If you’re growing a business, chances are you’ll eventually have someone acting “on your behalf” - a salesperson negotiating deals, a broker sourcing customers, a property manager signing tenants, or a consultant liaising with suppliers.
That’s where agency relationships come in. And while an agency arrangement can be a powerful way to scale, it can also expose you to real legal risk if it’s unclear what your agent can (and can’t) do.
This guide has been refreshed to reflect current New Zealand business practices and modern contracting expectations, so you can set up an agency relationship that protects you from day one.
What Is An Agency Relationship (And Why Does It Matter)?
An agency relationship is where one person (the agent) has authority to act for another person or business (the principal) and can affect the principal’s legal position.
In simple terms: the agent can “stand in your shoes” for certain decisions or actions.
This matters because an agent can sometimes bind the principal to a contract - even if the principal didn’t personally sign it - depending on the agent’s authority and what the other party reasonably believed.
Common Examples Of Agency Relationships In NZ
Agency arrangements pop up in everyday business more often than people realise. For example:
- Sales agents who negotiate and close deals for your products or services
- Real estate agents selling property on behalf of owners
- Recruitment agents presenting candidates and negotiating offers
- Marketing or lead-generation agents who approach customers for you
- Distribution or reseller agents acting as an intermediary for orders
- Business brokers negotiating the sale of a business
- Property managers entering tenancy arrangements (within scope)
Sometimes, the agency relationship is obvious and written down. Other times, it’s created informally through behaviour - which is where problems tend to start.
Is An Agent The Same As A Contractor Or Employee?
Not always. An agent might be an employee, a contractor, or a separate business entirely. The defining feature isn’t the label - it’s whether they have authority to represent you and create legal consequences for you.
For example, a contractor might simply deliver a service to you. But if they’re negotiating and signing customer contracts in your name, you’ve moved into “agency” territory and should document that properly (often alongside a Service Agreement or similar arrangement).
How Does An Agent Get Authority To Act For You?
Authority is the heart of any agency relationship. If you’re the principal, you want to control it. If you’re the agent (or a customer dealing with an agent), you want certainty it exists.
Actual Authority (Express Or Implied)
Actual authority is authority the principal genuinely gives the agent.
- Express actual authority: clearly granted (usually in writing), such as “You may sign customer contracts up to $10,000.”
- Implied actual authority: not spelled out, but inferred from what’s necessary to do the job (for example, a purchasing manager being able to order standard stock).
This is why written agreements are so useful: they make the scope of authority clear, and they reduce “he said / she said” disputes later.
Apparent (Or Ostensible) Authority
Apparent authority can be the trickiest - because it focuses on what the other party reasonably believed, based on the principal’s conduct.
If you put someone forward as your representative (for example, by giving them an email signature, title, company card, or letting them lead negotiations), a third party might reasonably assume they have authority. In some cases, that assumption can bind you, even if you privately told the agent “don’t sign anything”.
Practical takeaway: if you don’t want someone to have authority, you need to manage outward signals - and ideally, put boundaries in writing and communicate signing rules clearly.
Ratification (Approving What They Did After The Fact)
Sometimes an agent acts outside authority, but the principal later accepts the deal. In agency law, this can amount to ratification - essentially adopting the contract after it’s been made.
If you think someone has acted outside their authority, don’t ignore it. Your response (including accepting the benefits of the deal) can matter.
Proof Of Authority In Practice
In day-to-day business, authority often gets evidenced through:
- a written agency agreement
- a board or director approval process (for companies)
- an Authority To Act Form for specific dealings
- internal signing policies and delegation registers
It’s much easier (and cheaper) to set these up up-front than to fight about them after a deal goes sideways.
What Are The Key Legal Duties In An Agency Relationship?
Agency isn’t just about power - it’s also about responsibility.
Agents often owe the principal duties that are stricter than what you’d see in an ordinary commercial relationship. Many of these duties come from common law (judge-made law) and equity, not just what you write in the contract.
Duties Agents Commonly Owe Principals
While every situation is different, an agent will commonly owe duties such as:
- to follow lawful instructions within the agreed scope
- to act in good faith and for proper purposes
- to avoid conflicts of interest (or disclose them properly)
- not to make secret profits or receive undisclosed commissions
- to exercise reasonable care and skill
- to keep proper accounts and pass on money/property received for the principal
- to keep information confidential in appropriate circumstances
Some of these overlap with what people refer to as fiduciary duty - meaning the agent must prioritise the principal’s interests in matters within the agency role.
Duties Principals Owe Agents
Principals also have obligations. Common examples include:
- paying the agreed commission or fee (when the entitlement is triggered)
- cooperating with the agent so they can perform their role
- reimbursing authorised expenses (if agreed)
- not undermining the agent’s work in ways that breach the agreement (for example, circumventing commission rules)
Most disputes we see aren’t because someone deliberately did the wrong thing - they happen because the parties never clearly documented expectations around commission, authority, and “who does what”.
What Should An Agency Agreement Include?
A good agency agreement is essentially your rulebook. It should answer the practical questions before they turn into expensive disputes.
While the right terms depend on your industry and risk profile, these are the clauses we commonly recommend you consider.
1. Who The Parties Are (And Who The Agent Represents)
This sounds basic, but it’s important. If you operate through a company, make sure the company (not you personally) is the principal.
You should also clarify whether the agent is acting for:
- one principal only (exclusive), or
- multiple principals (non-exclusive), and what disclosures are required.
2. Scope Of Authority (What The Agent Can And Can’t Do)
This is the “make or break” section. It typically covers:
- what the agent is authorised to negotiate
- whether they can sign contracts (and any limits)
- pricing boundaries and discounting rules
- credit terms (for example, whether they can offer payment plans)
- who owns the customer relationship and CRM data
If you want a hard rule like “contracts must be signed by a director”, say so - and back it up with internal processes and external messaging.
3. Commission, Fees, And When They’re Earned
Commission disputes are incredibly common in agency arrangements. Your agreement should spell out:
- the commission rate (and whether it’s GST inclusive/exclusive)
- the trigger event (signed contract, paid invoice, delivered product, etc.)
- whether commission is payable on renewals, upgrades, or repeat orders
- what happens if a customer cancels, seeks a refund, or defaults
- any “clawback” rights (where commission is repaid)
- how and when reporting is provided
It’s also smart to define whether the agent is entitled to commission if the relationship ends but a deal they introduced closes later (often called a “tail period”).
4. Term, Termination, And Exit Arrangements
Most agency relationships end eventually - even good ones. So you’ll want a clear pathway for:
- the length of the agreement (fixed-term or ongoing)
- termination for convenience (with notice)
- termination for cause (for serious breaches)
- what must happen immediately on termination (returning property, access removal, customer handover)
- how final commission is calculated
Be careful here: vague termination wording can create major leverage issues if one party wants out and the other party doesn’t agree on what’s “fair”.
Agents often get access to sensitive pricing, customer lists, and strategy. You should consider a strong confidentiality framework, typically supported by a clear Confidentiality Clause.
If personal information is involved (for example, customer contact details), you also need to think about Privacy Act 2020 obligations - including how information is collected, used, stored, and shared.
6. Restraints And Non-Circumvention (If Appropriate)
Sometimes, a principal wants to stop an agent from:
- approaching the principal’s customers after termination, or
- setting up a competing agency using the principal’s confidential information.
These clauses can be enforceable in New Zealand if they’re reasonable (in time, geography, and scope). Overreaching restraints often fail, so drafting matters.
7. Relationship Terms (Independent Contractor Vs Employment Risk)
If the agent is an individual and you control their hours, tools, and work methods, you can accidentally create employment-like risk, even if you call them a “contractor”.
It’s worth getting the structure and paperwork right - for example, using a properly tailored Contractor Agreement where appropriate and ensuring your processes match the reality of the arrangement.
8. Dispute Resolution And Governing Law
Good agreements plan for problems. You might include:
- a negotiation step (senior reps meet within a timeframe)
- mediation before court action
- which jurisdiction applies (typically New Zealand law)
This can save a lot of time and cost if a commission or authority dispute arises.
What Laws And Risks Should You Watch Out For In NZ?
Agency law sits across contract law, common law duties, and broader business compliance. A few key areas to keep on your radar:
Even with a written agreement, you need to ensure your contracts are enforceable and workable in practice - especially around authority to sign, commission triggers, and termination rights.
If you’re unsure whether a particular document or email exchange is “enough” to form a contract, it helps to understand What Makes A Contract Legally Binding in a business setting.
Fair Trading Act 1986 (Misleading Conduct)
If your agent makes claims about your goods or services, those statements can create legal exposure for your business.
The Fair Trading Act 1986 prohibits misleading or deceptive conduct in trade. Practically, this means you should:
- give agents approved marketing claims and disclaimers
- train them on “do’s and don’ts” when speaking to customers
- monitor how they present pricing, performance claims, and timelines
This is especially important for online marketing and high-pressure sales environments.
Consumer Guarantees Act 1993 (Consumer-Facing Sales)
If your agent sells to consumers (not businesses), your customer-facing promises also need to align with the Consumer Guarantees Act 1993.
This can affect how you handle refunds, repairs, and representations about quality and fitness for purpose.
Commerce Act 1986 (Competition And Exclusivity)
Exclusivity clauses, non-circumvention provisions, and pricing controls can raise competition-law considerations depending on market context.
Most small business agency arrangements won’t trigger major issues, but if you’re scaling quickly or controlling pricing tightly across a network, it’s worth getting advice.
Privacy Act 2020 (Customer Data And Leads)
Many agency arrangements involve lead lists, CRM access, and ongoing customer communications. Under the Privacy Act 2020, you generally need to take reasonable steps to protect personal information and to only use it for proper purposes.
In practice, you should think about:
- who owns the customer database
- whether the agent can download/export contacts
- what happens to customer data on termination
- security standards (passwords, MFA, approved tools)
These details are often missed in template agreements, but they’re increasingly important in modern sales and marketing operations.
Key Takeaways
- An agency relationship can allow someone to bind your business to contracts, so it’s crucial to control and document the agent’s authority.
- Authority can be actual (express or implied), apparent (based on what a third party reasonably believes), or created through ratification, so your processes and communications matter as much as your contract wording.
- Agents often owe strict duties to act in the principal’s interests, avoid conflicts, and not make secret profits - these obligations can apply even if you never wrote them down.
- A well-drafted agency agreement should clearly cover scope of authority, commission triggers, term and termination, confidentiality, data handling, and dispute resolution.
- You should also manage broader compliance risks, including misleading sales conduct under the Fair Trading Act 1986, consumer obligations under the Consumer Guarantees Act 1993, and customer data protection under the Privacy Act 2020.
- If you’re relying on templates or informal email arrangements, you may be exposed to commission disputes, signing authority issues, and brand or privacy risks as you scale.
If you’d like help putting an agency arrangement in place (or reviewing one before you sign), we can help you get it right from the start. Reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
