Harper James advises UK businesses on agency agreements and related commercial contracts under the laws of England and Wales. An agency agreement records the relationship between a principal and an agent, who is authorised to act on the principal’s behalf, often in negotiating or concluding contracts with customers, suppliers or other third parties.
An agent’s authority may be express, implied or apparent. Express authority is granted in the agreement or through clear instructions. Implied authority arises from the agent’s role, established practices or what is reasonably necessary to perform the authorised work. Apparent authority arises where the principal represents, through words or conduct, that the agent has authority, and a third party relies on that representation. A principal can therefore become bound even where the agent exceeded private instructions.
The agreement should define the agent’s territory, customer group, products, pricing powers, exclusivity, approval requirements and authority to sign contracts. It should also state whether the agent may appoint sub-agents, incur expenses, make warranties or offer discounts. Internal limits do not generally protect a principal against a third party that reasonably relies on apparent authority, unless the third party knows the agent lacks authority.
A contract formed by an authorised agent generally binds the principal and the third party. The usual requirements still apply: offer, acceptance, consideration and an intention to create legal relations. The parties must also agree sufficiently certain terms, and any statutory formalities must be satisfied. The agent normally does not become a party when acting for a disclosed principal, although the position changes where the principal is undisclosed or the agent expressly accepts personal liability.
If an agent acts without authority, the principal can ratify the transaction by adopting it with knowledge of the material facts. Ratification treats the act as authorised from the outset, subject to legal requirements. Without ratification, the third party may have a claim against the agent for breach of warranty of authority. The principal may also face disputes if its conduct suggested that authority existed.
A well-drafted agency agreement separates external authority from internal controls. It should include reporting duties, record-keeping, compliance obligations, confidentiality, intellectual property provisions, commission calculations, termination rights and post-termination restrictions. Businesses should also notify customers and suppliers when an agent’s authority changes or ends, and recover signing authority, account access and branded materials. These steps reduce uncertainty about whether later communications or contracts bind the principal.