In a recent judgment, the Supreme Court looked into the issue of whether a trilateral reservation agreement (coming under the purview of the Real Estate Brokerage Act) had given rise to valid obligations of the parties.
Author: Matěj Rendl, paralegal
The defendant (a realtor), the owner as seller, and the plaintiff as the prospective buyer had entered into a typical trilateral reservation agreement in which the defendant agreed to engage in activities aimed at the execution of the purchase agreement, arrange for escrow of the purchase price with an attorney, accept no further reservations, and file the motion for entry of title into the cadastral register.
The buyer for their part made payment of the reservation fee as anticipated by the reservation agreement; upon conclusion of the purchase agreement, this fee should have been set off against the commission fee earned by the realtor. However, the purchase agreement was actually never made: not only did the defendant not arrange for entry of the land plot in the cadastral register, but they also failed to resolve the issues of missing utility connections and an access road. In the light of all this, the buyer decided to walk away from the reservation agreement; upon withdrawal, they called upon the defendant to return the reservation fee.
The defendant however kept the reservation fee, arguing that it should be set off against defendant’s claim for a contractual penalty which supposedly arose when the buyer refused to sign the real estate purchase agreement. The buyer thus went to court in order to enforce the repayment of the reservation fee. The first instance court sided with the plaintiff, and so did the appellate court; the Supreme Court as the court of review simply upheld the first-instance judgment.
The defendant asserted that the parties had entered into a future purchase agreement, rather than an agreement under the purview of the Real Estate Brokerage Act. The Supreme Court rejected this view as unacceptable and argued that a trilateral reservation agreement was a prime example for the kind of contract which does fall under the Real Estate Brokerage Act, seeing as the legal relations which are created by it – between seller, broker, and (prospective) buyer – is typical for the realtor business. The Supreme Court moreover pointed to legal theory which posits as the fundamental rule of interpretation for any kind of legal transaction that it is the substance of a transaction which is of relevance, as opposed to its arbitrary designation or given name.
The very purpose of the Real Estate Brokerage Act shows that it cannot be possible to contractually agree on an obligation of the buyer to enter into the purchase agreement. Sec. 14 of the Real Estate Brokerage Act expressly enjoins the broker to incorporate any obligation for consumers regarding the conclusion of the future purchase agreement in the brokerage agreement; Sec. 15 stipulates that the brokerage agreement must not form a part of the same instrument as the real estate purchase agreement. In drafting these provisions, the lawmaker sought to prevent the shady practice of not a few realtors who kept introducing such an obligation in their agreements even though it is at odds with the nature of brokerage. Previous case law of the Supreme Court says that any such contract which obliges the consumer to enter into a purchase agreement is absolutely invalid.
Against the backdrop of both statutory law and established jurisprudence, the Supreme Court arrived at yet another conclusion – namely, a contractual penalty to ensure the discharge of an obligation to enter into a purchase agreement may only ever be validly agreed among persons whose relationship is that of the obligee and the obligor, respectively, of the main obligation.
Source:
Supreme Court judgment 33 Cdo 1507/2022 of 20 June 2023
Act No. 39/2020 Coll., on real estate brokerage and on the change of certain related laws