What is a consignment arrangement and how does it work under English law?

A consignment arrangement is a commercial arrangement under which the owner of goods (the Consignor) delivers those goods to a reseller (the Consignee) for the purpose of sale, while retaining legal title to the goods until they are actually sold to a third-party customer. The Consignee does not purchase the goods from the Consignor upfront; instead, it holds the goods on the Consignor's behalf and earns a commission on each sale. Any goods that remain unsold at the end of the consignment period are returned to the Consignor. Under English law, the consignment arrangement is governed primarily by general contract law and agency law principles. The Consignee acts as a sales agent of the Consignor in relation to the goods, although this must be carefully structured to determine whether the mandatory protections of the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) apply. A consignment agreement is used in many sectors in England and Wales, including art galleries (consigning original artworks for sale), antique dealers, fashion retail, specialty food and drink distribution, and craft markets. The agreement must clearly specify the commission rate, the authorised sale price, the payment terms for remitting proceeds to the Consignor, the care obligations of the Consignee, what insurance is required, and the procedure for returning unsold goods.

Does the Consignor retain title to goods held on consignment under English law?

Yes. One of the defining features of a consignment arrangement under English law is that legal title to the goods remains with the Consignor throughout the consignment period, until the goods are actually sold to a third-party purchaser. Under the Sale of Goods Act 1979 (SGA 1979), the general rule is that property (i.e. title) in specific goods passes when the parties intend it to pass, and the intention of the parties in a consignment arrangement is clearly that title remains with the Consignor. The Consignee holds the goods as a bailee, owing a duty of care to preserve the goods in their condition and to return them to the Consignor if not sold. This title retention has important practical consequences. First, if the Consignee becomes insolvent, the goods held on consignment should not form part of the Consignee's estate available for distribution to its creditors, provided that the goods are clearly identifiable as the Consignor's property (e.g. by maintaining a separate inventory and clear labelling). Second, the Consignee cannot pledge or encumber the goods because it does not own them. To protect against the risk of insolvency, the Consignment Agreement should require the Consignee to maintain a separate inventory of consigned goods, to keep them physically separated from its own stock, and to ensure they are clearly identified as belonging to the Consignor. Maintaining adequate records is critical to enable the Consignor to assert its title in an insolvency situation.

Do the Commercial Agents Regulations 1993 apply to a Consignment Agreement?

The Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) (the Commercial Agents Regulations) implement the EU Commercial Agents Directive and provide mandatory protections for self-employed commercial agents who have continuing authority to negotiate or conclude the sale of goods on behalf of a principal. The protections include mandatory minimum notice periods, the right to commission on transactions concluded during the agency, and a right to an indemnity or compensation on termination. Whether the Commercial Agents Regulations apply to a consignment arrangement depends on the specific facts of the arrangement. A key requirement is that the agent must be self-employed (not an employee) and must have authority to negotiate or conclude sales in the name of the principal (i.e. in the Consignor's name). In a typical consignment arrangement, the Consignee sells goods in its own name to customers, enters into its own contracts with customers, and takes responsibility for the sale transaction itself. In this case, the Consignee is acting as a distributor (reselling in its own name) rather than as a commercial agent (concluding contracts on the Consignor's behalf), and the Commercial Agents Regulations would generally not apply. However, if the Consignment Agreement is structured such that the Consignee concludes sales in the Consignor's name, acts as the Consignor's representative, or formally contracts with customers on behalf of the Consignor, the Commercial Agents Regulations may apply. Legal advice should be sought if there is any doubt about the applicability of the Regulations, given the significant mandatory protections they afford.

Who is liable if consigned goods are lost, stolen, or damaged?

As a general principle under English law, a bailee (in this case the Consignee) owes a duty of care to the bailor (the Consignor) to take reasonable care of the goods entrusted to it. If the Consignee fails to exercise reasonable care and the goods are damaged as a result, the Consignee will be liable to the Consignor for the loss or damage. The standard of care required is that which a reasonably careful person in the Consignee's position would exercise. In a commercial consignment, the Consignee should be held to a relatively high standard of care, particularly where the consigned goods are valuable. The Consignment Agreement should make the allocation of risk explicit. Common approaches include: (a) placing the risk of loss or damage on the Consignee throughout the consignment period, with liability calculated by reference to the agreed consignment value of the affected items; (b) requiring the Consignee to insure the goods against all risks (fire, theft, accidental damage, etc.) for their full replacement value; and (c) allowing the Consignor to periodically inspect the goods and the Consignee's storage facilities. Where the goods are particularly valuable (for example, original artworks, jewellery, or rare collectibles), the Consignor should insist on a requirement that the Consignee maintains adequate insurance, and should request evidence of such insurance before placing goods with the Consignee.

How is VAT treated in a consignment arrangement in England and Wales?

The VAT treatment of consignment arrangements in the United Kingdom is governed by the Value Added Tax Act 1994 and HMRC guidance, and can be complex. The key principle is that a supply for VAT purposes occurs when goods are sold from the Consignee to the end customer. The Consignor does not make a VAT supply to the Consignee merely by delivering goods on consignment, because title does not pass at that stage. When the Consignee sells the goods to a customer, a supply occurs from the Consignor to the Consignee (at the consignment value) and a supply from the Consignee to the customer (at the retail price) simultaneously, or the transaction may be structured as a direct supply from the Consignor to the customer through the Consignee as agent. The exact VAT analysis depends on whether the Consignee is acting as principal (buying and reselling) or as agent (concluding the sale on the Consignor's behalf). If both the Consignor and Consignee are VAT-registered, VAT must be correctly accounted for on both transactions. The commission earned by the Consignee is subject to VAT as a supply of services. Given the complexity of VAT in consignment arrangements, both parties should take advice from a VAT specialist or HMRC to ensure correct treatment, particularly for higher-value consignment businesses.

Consignment Agreement (UK) — United States

Place goods with a reseller on consignment in England and Wales with this comprehensive Consignment Agreement. Drafted in accordance with the Sale of Goods Act 1979, the Consumer Rights Act 2015, and the Commercial Agents (Council Directive) Regulations 1993. Covers title retention, commission, sale price authorisation, payment of proceeds, care and custody, insurance, and return of unsold goods.

What Is a Consignment Agreement (UK)?

A Consignment Agreement is a legally binding contract used in England and Wales to govern the commercial arrangement whereby the owner of goods (the Consignor) places those goods with a reseller (the Consignee) for the purpose of sale, while retaining legal title to the goods until they are actually sold to a third-party customer. Unlike a straightforward sale or supply agreement, in a consignment arrangement the Consignee does not purchase the goods from the Consignor upfront and does not own them. Instead, the Consignee holds the goods as a bailee on the Consignor's behalf, attempts to sell them to customers, retains an agreed commission on each sale, and remits the balance of the proceeds to the Consignor.

Consignment arrangements are used across a wide range of commercial sectors in the United Kingdom. Typical examples include art galleries receiving original paintings or sculptures from artists and selling them to collectors; antique dealers accepting consignment stock from private owners or estates; fashion boutiques stocking items from designers on a sale-or-return basis; specialty food, drink, and craft producers placing products with retailers, delis, or farm shops on consignment; and online platforms facilitating the consignment sale of second-hand or pre-owned goods.

The legal framework governing consignment arrangements in England and Wales includes the Sale of Goods Act 1979 (which governs the transfer of property and risk in goods), general agency law principles (since the Consignee may act as the Consignor's agent in concluding sales), the Commercial Agents (Council Directive) Regulations 1993 (which may apply if the Consignee concludes contracts in the Consignor's name), and the Consumer Rights Act 2015 (relevant where the Consignee sells to consumers). VAT treatment is governed by the Value Added Tax Act 1994 and HMRC guidance.

This Consignment Agreement template is designed for use between a UK Consignor and a UK Consignee operating in England and Wales. It covers the consigned goods, title retention, authorised sale price, commission, payment of proceeds, care and custody, insurance obligations, the consignment period, and the return of unsold goods.

When Do You Need a Consignment Agreement (UK)?

A Consignment Agreement is required whenever a business or individual (the Consignor) wishes to place goods with a third-party reseller (the Consignee) for sale on a commission basis, without transferring ownership of the goods to the Consignee upfront. The agreement formalises the commercial relationship, protects the Consignor's title to the goods, and provides clarity on the commission, payment, and return arrangements.

A Consignment Agreement is particularly important in the following situations. First, where the Consignor is placing high-value goods with the Consignee, such as original artworks, jewellery, antiques, or rare collectibles. In these cases, it is essential to have clear written documentation of the goods placed on consignment, their agreed value, and the Consignee's obligations to insure and care for them.

Second, where the Consignor is a producer or manufacturer testing a new product or market by placing goods with multiple retailers on a consignment basis before committing to supplying them on a buy-and-hold basis. This reduces the Consignor's exposure if the product does not sell.

Third, where the Consignee is a specialist retailer, gallery, or market stall that operates primarily on a consignment model, accepting stock from multiple Consignors and earning commission on sales rather than buying stock outright.

Fourth, where the Consignor is concerned about the Consignee's financial stability and wishes to retain title to the goods in the event of the Consignee's insolvency, so that the goods do not form part of the Consignee's insolvent estate.

The Consignment Agreement should ideally be signed before the goods are delivered to the Consignee, and a consignment inventory should be prepared at the same time recording the description, quantity, and agreed value of each item. This protects both parties in the event of a dispute about the condition or quantity of goods delivered.

What to Include in Your Consignment Agreement (UK)

A well-drafted Consignment Agreement for use in England and Wales should contain a number of essential provisions that protect both the Consignor's ownership interest in the goods and the Consignee's right to earn commission on sales.

The consigned goods clause identifies the specific goods being placed on consignment with sufficient precision to avoid any later dispute about what is and is not covered by the agreement. The parties should prepare a consignment inventory schedule at the time of delivery, recording each item, its description, and its agreed value.

The title retention clause is fundamental to the consignment arrangement. It must clearly state that title to the goods remains with the Consignor at all times until the goods are sold to a third-party customer, and that the Consignee holds the goods as bailee. This protects the Consignor's ownership in the event of the Consignee's insolvency.

The sale price clause specifies the price or pricing basis at which the Consignee is authorised to sell the goods, and whether the Consignee has any discretion to offer discounts. The Consignee should not be permitted to sell below a minimum price without the Consignor's written consent.

The commission clause specifies the rate of commission (expressed as a percentage of the sale price, or as a fixed amount per item) that the Consignee will earn on each sale. The basis for calculating the commission (gross sale price or net sale price after VAT) should be clearly stated.

The payment clause specifies when and how the Consignee will remit net proceeds (sale price less commission) to the Consignor, the accounting and reporting obligations, and the consequences of late payment under the Late Payment of Commercial Debts (Interest) Act 1998.

The care and custody clause sets out the Consignee's obligations to store and protect the goods, and the consequences of loss or damage while the goods are in the Consignee's possession.

The insurance clause (where applicable) requires the Consignee to maintain insurance coverage for the full replacement value of the consigned goods while they are in its possession.

The term and return clause specifies the duration of the consignment period, the notice required to terminate the agreement, and the arrangements for returning unsold goods to the Consignor at the end of the period or on termination.

The governing law and jurisdiction clause confirms England and Wales.

What Is a Consignment Agreement (UK)?

When Do You Need a Consignment Agreement (UK)?

What to Include in Your Consignment Agreement (UK)

Frequently Asked Questions

Related Documents

Agency Agreement (UK)

Distribution Agreement (UK)

Commission Agreement (UK)

Supply Agreement (UK)

Bill of Sale (England & Wales)