Commission Assignment Agreement Template for England and Wales
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What is a Commission Assignment Agreement?
A Commission Assignment Agreement transfers the right to receive commission from the original earner to a third party under English and Welsh law. It must meet the formalities of section 136 of the Law of Property Act 1925 to operate as a legal assignment, including written notice to the payer. The document records the scope of the assignment and protects both assignor and assignee.
Frequently Asked Questions
What is a Commission Assignment Agreement?
It's a document by which a party who holds the right to receive commission transfers that right to a third party. Once the assignment is validly made and notice is given to the payer, the third party can collect the commission directly. The original party can no longer claim those sums once the assignment takes effect.
What formalities make an assignment legally valid in England and Wales?
Under section 136 of the Law of Property Act 1925, a legal assignment of a commission right must be in writing, signed by the assignor, absolute (not conditional), and accompanied by written notice to the party who owes the commission. Equitable assignments are possible without notice but give fewer protections.
Does the payer of commission need to consent to the assignment?
For a legal assignment, the payer needs only notice, not consent. However, the original commission contract should be checked for any anti-assignment clause. If such a clause exists and is breached, the assignment may be ineffective, and the assignor could be liable for breach of the underlying agreement.
Can the assignee be worse off than the original creditor?
No. The assignee takes the right subject to any defences the payer could have raised against the assignor. If the broker owed money to the payer or had breached the commission contract before the assignment, those defences remain available against the assignee.
What should the notice to the commission payer include?
The notice should identify the original commission agreement, state clearly that the right to receive commission under it has been assigned, name the assignee, and give payment instructions. Sending the notice by recorded post and retaining proof of delivery is good practice.
Can commission that has not yet been earned be assigned?
Future commission rights can be assigned as an equitable assignment, but they cannot be legally assigned under section 136 until the right crystallises. The assignment document should specify whether it covers accrued commission, future commission, or both, and how future amounts will be identified.
What happens if the assignor becomes insolvent after the assignment?
If the assignment was made at arm's length for proper value before insolvency, it will generally stand. However, an assignment made at an undervalue or to a connected party in the period before insolvency may be challenged by a liquidator under the Insolvency Act 1986.
Should the assignor provide warranties in the agreement?
Yes. The assignor should warrant that they own the commission right, that it is not subject to any prior assignment or charge, that no dispute or set-off is pending, and that the underlying commission contract is valid and subsisting. These warranties give the assignee recourse if the right turns out to be defective.
About the Commission Assignment Agreement
A Commission Assignment Agreement is a legal contract that allows you to transfer your rights to receive commission payments to another party. Under United States law, this document must comply with federal regulations including the Fair Labor Standards Act and Internal Revenue Code, as well as state-specific commission and wage laws that vary by jurisdiction.
When do you need this document?
You need a Commission Assignment Agreement when selling a business that includes ongoing commission arrangements, settling debts where commission payments serve as collateral, or restructuring business operations. This document is also essential when employees with commission rights leave a company and want to assign future payments to family members or creditors. Real estate professionals often use these agreements when transferring client relationships that generate ongoing commission income, and sales representatives may need them when retiring or changing careers while maintaining rights to residual commissions from long-term contracts.
Key legal considerations
The assignment must clearly identify the original commission arrangement, including the source payor, calculation method, and payment terms. You need to address whether the assignment covers all future commissions or only specific payments, and include detailed consideration terms explaining what the assignee provides in exchange for the commission rights. Representations and warranties sections should confirm that the assignor has legitimate rights to assign and that no existing agreements prohibit the transfer. Tax implications are critical since commission assignments can trigger immediate income recognition for the assignor, while the assignee may face different tax treatment on received payments. The agreement should also address what happens if the original commission source changes or terminates the underlying arrangement.
Legal requirements in United States
Federal law requires compliance with the Fair Labor Standards Act when commission assignments affect employee compensation structures, particularly regarding minimum wage and overtime calculations. The Internal Revenue Code governs tax reporting obligations for both parties, with specific requirements for Form 1099 reporting and withholding responsibilities. If the commissions relate to securities transactions, the Securities Exchange Act may impose additional disclosure and registration requirements. State wage and labor laws vary significantly, with some states requiring employee consent for wage assignments and others imposing strict timing requirements for commission payments. Many states have specific statutes governing commission assignment validity and enforceability, including notice requirements to the original payor and restrictions on assignment amounts. Some jurisdictions require written notice to the commission source within specified timeframes, while others mandate court approval for certain types of commission assignments, particularly in bankruptcy or divorce proceedings.
GOVERNING LAW
Applicable law
This Commission Assignment Agreement is drafted to comply with England and Wales law. Key legislation includes:
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