Draft Agency Agreement

Draft — Commercial Agency Agreement

When to use this

Use this skill when a principal (manufacturer, service provider, or franchisor) appoints an agent to:

• Solicit orders or make sales on the principal's behalf in a defined territory.
• Represent the principal's brand and products with customers.
• Earn commission on transactions introduced or concluded.

Critical first question: Does the client want a registered commercial agency or an ordinary services agreement? These have profoundly different consequences in MENA jurisdictions — a registered commercial agency creates mandatory statutory protections for the agent that are expensive to terminate.

Required inputs

Optional inputs

• Minimum performance targets (failure → termination trigger)
• Reporting format and frequency
• Marketing support obligations from principal
• Sub-agency rights (default: none)
• Non-compete scope post-termination

Document structure

1. Parties — full legal names, registration numbers, authorized signatories
2. Appointment — exclusive or non-exclusive; registered or unregistered; territory
3. Products/services scope — precise list; mechanism for adding new products
4. Agent's authority — solicitation authority only (no authority to contract on principal's behalf unless expressly granted by Power of Attorney)
5. Commission — rate; calculation base (net vs gross); payment timing; disputed commissions; commission on post-termination orders introduced during term
6. Performance obligations — minimum sales targets (if any); reporting; customer relationship management
7. Marketing and support — principal's obligation to supply samples, literature, training
8. Confidentiality and IP — agent does not acquire any IP rights; brand use guidelines
9. Non-competition — scope and duration post-termination (enforceability varies — see jurisdictional notes)
10. Term and renewal — initial term; auto-renewal mechanism; notice for non-renewal
11. Termination — for cause (material breach, insolvency); for convenience; consequences
12. Termination indemnity — see jurisdictional notes; often the most heavily negotiated clause
13. Governing law and dispute resolution
14. Boilerplate — see [[draft-boilerplate-clauses]]

Jurisdictional notes — termination indemnity (the critical risk)

UAE — Federal Decree-Law 3/2022 (Commercial Agencies Law)

• Registered commercial agents have mandatory statutory protection.
• Termination without cause (or non-renewal) triggers indemnity even if the contract is silent.
• Indemnity calculation: profits earned over life of agreement; disputed and often large.
• Non-registered arrangements: treated as ordinary contracts; agent has only contractual rights.
• Practical advice: if the principal does not want statutory exposure, structure the agreement as an ordinary services or distribution contract rather than registering as a commercial agency with the Ministry of Economy.

KSA — Royal Decree M/8 (1962, amended)

• Agent must be a Saudi national (individual) or Saudi-owned company.
• Commercial Agency Register with the Ministry of Commerce: mandatory for distribution/sales arrangements.
• Non-registration does not eliminate statutory protections — courts apply them anyway.
• Termination indemnity: courts award significant amounts; minimum one year's average commission is a common baseline.
• Sharia note: Interest on overdue commission is structurally awkward; use "delay compensation" language tied to actual loss.

Lebanon — Decree-Law 34/1967

• Commercial agents and representatives with exclusive arrangements have mandatory renewal rights and indemnity on termination.
• Indemnity = two years' average annual commission (minimum statutory baseline).
• Courts are pro-agent; contractual exclusions of indemnity are generally void.

Egypt — Law 120/1982

• Commercial agents registered with the Commercial Agents Registry.
• Termination indemnity: courts have wide discretion; typically one to two years' commission.

DIFC / ADGM

• Common-law principles apply; no statutory commercial agency protection.
• Termination governed by contract; agency principles from English law (apparent authority, secret profits, fiduciary duties).
• Much lower termination risk than onshore MENA jurisdictions.

Drafting standards

• Define "Commission" and "Net Sales Price" with precision — ambiguous definitions are the most common source of post-termination disputes.
• State explicitly whether the agent has authority to bind the principal in contract; if not, make clear in writing.
• For onshore UAE/KSA/LB: draft in Arabic (primary language) with English translation; Arabic controls.
• For DIFC/ADGM: English sufficient; Arabic not required.
• If using Tawqi3i (Lebanese e-signature notarization): see [[inst-tawqi3i-esignature-bridge]].

Common mistakes

• Calling it an "agency" when you want a service contract: use this label only deliberately in MENA; it triggers statutory protections.
• No minimum performance targets: without them, termination for underperformance is contestable.
• Vague territory definition: disputes arise over online sales, inbound customers from outside territory, customers with operations in multiple countries.
• Omitting post-termination commission tail: agent who introduces a deal before termination typically retains commission if the sale closes after termination — define this.
• Penalty clauses for late payment in KSA: draft as pre-estimate of loss, not penalty.

Related skills

• [[draft-brokerage-agreement]]
• [[draft-consulting-agreement]]
• [[draft-boilerplate-clauses]]
• [[draft-bilingual-ar-en-side-by-side]]