Commission Sale Agreement: Simple on the surface, risky underneath

SHORT ANSWER TO THE MAIN QUESTION

Under a Czech commission agency agreement, the commission agent agrees to arrange a particular matter for the principal in the agent’s own name but for the principal’s account. In return, the principal typically pays the commission agent remuneration.

A common example is the sale or purchase of goods through another person.

The key feature is that the commission agent deals with the third party in their own name. This distinguishes commission agency from arrangements where a representative acts directly in the name of another person.

Understanding the relationship between the principal, the commission agent, and the third party is therefore essential.

YOU MAY BE THINKING…

“Isn’t this basically the same as brokerage?”

“If the commission agent enters into the transaction, do I have any rights directly against the customer?”

“Who bears the risk if the other party does not pay?”

“Is it enough to agree on how much commission the agent will receive?”

THE REAL PROBLEM IN PRACTICE: THEORY VS REALITY

On paper, the principle of a commission agency agreement seems relatively straightforward.

The principal wants a particular matter to be arranged. The commission agent arranges it in their own name and subsequently settles the transaction with the principal.

In practice, however, the words “in their own name, for the principal’s account” are precisely where many misunderstandings begin.

A commission agent is not merely an intermediary who brings two parties together. In relation to the third party, the commission agent enters into the legal relationship themselves.

This has practical consequences.

The parties need to know, for example:

• what exactly the commission agent is expected to arrange,
• under what conditions the agent may enter into the transaction,
• how money or property received should be handled,
• when and how the agent must account to the principal,
• how the agent will be remunerated,
• who bears particular commercial risks.

If the agreement does not address these issues properly, each party may have a completely different understanding of how the cooperation is supposed to work.

BIGGEST RISKS AND COMMON MISTAKES

In practice, particular attention should be paid to:

• confusing commission agency with brokerage or direct representation,
• defining the agent’s task too vaguely,
• failing to set price limits or other transaction parameters,
• unclear rules regarding remuneration and expenses,
• inadequate rules for handling money or property,
• unclear allocation of liability,
• missing accounting and settlement procedures,
• failing to plan for the termination of a longer-term relationship.

A typical mistake?

The parties know perfectly well what they want to achieve commercially, but they never clarify who will legally deal with the third party.

And that distinction is fundamental to a commission agency agreement.

HOW TO APPROACH IT: REALITY, NOT THEORY

Before drafting the agreement itself, I recommend clarifying several basic points:

1. What should the cooperation achieve?
   Is the agent expected to arrange a sale, a purchase, or another specific transaction?
2. How much discretion will the commission agent have?
   Can the agent determine the price and other conditions independently, or are clear limits required?
3. How will money and property move between the parties?
   Who receives them, when, and when must they be transferred?
4. How will the commission agent be paid?
   A fixed fee, a percentage, or another form of remuneration?
5. Who bears the individual risks?
   Particularly if the transaction does not proceed as expected.
6. How will the relationship end and how will the final settlement work?

Only once these questions have been answered can the agreement be structured properly.

PRACTICAL EXAMPLES

👉 Sale of goods

A business entrusts goods to another person to sell in their own name. However, the agreement does not establish a minimum selling price or a deadline for settlement. The goods are sold, but a dispute then arises over whether the commission agent complied with the agreed conditions and how much the principal should actually receive.

👉 Purchase through a commission agent

The principal instructs the commission agent to purchase a particular item but does not sufficiently specify its required characteristics or the maximum price. The agent completes the transaction — but the result is not what the principal expected.

👉 Long-term commercial cooperation

The parties operate for several years under a very brief agreement. As long as the transactions are successful, nobody sees a problem. Once a transaction results in a loss, they discover that they never clearly agreed who should bear that particular risk.

WHY YOU SHOULD BE CAREFUL WITH “I’LL DO IT MYSELF”

A commission agency agreement may initially appear straightforward.

The agent arranges something. The principal pays the agent.

But the legal structure actually involves two connected relationships: the internal relationship between the principal and the commission agent, and the external relationship between the commission agent and the third party.

A generic template may provide some basic clauses.

What it cannot tell you is whether those clauses fit your particular business model, how money should flow, how much discretion the agent should have, or how the commercial risks should be allocated.

With a commission agency agreement, the main challenge is therefore not simply writing several contractual clauses.

The first step is understanding how the transaction itself is supposed to work.

LAWYER’S RECOMMENDATION + CHECKLIST

With commission agency agreements, I recommend starting with the business model rather than with a template.

First establish exactly what each party will do, who will deal with the customer or other third party, how money and property will move between the parties, and what should happen if the transaction does not proceed as planned.

Quick checklist

✔ Commission agency is actually the appropriate contractual structure.
✔ The agent’s task is clearly defined.
✔ The limits of the agent’s discretion are clear.
✔ Remuneration and reimbursement of expenses are addressed.
✔ Handling of money, property, accounting and settlement is regulated.
✔ The main commercial risks are allocated.
✔ Termination and final settlement are covered.

FAQ

What is a commission agency agreement?

Under Czech law, it is an agreement under which a commission agent arranges a particular matter for the principal in the agent’s own name but for the principal’s account.

What is the difference between commission agency and brokerage?

The key difference is the intermediary’s role. A commission agent enters into the transaction with the third party in their own name. A broker typically creates an opportunity for the client to enter into the contract directly with the third party.

What is the difference between commission agency and a mandate?

The defining feature of commission agency is that the commission agent acts in their own name for the principal’s account. Other arrangements for handling another person’s affairs may use a different legal structure.

Does a commission agency agreement have to be in writing?

Under Czech law, written form is not always required for the agreement to exist. For commercially significant arrangements, however, written documentation is highly advisable for evidentiary purposes and to clearly allocate rights and obligations.

Who enters into the contract with the third party?

In a typical commission arrangement, the commission agent enters into the contract in their own name. This is one of the key differences from direct representation.

Is the commission agent always entitled to remuneration?

Commission agency is typically a remunerated relationship. The specific entitlement to remuneration and its amount, however, depend on the agreement and the legal rules applicable to the particular relationship.