The UAE’s Commercial Agency Law (Federal Law No. 3 of 2022) introduced significant reforms that reshape the relationship between principals and agents. The law aims to promote fairness, transparency, and balance in agency contracts — particularly regarding termination rights and compensation claims.
Understanding Commercial Agency Relationships
A commercial agency in the UAE is a formal agreement that allows an agent (usually a UAE national or company wholly owned by UAE nationals) to represent a foreign principal for distributing or selling products and services within the country. These agreements are registered with the Ministry of Economy, giving the agent exclusive rights in specific territories.
Previously, the law heavily favored agents, making it difficult for principals to terminate or not renew agency contracts without substantial justification or mutual consent. The 2022 amendments have now modernized these rules to accommodate evolving business needs.
Termination Under the New Law
Under the new UAE Commercial Agency Law, principals can terminate or choose not to renew an agency agreement in certain conditions — provided that:
- The contractual term has expired, and the principal notifies the agent in advance.
- Mutual consent exists between both parties.
- There is a material breach by the agent that can be legally substantiated.
- Termination occurs in line with specific contractual terms allowing such action.
In case of disputes, the parties must first refer the matter to the Commercial Agencies Committee before proceeding to the UAE courts or arbitration. This ensures that both sides are heard and that the termination process remains fair and lawful.
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Compensation for Agents
If an agency contract is terminated or not renewed, the agent may still claim compensation if they can demonstrate that:
- Their efforts contributed to building or expanding the principal’s brand in the UAE.
- Termination caused a loss of profit or business opportunity.
- The decision to terminate was unjustified or not in line with contractual obligations.
The compensation amount depends on factors such as the duration of the agency, the agent’s performance, and the extent of damages suffered. Courts assess each case individually, balancing the rights of both parties under the new legal framework.
How TLG: The Legal Group Assists
Adv. Sanafer Arakkal, founder of TLG: The Legal Group, and his team specialize in commercial law and provide strategic legal support in agency termination, compensation claims, and dispute resolution. Their services include:
- Reviewing and drafting agency contracts to ensure compliance with the new law.
- Representing principals or agents before the Commercial Agencies Committee.
- Advising on lawful termination procedures to avoid financial liability.
- Negotiating settlements to protect client interests while maintaining business continuity.
With their deep understanding of UAE commercial regulations and litigation processes, TLG ensures that clients navigate agency disputes efficiently and lawfully.
Conclusion
The new UAE Commercial Agency Law introduces greater flexibility while ensuring fairness for both agents and principals. Understanding termination rights and compensation entitlements is crucial for safeguarding business relationships and minimizing risk. With expert legal guidance, businesses can make informed decisions that align with both commercial objectives and the UAE’s evolving legal standards.
