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What should I include in a Sales Agency Agreement?

Sales Agency Agreement Sales Agency agreements are used when a principal engages a sales agent to sell products or services to customers, on the principal’s behalf.

Sales agents can help business source additional markets, drive growth, increase sales and promote the principal’s goods or services.

A sales agent also has authority to negotiate and enter into agreements on the principal’s behalf. Any agreement entered into via the agent will be legally binding. In return, the sales agent will draw a set fee or commission for their services.

Exclusive and Non-Exclusive Agency

There are 2 types of sales agency agreements – Exclusive and Non-Exclusive.

An Exclusive agency agreement means that the agency relationship is only established with that agent for the sale of goods or service. The Exclusive agency can also be limited by geographic location (e.g. territory).

A Non-Exclusive agreement is a general agreement, meaning you can appoint more than one sales agent and commission is payable to the agent who finds a buyer.

Sometimes agreements can specify that the agreement is Exclusive for a period of time (e.g. 1 year) and after the period has elapsed, the agreement becomes non-exclusive.

Important Sections

The agency agreement is a tool to help determine important terms and conditions before entering into an agency relationship. Some terms to consider prior to drafting your agreement include:

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Commission payable

The agreement should specify the exact fees and commission structure for providing sales agent services. This amount will generally exclude GST. If both parties agree to use a commission structure, this must be clear from the terms of the agreement. Using example calculations can assist with clarity.

For example, if you agree to a fixed price of $10,000 plus a tiered commission structure (e.g. 5% on sales up to $100,000 and 2.5% thereafter):

Fees: 10,000
Base Commission
(100,000 * 0.05)
5,000
Commission:
(204,900 * 0.025)
5,122.50
TOTAL: $20,122.50

It is also important to determine whether any fees are payable should the sales agent not complete any sales. A sales agency agreement for the sale of residential or rural property must contain a statutory warning if commission is payable, even if the sale not be completed.[1]

Termination

Considering when the agreement will be terminated is also important as it defines circumstances that will result in the ending of the agreement between you and the agent. For example, termination should be an option where there is:

  1. Breach of any of the terms in the agency agreement;
  2. Non-payment of debts or liabilities by either party; or
  3. If one of the parties appoints an administrator or goes into liquidation.

You should also consider the term (e.g. 5 years) of the agreement and whether it is fixed (agreement terminates at the expiration of the term) or flexible. If you decide on a flexible term, the termination clause must provide for how and when the agreement can be terminated.

Confidentiality

Confidentiality clauses are important as they protect confidential information disclosed to agents. At times it is necessary to provide an agent with confidential information relating to a product or service. Have a think about the confidential information your business has and ensure your agreement adequately restricts the disclosure of such information.

Trademarks and Logos

Additionally, ensure your agreement also restricts the use of your intellectual property (trademarks, logos, designs, trade secrets patents etc.). Consider what intellectual property your business has and ensure your agreement outlines how and when the agent can use your intellectual property.

No Partnership

Your agreement should feature a statement that the parties to the agency agreement are in no way partners or joint ventures and have not entered into an employee-employer relationship. Whilst the agency agreement will specify the powers granted to the agent, a no partnership clause ensures that the specific relationship created is clear.

[1] Property Stock and Business Agents Regulation 2014 (NSW)

Other Resources

Sales Agents Agreement Template available for immediate download - protect your business without high legal fees

 

 

 

By Ian MacLeod

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