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As you operate and maintain your business, you are going to engage in a lot of contractual relationships along the way. One such relationship that you will likely encounter is the agency relationship. This is a kind of contractual relationship that arises when someone is acting as your agent. Some industries make heavy use of agencies, and you may hire or use agents yourself. As with any legal relationship, each party has rights and obligations attached to their role in said relationship. This article will explain the nature of an agency relationship, outline some of these obligations, and provide some examples where you may encounter an agency relationship.

What Is an Agency Relationship?

An agency relationship describes the scenario where someone (the agent) has the authority to act on behalf of and affect the legal relations of another person (the principal). The concept itself is broad and simple, but how it plays out commercially can vary immensely. 

Agents can enter into contracts on behalf of the principal and make financial decisions for the principal according to context. You are bound by the contracts they sign for you and the decisions they make. 

For example, suppose you are negotiating a deal with another company, and you personally are unable to attend the negotiations. In that case, you can nominate someone else to act as your agent and make decisions for you.

This is because you, the principal, give the agent the express authority to act as you would. There is an element of trust to this relationship, so you must pick someone you can trust and rely on to be an agent for you. If your agent acts outside of the authority you specified for them, you may be able to make a claim against them if you suffered any losses. However, this is very context-dependent. In some cases, you can approve an unauthorised act if your agent does something different than what you agreed on.

Agency relationships can last for a specific period, and they will finish on the end date you agreed upon. If it is ongoing, you can end the relationship if both of you agree to it. You can also revoke your authority, and they renounce their access to your authority. In this case, whichever side that did not leave the contract can claim for a breach of contract.

Agent’s Duties

An agent’s duties are to:

  • act on the principal’s behalf in good faith;
  • act honestly;
  • not disclose confidential information;
  • keep accurate and up to date records;
  • avoid conflicts of interest;
  • avoid acting against the principal’s business interests;
  • comply with their agreement with the principal;
  • not go outside the authority given; and
  • exercise proper diligence, skill and care when acting for the principal.

Things to Note as a Principal

As the principal, you get the benefits of any contracts your agent signs for you, and the liabilities attached to that contract as well. You also have some duties to your agent, such as the duty to:

  • pay any fees;
  • reimburse them if they incurred any expenses while being your agent; and
  • compensate them for any losses that happen because of the agency.

You are bound by any representations they make on your behalf. In some cases, this may apply even if the agent made a promise that you did not intend them to. If you gave the third party the impression that the agent could make this kind of guarantee, the third party is entitled to the benefit of that promise.

The authority that you give to an agent can be as broad or as narrow as you want. So, it is a good idea to put that authority in writing so that you can define exactly what you are giving your agent the power to do.

Examples of an Agency Relationship

You can use an agent in almost all commercial situations or legal ones. Some examples include:

  • hiring an agent to sell your business goods for you;
  • using a real estate agent to find buyers for your property;
  • signing a power of attorney; or
  • executing your will.

Agency relationships can arise in less apparent contexts as well.

For example, if you are out of town, but your business needs to order and purchase new stock. One of your workers can act as your agent to authorise that order and purchase.

Key Takeaways

You have an agency relationship when you (the principal) give someone else (the agent) the authority to act on your behalf. This can be a beneficial relationship for your business, but there are certain obligations that each party has that are tied to that relationship. It is a good idea to write up what that authority covers, and what decisions the agent can make on your behalf. If you would like more information or help with your agency relationship, contact LegalVision’s commercial lawyers on 0800 005 570 or fill out the form on this page.

What is an agency relationship?

An agency relationship is created when you (the principal) gives someone else (your agent) the authority to act on your behalf. This means that they can enter into contracts for you, and can make some decisions for you as well. You can define how far this authority goes.

Who can be my agent?

Anyone can be your agent if you both agree to this kind of relationship being created. But, it is a good idea to choose someone that you can choose and rely on because you are giving them a lot of power.

What kind of relationship is an agency relationship?

An agency relationship is a kind of fiduciary relationship. This means that this is a relationship that requires a degree of trust, with both you and your agent having a duty to act in good faith.

What do I need for an agency relationship?

For an agency relationship to be valid, you need the consent of both you and your agent to have the agent act on your behalf. You may have this in writing or can be inferred from your behaviour in some situations.

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