Risks Litigation is costly. It is uncertain. It means passing control over an aspect of your business to outsiders. In June 2005, I wrote in Nursery Industry about Mr Coleman. He was awarded £1.5 million for termination of his one year fixed term agency.

Most companies would agree this level of risk justifies serious effort to avoid it. But what steps do they take?

There is no 'principals charter' to go alongside the Regulations. If companies do not create contractual protection, no-one else will. The outcome of any litigation depends on engineering the strongest position for yourself in advance.

Basics Principals control the two critical points in any agency -
•Formation
• Termination
The same thought should go into the first as into the second. Companies have a strong bargaining position at that stage.

A simple reality check - add up total commissions you may pay to your agent over the life of the agency. Would you enter into a contract of that size with anyone else without serious care and attention?

Agencies are increasingly seen as stand alone businesses, valued as if they belong to the agent outright. Companies that realise this at the outset will build various protections into their agreements.

Protections

The following are some ways a principal can create a higher level of protection for themselves:

• Minimum Sales - Not a target but in fact the opposite: a failure which justifies termination. Spell out that meeting this threshold is a fundamental term of the agreement.
• Retirement - Lengthen the notice period if an agent retires, giving you more time to absorb the financial impact.
• Territory Changes - Give yourself the right to alter areas. • Commission Changes - Give yourself the right to alter rates.
• Indemnity - Cap your exposure on termination by electing indemnity rather than compensation. This could halve your risk.
• Non-competition - Agents act for different principals. You should have the discretion to decide whether there is unacceptable competition.
• Other Principals - Create a requirement for the agent to tell who they act for.
• Restrictions - Create enforceable post termination restrictions (not ones that fail for being too ambitious).

None of the above conflict with the Commercial Agents Regulations. They are available for companies that chose to take them. They are not spirited up by some kindly judge for those that don't.

Lonsdale Case This long awaited ruling has now been handed down by the House of Lords. The two year rule has been thrown out for good. Mr Lonsdale got less than one year's commissions - a mere £5k! Other key findings were –

• Compensation should take account of factors relevant to a buyer
• In some cases a buyer may pay nothing at all
• Compensation only arose by default (no written agreement) After Lonsdale the need to act preventively is as strong as ever. It has not changed any of the protective steps above.

'Cows' & Success Finally, remember that the more successful your agent, the larger the potential 'cow'. You want your agent to succeed wildly. So engineer a protective position well in advance in order to enjoy that success without someone else taking all the milk!

Michael Morse, Godloves, can be contacted on 0113 225 8811 or mmorse@godloves.co.uk