Are realtors in the Czech Republic liable for the damage caused by invalid property purchase agreements?

Aside from the brokerage of the sale or purchase of real property itself, realtors will usually offer their clients also legal services in the Czech Republic, in particular regarding the drafting of the purchase agreement based upon which the property will change hands and the title will be entered. As a rule, real estate agencies provide these services based upon a partnership with a collaborating attorney. However, if the purchase agreement turns out to be invalid, who is liable for the damage caused to the buyer?

In its decision of 28 June 2018 (Case Ref. 25 Cdo 5007/2016), the Czech Supreme Court found that the liable entity is indeed the real estate agency.

The case at hand concerned the purchase of an apartment. The cadastral office rejected the entry of title for the welfare of the buyer, on grounds of a defective purchase agreement (which lacked the requisite specificity). For this reason, the attorney (who worked on account of, and based on authorization by, the realtor) withdrew his motion for the entry of title. He had drawn up the said purchase agreement and was supposed to arrange for the entry of title. Ultimately, no new, faultless purchase agreement was made because debt enforcement had been ordered in the meantime, in the form of a writ of attachment affecting the seller’s property.

The buyer subsequently sought compensation from the real estate agency for the damage which they had incurred because of the fact that the apartment was never validly transferred to the buyer due to defects of the purchase agreement.

The Czech Supreme Court ruled that a real estate agency which undertakes to provide the purchaser (also) with legal services – i.e., in particular, the preparation of the purchase agreement – is liable towards the buyer for the potential invalidity of the purchase agreement even if it “outsourced” the drafting to an attorney. The Czech Supreme Court added that it was rational and legitimate for a buyer to harbor the expectation that they will, in exchange for the agreed commission fee, receive comprehensive and faultless services in connection with the purchase, in line with the real estate agency’s undertaking in the brokerage agreement.

In the case at hand, the liability of the real estate agency had been reviewed pursuant to the Old Civil Code (Act No. 40/1964 Coll.), but we believe that the above-described ruling ought to be applicable also within the context of the new Civil Code. Having said that, the realtor market would certainly profit from specific legal provisions which would govern, among other things, the liability of real estate brokers.

Source: Supreme Court judgment 25 Cdo 5007/2016 of 28 June 2018



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