Compensation on termination of agency – assessment – what happens in practice
Agent's entitlement to compensation on termination
Following Lonsdale v Howard & Hallam, where a commercial agent is entitled to compensation – see compensation on termination of agency – what he is entitled to is the value of the future income stream he would have derived from the agency but for the termination: the amount he could reasonably expect someone else to pay him for the right to stand in his shoes immediately after termination, on the assumption that the hypothetical purchaser would continue to perform the duties of the agency and to receive the commission which the agent would have received.
No rule of thumb
There is no "two year" – or other – rule of thumb for calculating the amount of compensation. What is required is an assessment of the value of the agency as above, at the date of termination: a business valuation, therefore, which must take into account the prospects and likely profitability of the agency assuming the hypothetical purchaser took it over and continued it, and all other relevant circumstances. Every case is different. Valuing the lost income stream in the way required is an art, not a science. There will usually be a raft of issues on which the parties and their valuers are likely to disagree, and which the court would therefore have to decide.
What do clients make of this?
In the cases we have had since Lonsdale, whether we're advising the producer or the agent ............
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