difference between compensation and indemnity?
Both are termination payments due to the agent under Regulation 17. Indemnity is capped at the equivalent of one year's average annual remuneration and rewards the agent for enduring benefits (new customers, increased sales) the principal keeps. Compensation is uncapped in principle and reflects the value of the agency business the agent loses. The choice must be made in the contract before termination; without a choice, compensation applies by default. Indemnity gives more certainty; compensation can produce larger awards where the agency was substantial.
Can I contract out of the Regulations?
No, not for a UK-based agent selling goods within the UK or the EEA. The Regulations are mandatory and any clause purporting to exclude them (before termination) is void. This includes the right to indemnity or compensation, the statutory minimum notice periods, and the good-faith duties. You can, however, decide procedural matters (payment cycles, reporting frequency) and elect between compensation and indemnity in writing.
Do the Regulations apply to service agents?
No. The Regulations apply only to commercial agents negotiating the sale (or purchase) of goods. Agents introducing services — insurance, financial products, professional services — fall outside the Regulations and are governed by ordinary contract law. In practice, agency principles from the Regulations are often used as an interpretive framework even for service agencies, but the mandatory protections do not apply.
What notice periods apply if we do not agree one?
Regulation 15 sets statutory minimum notice: one month during the first year of the agency, two months during the second year, and three months thereafter. Any contractually agreed notice must be at least equal to these minimums, and any notice given must expire at the end of a calendar month unless the parties agree otherwise. Shorter contractual notice periods are void and the statutory minimum applies.

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