Newsletter (not only) for brokers - Departure from tripartite booking contracts, Authorization of a broker to conclude a future purchase contract, How precise must the authorization of a broker be?

Authors of the newsletter: JUDr. Lukáš Slanina, Mgr. Robert Dürrer, ARROWS 

News in law: Moving away from tripartite booking contracts?

While there have not been many new developments in the field of real estate law in the past year, current trends that are gradually gaining ground in real estate practice deserve attention.

One of them is the increased use of bilateral contracts concluded between the seller and the buyer, without any involvement of a real estate agent. This approach is being promoted for several reasons. One of the main ones is an effort to respond to the Supreme Court's case law and at the same time to minimize the impact of the Real Estate Mediation Act, which brought about stricter regulation of real estate intermediaries. The Supreme Court decision below addresses such a case.

Ruling: Authorization of a broker to enter into a contract of future sale

A recent Supreme Court decision provides an important perspective on the question of whether a real estate broker can bind a seller to enter into a purchase agreement with a buyer. This is a case where the seller, in an exclusive agency agreement, authorised the broker to enter into a forward contract (SSOB) on its behalf with the prospective purchaser, which entailed an obligation to enter into the purchase contract within one month of the prospective purchaser's invitation.

On the basis of that authorisation, the broker negotiated the SSOB with the interested party, who paid a reservation deposit of CZK 120 000 into the account of the real estate broker. The interested party subsequently invited the seller (represented by the broker) to enter into the purchase agreement as stipulated in the agreement. However, the seller (the estate agent's client) failed to comply with this obligation, which led to the filing of an action for substitution of will. The court found in favour of the interested party, thus confirming the validity of the mandate and the legal binding force of the SSOB so concluded.

This case is interesting precisely because the SSOB here largely performed the function of a booking contract. In practice, this is a less common situation where the broker not only mediates contact between the parties but also acts directly on behalf of the seller on the basis of the authority contained in the brokerage agreement. The Supreme Court's decision thus brings further useful insights into real estate practice.

Useful hints: How precise must the broker's authorisation be?

If your agency agreement contains an authorisation for the broker to enter into a booking or forward contract on behalf of the client, it is important that this authorisation is sufficiently specific. An unclearly defined mandate can lead to legal complications, including overreaching by the broker and subsequent disputes between the parties involved.

If the broker exceeds its authority and obligates the seller to do something that it was not authorized to do, the seller should inform the other party (e.g., the buyer) as soon as possible that it does not agree with the action. This notification must be made immediately after the seller becomes aware of the overstepping, otherwise the seller is deemed to have authorised the overstepping. The exception to this is where the buyer could have known beyond reasonable doubt that the broker was acting beyond his authority.

A simple and effective way to make the authority sufficiently certain is to attach a specific model contract that the broker is authorized to execute on behalf of the client as an attachment to the power of attorney. Such a procedure ensures that the broker's powers are clearly defined, avoids ambiguity and reduces the risk of exceeding the authorisation.