Agency Operations

Termination of an Agency Relationship

The duration of an agency is often governed by the agency agreement. If the agreement doesn't otherwise control termination, then the agent, the principal, or both parties may terminate the relationship. The relationship ends when a set time limit for the agency relationship expires. It can end through revocation, renunciation, or cancellation. Agency relationships can also end through operation of law.

Agency relationships can be terminated in many ways. Once the agency is terminated, the agent is no longer under any obligation or authority to act on the principal's behalf. The agency may be terminated by the agent, by the principal, or by the mutual consent of the principal and agent.

If the parties established a time limit when they created the agency relationship, then that relationship automatically expires. If the agency relationship was established for a specific purpose, then the agency relationship ends when that goal or task is complete. For example, if Scott hires an agent to find a commercial property for a location in Atlanta, then the agency relationship ends once that commercial property has been secured with a contract and set for closing, upon the final approval of the principal.

Termination of Agency

Agency termination can occur through time limits, mutual consent, unilateral decisions, operation of law, or the completion of a goal.
Renunciation is a formal rejection of something, such as a relationship in business or agreement between parties. The agent may renounce their power by notifying the principal that they will no longer act as the principal's agent. Revocation is an official cancellation of an agreement or business relationship between parties. The principal can revoke the agent's authority, but to limit the principal's potential liability, the principal needs to give notice to third parties that the agent's power has been revoked. Both parties can agree to terminate the relationship, and if they both agree, the reason for ending the relationship is insignificant.

Difference between Renunciation and Revocation

Renunciation Revocation
"This agency contract is not valid or cannot/will not be honored." "This agency contract is valid, but I want to cancel it."
Example: A professional athlete not performing under the terms of their contract. Example: Granting someone power of attorney and then deciding to cancel or revoke that power.

Revocation and renunciation can both result in the end of a relationship, but the differences between the terms can be substantial in a court of law.

Events such as death, insanity, and bankruptcy of either the principal or agent can automatically terminate the agency relationship. This happens through operation of law, which means that existing legal principles and guidelines state that a right or responsibility has been created. This happens automatically under law, whether or not either party means for it to happen. A court of law usually steps in to terminate the agency relationship if there is disagreement between the parties about ending the agency relationship.

If an agency is shown to have existed, then courts presume that it continues until an act or agreement between the principal and the agent ends the relationship. The burden of proving an agency relationship has terminated is on the party that is claiming the relationship is over.

The principal should notify all relevant third parties when an agency relationship ends, to ensure that the third parties do not mistakenly deal with the agent acting on behalf of that principal again. If the principal fails to notify third parties that the agency has terminated, then the agent may still have some apparent authority, which means the principal may remain liable for the agent's unauthorized transactions.

A change in laws could also cause an agency relationship to terminate. In this situation, whether the agency relationship ends depends on how the laws affect that relationship. For example, a principal and an agent may create a series of tours that allow snorkelers to explore a coral reef. The agent, acting under the authority of the principal, would be the party that contracted with the tour company, which is the third party. If a court declares that the reef is endangered and therefore off-limits, then the relationship between the agent and principal is terminated.