Agency Contract: Best Practices with Template

If money is the lifeblood of a business, contracts are the bones that hold it all together. With contracts, you have a framework that allows you, your business partners, contractors or employees, and clients to work together in the safest, most productive way you can. Contracts are especially important for people working as agents or brokers, since they have to protect not only their own interests, but also the interests of the principal they represent. This is where agency contracts come in.

In this article, we at SignHouse will explain what an agency agreement is and how you can get your own signed. So let’s examine them in more detail. 

What is an agency agreement?

A contract, at its simplest, is an agreement that outlines the rights and responsibilities of both parties in a working agreement. An agency contract, to take it one step further, is a contract that defines the working relationship between one individual and a person appointed to represent them in a transaction. 

The agent could be an accountant, a lawyer, real estate broker, an independent contractor, or another professional. 

Agency contracts play an important role in the working world. People who need short-term expertise, such as a real estate agent, or who need longer-term business help without the added financial burdens that employees bring, need independent subcontractors.

Across all industries, agencies are the most common vehicle that business owners look to for the help they need. Real estate agencies, social media management agencies, and more, all need agency contracts for the principals they serve. 

Not every agency agreement is going to fit a given situation. Each contract of agency must be suited to the needs of the individual deal. A poorly worded agency agreement can lead to legal problems just as the lack of one can. 

For instance, if the contract is worded such that the agent is legally the same as the principal, the principal may be legally liable for any errors made by the agent. It is important to include limitation clauses in your contracts so exact boundaries for each party’s representation are clearly defined. 

Why is agency contract important?

In a way, a contract is like insurance. You want to believe that everything is going to turn out fine – no one is going to get the short end of the stick, everyone will be happy, and heaven forbid anyone gets outright cheated. However, like insurance, the contract is there to save you if things do go south fast. 

Employing an agent in a professional transaction can smooth out the process in many ways, but it does add another layer of complexity to a transaction. The buyer’s and seller’s responsibilities are usually pretty straightforward. Adding brokers or agents to a transaction means that their rights and responsibilities also have to be accounted for. Contracts provide legal protection for all parties involved. 

Clarifies legal rights and responsibilities of each party

An agency contract states the terms of the contract specifically: 

• exactly what each person in a deal is responsible for, 
• the length of the contract, 
• any legal protections or limitations they each have, and 
• when and how each person will be paid. 

Some contracts actually need to be in writing to be legally enforceable in certain US states. If you, your agent, or both, are in a state where this is the case, a written contract is crucial.This helps to protect both parties in the transaction and ensures fairness on both sides.

Makes private promises legally enforceable

A verbal promise between two people is simply that – a promise. Writing that promise out in a contract makes it into a legally enforceable guarantee. The added detail that a contract lends to an agreement makes it easier for each party to understand the other’s requirements. Pay, exact timelines, the scope of work, and the consequences for breach of contract are all neatly laid out. Legal jurisdiction is also defined in the case of legal action.  Everyone stays safer because of it. 

Maintains business relationships

Contracts are the skeletons that allow business relationships to grow and thrive. With a contract in place, there is an extra degree of trust and comfort in the deal that would not be present without the legal support of a written, signed contract. New businesses, especially rapid-growth businesses, often sign multiple contracts in a short period of time.

Understanding the full impact that each contract will have on the company, and signing contracts with the right people, is the way to nurture good relationships with a fledgling company’s partners. 

Agency contract example

Contract example source

How to get an agency contract signed

Now that you’ve seen an example of a business contract, let’s walk through the basic parts of an agency agreement or contract.  If you’re reading over a contract for a new agreement, and one of these pieces is missing, make sure you understand why – or get it added. Not every part of this is going to apply to every situation where an agent is needed, but this is a fairly standard layout. Depending on your situation, there may also be extra pieces that we didn’t cover here.

Please note that this isn’t meant to be a guide to writing your own agency contract template. If you do decide to draft your own agency agreement, make sure you get it reviewed by a lawyer or knowledgeable legal professional.

Name and address of both parties

The first step in writing out a contract is to clearly state who the parties in the transaction are. 

• Names of both parties
• Business names of both parties as applicable
• Addresses for those parties. A physical location (mailing address) is necessary for legal jurisdiction purposes, even if all communication will be digital.
• Other contact information as necessary

Scope of work

This part of the contract lays out exactly what the transaction consists of, and what each party is responsible for. In this case, it’s the agreement made between principal and agent, and delineates what the agent will do for the principal. 

The scope of work includes: 

• The overarching project goal 
• The exact deliverables that the agent will bring to the principal
• The timeline for the work
• Major milestones along the way
• Expectations for communication

A proper scope of work leaves no ambiguity or room for misunderstanding and makes the contract easier to execute. Misunderstandings lead to one party believing the contract is breached, while the other believes their responsibilities have been fulfilled. 

Duration of work

This section further clarifies the scope of work that the agent will perform for the principal. This might be a set length of time, such as a month. Alternatively, it could be based on a final result that the agent achieves, rather than a specific date.

Payment terms

This section protects the agent and ensures that he will get his compensation from the transaction. The payment terms section of the contract contains info like whether the agent’s pay will be a flat, agreed-upon amount, commission-based pay, or some combination. 

Termination clause

The termination clause, or severance clause, is there to allow for unusual circumstances that require breaking the contract early. Some circumstances that might require termination are: 

• Impossibility of contract: it is not possible to complete the work
• Recission: one or both of the parties is found to have not been acting in good faith at the time of signing. The contract is declared null and void. 
• By mutual agreement: if both parties decide to cancel the contract.  

Consequences of breach of contract

This part lays out the consequences for behavior outside the limits of the contract. This might include the right to sue for breach of contract, a penalty or fine, a provision payment for work completed inside the contract before breach, or a stipulation to dissolve the contract entirely. 

Confidentiality clause

Agents are often required to handle their principals’ sensitive information or trade secrets. The confidentiality clause, or nondisclosure agreement, states what information is to be kept private, along with consequences for breach of this clause. 

Indemnity clause

The indemnity clause lists the limits of rights and responsibilities for each party. This may absolve the principal of legal responsibility for the agent’s error. It may also guarantee compensation to the wronged party in a breach of contract. Indemnity clauses, like breach of contract clauses, are incredibly specific to different sorts of agency situations or contracts, and should be drafted and agreed upon as such.  

With all of these clauses in place, an agency contract should be easy to read, agree to, and sign for both parties. While legal language can be complicated, the contract should be a vehicle to success for the agreement, not an obstacle to the deal.

Signatures

The last part of a contract is, of course, the signatures. Whether these are written signatures on paper, or e-signatures on a PDF, the signatures on a contract are what “activate” it to be a legally binding agreement. 

Agency contract template

Ready to get started with an agency contract for your own business? Check out some free, professional-vetted templates from SignHouse and find the one that works for you. Customize it to suit your exact needs. Once you’ve filled in your contract, it’s time to sign. SignHouse offers simple, streamlined, intuitive e-signing for documents. All parties can view, sign online, and retain copies of the contract or document. SignHouse offers document editing tools, PDF splitting and editing, e-signatures, and a full suite of fully customizable contract templates for all your business needs. Check out their packages today.