This article is written by Saroj Chauhan who is pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
What is sales commission?
A commission sales agents agreements is contract entered between two parties. The first party is the legal entity or person possessing the goods or services they want to sell and the second party which is agent will market and sell the goods or services in return first party promises to pay the second party certain amount of money. Payment of such money in exchange of services provided by the agent is known as the commission which second party will be entitled for each sale made. the commission sales agents agreement shall mention the amount of commission needs to be paid to Agents for each sale.
To understand the concept of sales commission lets take the example of a Real estate developer and broker.
The real estate developer would engage the Broker to facilitate the sale of the Flats in return of this services real estate developer give certain amount of commission lets say 10@ of the total cost of the flat and that 10%of the total cost of flat which agent will have considered as sales commission.
Why do we need to enter into commission sales agents Agreements?
The commission sales agent agreement is a very important tool when the person is willing to hire agent or salesperson. it plays a vital role for the agent who will be paid on a commission basis. the agreement benefits both the parties as it sets the terms for the relationship and avoid any misunderstanding between the parties.
Various clauses of commission sales Agent Agreement
Appointment of Agent
The clause shall mention in detailed about the appointment of Agent in connection with service or goods and what at price Agent suppose to sell for the eligibility of the commission. The clause shall also mention that if there is any license which agent is required for sales of particular services or goods agent shall be responsible to take that in fulfill all requirement which he needs to play with the regards to the same as per the prevailing law of land .
For the purpose of sample clauses lets make following assumptions.
First party – real estate Developer.
Second party – Real estate agent.
GOODS/SERVICES- conducting the sale of Flats.
“The Second Party agrees to organize bookings of the Flat in the said Project by way of offer of sale/allotment of Flats, depending upon the availability of such Flats, as per rates and in conformity with the terms and conditions prescribed by the First Party for each of such Flats”.
“The Second Party shall obtain requisite License/Certificate of Registration to act as a Broker/Estate Agent/Property Dealer under the Haryana Regulation of Property Dealers and Consultants Act 2008 (Rules 2009), or such laws/acts that are in force in the state Of Haryana for the time being related to same and also under RERA.”
This clause is the essence of the Agreement and should be drafted clearly that there is no ambiguity. the clause shall mention the rate of the commission how and when it is paid and what are the expenses or income apart from the commission agent will get to perform the services agreed under the contract.
“In consideration of the facilitation services to be rendered under this agreement by the Second Party, the First Party shall pay brokerage/commission to the Second Party on the quantum of bookings of the said projects facilitated and undertaken by it/him in accordance with rate which is 10% of each booking amount and same shall be subject to revision time to time as per the mutual consent of the both parties, the mode of such payment specified from time to time for the Flats on case to case basis. It is clearly understood and agreed by the Second Party that the entitlement of brokerage on the said bookings made by it/him shall always be subject to the approval/confirmation of the bookings by the First Party. No other compensation or expenses, other than the prescribed brokerage/commission, shall be paid/reimbursed by the First Party”.
The clause shall mention that what all precautions are what all the agent and include in the content while he is advertising about the flats or how he can do the advertising however clause should clearly mention that before realising any advertisement the agent have to take the approval from the person employing him , because in case of any false representation by agent can cause huge loss to the person employing him for the sales .
“The Second Party is strictly prohibited from using the logo, trademark or any signs whatsoever related to intellectual property right of the First Party for any purpose whatsoever and also barred from issuing or publishing any statements or advertisement in print or audio-visual media or through any other mode relating to facilitation of bookings of the said Projects either in its own name or on behalf of the First Party without the express written consent of the First Party. The Second Party shall not use or cause to be used, any material, information oral or write-up, other than what is specifically provided by the First Party in the application form, brochure of the said Projects”.
This clause will have the incorporation that what all agent is obligated to do under the agreement and should give the clearly picture about the duties and responsibility agents is required to perform in under the agreement.
“The Second Party shall use its best efforts to actively and diligently provide the services to be rendered under this agreement. Most importantly, Second Party undertakes to ensure the accuracy and completeness of customer information shared by it”.
“It shall be the responsibility of the Second Party to extend support and provide clarifications as may be required by the prospective customers introduced by him/them and to ensure that the payments are received/encashed, as per the payment plan of the First Party. Further, it is the responsibility of the Second Party to keep itself abreast of the prevailing rates, price lists, terms and conditions, rules, regulations governing the said Projects that may be issued, amended or updated by the first party from time to time”.
Independent principal Parties
The clause is very important to incorporate in your commission sales agent agreement as it will give the detail information about the relationship between the parties.
“The Parties hereby acknowledge that this Agreement shall not be construed as creating an employment, partnership or principal-agent relationship or to constitute the Second Party as a Representative/Agent of the First Party nor shall the execution and implementation of this Agreement in any manner be deemed to confer on the Second Party, power to bind or impose any obligation or to pledge the credit of the First Party. The Parties are independent entities and have negotiated this Agreement as such. For the term of this Agreement, the Second Party is an independent contractor and is personally and solely responsible/liable for his actions and those of his agents or employees. The relationship between the parties to this Agreement shall be that of Principal to Principal basis”.
Confirmation of booking
The clause shall mention the process for the confirmation of booking which is brought by the agent and is verry essential clause as the commission of the agent will be decided on the number of bookings he brought.
“It is clearly understood and agreed by the Second Party that the entitlement of brokerage on the said bookings made by it/him shall always be subject to the approval/confirmation of the bookings by the First Party”.
Payment of taxes
The clause shall make it clear that the payment which are to be made to the agent for his services provided under the agreement or payment of the commission who will be liable to pay tax on it as when it is made to the agent at that time the person hired him will deduct the taxes or not.
“Each Party shall be responsible for its respective taxes including those in respect of its personnel, property or lease as per applicable laws. The First Party shall be permitted to deduct all withholdings required as per law prior to making any payments accruing or arising under or by virtue of this Agreement. The payment of commission/ brokerage shall be subject to deduction of applicable statutory taxes”.
This clause is very important in every business agreement as during the course one party horing other party for his services they tend to exchange business information with the other party and the other party might misuse the information.
“Non-disclosure of business operations and maintenance of confidentiality of the business transactions of the said Projects is one of the tenets of this agreement and the Second Party assures and shall remain bound to maintain confidentiality of all the business matters and confidential information related to the said Projects that come to its knowledge in the course of its association with the First Party not only during the currency of this Agreement but also at all times thereafter unless such information has already been disclosed by the First Party itself in the public domain.”
Non competing clause
This is a very standard clause and can be seen in many business agreements . the person hiring the agents do not want them to work them with their competitors that will hamper their sales.
“The Second Party shall not provide similar services or have any direct or indirect interest in any other services which may be competitive with the Flats unless prior written consent of the First Party is first obtained. The decision in respect of whether or not any other services provided by the Second Party are competitive with the Flats will be within the sole discretion of the First party”.
Abdulla Ahmed vs Animendra Kissen Mitter
Facts of the case
Abdulla Ahmed, an estate agent carrying business in Calcutta, was appointed by Mr Animendra Kissen Mitter by the letter dated 5th May, 1943, to negotiate the sale of the property on the terms and condition mentioned in the letter, Terms of the letter were following –Mr. Animendra Kissen Mitter authorized Abdulla Ahmed to negotiate the sale of my property 27, Amratolla Street, the property is free from all encumbrances, not less then Rs, 1,00,000 In case Abdulla Ahmed would succeed in securing the sale of the property for Rs 1,00,000, in that case, he would be entitled for the commission of Rs 1000, in case further the sale price of the property exceed Rs 1,50,000 and does not exceed Rs 1,10,000, Abdulla Ahmed would be entitled for whole amount in excess over of 1,05,000 in addition of Rs 1000.
Further, if Abdulla Ahmed would secure the buyer at sale price of exceeding Rs 1,10,000, he will entitled for 25% of the excess amount of 1,10,000 in addition of 6000 Rs as state above , and deal was valid for 1 month from the letter date which was 5th January, 1948. As per the letter Abdulla Ahmed found two buyer who were ready to purchase the property at the price of Rs. 1,10,000 ON 2nd June, and on 3rd June and in regards to same Abdulla Ahmed he communicated the same to Mr. Animendra Kissen Mitter, however, Mr. Animendra Kissen Mitter cancel the authority of Abdulla Ahmed given to him through letter and on the same date entered into the agreement to sale with the buyer nominee of Abdulla Ahmed at sale price of the property Rs. 1,05,000 on 9th June 1943, and executed the conveyance deed for sale price Rs. 1,05,000 on 8th, December 1943, Mr. Abdulla Ahmed filled case against Mr. Animendra Kissen Mitter for the recovery of Rs 6000 and same amount of recovery as damages for breach of the contract.
Chief justice Patanjali Sastri gave the judgment on the basis of following statement. The question was determined upon the hypothesis that Where an owner of property employs an agent to find a purchaser, which must mean at least a person who enters into a binding contract to purchase and that is implied term of the contract of agency that, after the agent has introduced a person who is ready, willing and able to purchase at a price assented to by the principal, the principal shall enter into a contract with that person to sell at the agreed price subject only to the qualification that he may refuse to do so if he has just cause or reasonable excuse for his refusal?
This qualification must plainly be added, for the respondent does not contend, and no one could successfully contend, that the obligation of the principal to enter into a contract is an unconditional one.” Chief Justice reached the conclusion and pass the judgment that in the above case as the duty of the agent was to secure a purchaser, it could not be held that the purchaser had been secured till the contract of sale was concluded by the vendor with him and that the actual sale having been concluded for a sum of Rs. 1,05,000, the plaintiff could only get his remuneration on the basis of the price for which the sale was made and not on the basis of the offer the plaintiff had secured. So the agent was liable for commission on the sale price of Rs. 1,05,000.
From the above case law, we can conclude that how important it is to have the proper written document when we are hiring the agent to avoid any kind of confusion . the case law gives us the clear picture that commission sales agent agreement shall clearly mention that when agent is qualified for the commission so conformation of booking clause shall be drafted clearly and payment of commission as well to avoid any litigation or legal complications.
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