In many contracts, commission clauses cause the most work for lawyers and the negotiating parties, be it in employment, advisor or broker agreements.
Requirements for a commission: subjective performance and objective conditions
Definition of lead and mediation
The starting point for drafting commission clauses is defining what the service provider, i.e. the advisor, realtor or employee, needs to do to gain the commission. What constitutes a successful mediation? One needs to define the steps the service provider needs to take himself or accompany. For instance, does a mere introduction suffice or does the service provider need to actively foster the whole contract entering process? This question is preceded by the issue of who is eligible to be a potential customer or investor (= lead). Are these people enumerative listed, does the principal have to confirm each lead or is the service provider free to solicit?
On top of these subjective performance requirements come objective conditions, i.e. those that the service provider cannot influence. Oftentimes such an objective condition is the lead signing the contract with the company, especially if the service provider does not have power of attorney, or the lead’s payment.
Dovetailing with contract term and termination clauses
In this context the question arises how long the commission claim applies. In other words, how long after the contract term may the objective conditions arise if the service provider had rendered his performance during the contract term? This depends on the contract term and termination clauses, especially the duration of the notice period. When negotiating these parameters, the service provider should take care not to be bereft of the reward for his work. All of these clauses should therefore be dovetailed.
How do you prove performance and conditions? Documentation & audit rights
If all performance is rendered and all objective conditions are met, the service provider has a commission claim. But how can he prove these? Proving performance is easier because the service provider usually documents it, e.g. via e-mail. In practice, lead lists are often used to prove the eligibility of leads. Yet, the service provider does not have access to proving many objective conditions, e.g. the lead’s payment. He would have to rely on the word of the principal or could at most call for the lead as a witness. But he may not rely on the lead who may be incentivized not to tell the truth, e.g. if he negotiated a price that is lower than with the commission.
This is why the service provider should definitely impose information obligations to the principal and retain the right to commit an audit at least annually and additionally, whenever there is concern for distrust. These right should also be hedged by contractual penalties.
Legal consequence: A claim to commission
Once it is settled that a commission is due, the next question is, how much it is.
Staggering and base rates
Many times the commission is staggered according to the amount of accrued money, e.g. by investors or customers, whereas the percentage is reduced with higher amounts. In this case one needs to avoid paradoxical outcomes such as a higher amount leading to a lower commission. For instance, if 5% commission are paid for amounts up to 100,000 EUR and 4% for higher amounts, 100,000 EUR would lead to a commission of 5,000 EUR, whereas 101,000 EUR only to 4,040 EUR. This is why I highly recommend staggering only from the respective base rate, e.g. 5% always for the first 100,000 EUR and for 4% for any amount on top. In our example this would lead to a commission of 5,040 EUR overall (5,000 EUR + 40 EUR). This staggering from a base rate is agreed best, as just demonstrated, by adding an example in the contract.
Exclusivity vs. splitting commissions
Ideally a service provider can negotiate exclusivity. In that case no other service provider, e.g. in a defined territory or a defined branch, may approach customers or investments. This central clause should be safeguarded by an appropriate contractual penalty.
In non-exclusive cases one should agree on how to split the overall commission if several service providers work and all perform as required. For each service provider a minimum commission may make most sense, e.g. of 25%, even if another service provider worked the lion’s share and thus earned the remaining 75%.
Refunds
Another special topic is how refunds to the customers or investors affect the commission. In order to prevent backroom deals, such refunds should only in exceptional cases lead to the commission to be refunded as well. One could e.g. differentiate whether the reason for the refund was already present when the lead entered into the contact with the principal (e.g. rescission) or afterwards (e.g. goodwill). Only in the first cases should the commission be affected. Refunds of investments may in some cases depend on intricacies of corporate law.
IP, liability, data privacy and confidentiality
Other substantial clauses in commission contracts are: IP (especially background IP vs. newly created IP), liability, data privacy (e.g. data of the leads) and confidentiality. In privacy law other documents may be required to draft such as privacy policies, data processing agreements or joint control agreements.
Conclusion
There are many pitfalls in commission agreements. It is all the more worth it negotiating the corresponding clauses in detail. Since next to the laws of terms and conditions matters of employment, privacy and corporate law may occur, you are well advised to seek out a law firm with a broad setup such as Streiff Law with drafting or checking commission contracts.
Published on 04.11.2025