Will the new law really contribute to improving the services of Czech realtors and the protection of their clients?
Following years of preparations and discussions, Parliament in December 2019 passed the new Real Estate Brokerage Act, which on 8 January 2020 was signed by the president of the Czech Republic. The Act was published in the Czech Collection of Laws on February 17, 2020.
The main driver behind the new law is the desire to protect the clients of realtors and to improve the quality of the services rendered by the latter. With a view to these objectives, the law imposes certain requirements on those who provide realtor services (which previously were among the trades that don’t require a special permit, license or qualification), and stipulates certain rights and obligations of the parties to realtor brokerage transactions, including the mandatory contents of the brokerage agreement.
Real estate brokerage will newly be a regulated (vocational) trade, which may only be pursued upon proving the necessary professional qualification (based on educational background, or a combination of education and professional practice, or possibly by attending an internationally recognized course / passing a recognized exam).
As the new law took shape, one issue triggered lively discussions: should real estate brokers be allowed to offer escrow services, i.e., the safekeeping of funds for the purpose of settling the payments owed under the real estate agreement. The result of these debates is somewhat bewildering: realtors will not be allowed to advertise escrow services, nor their procurement – but upon a written request by their client, they may provide the service. We surely can all guess how this rule will work in practice.
The new act introduces mandatory professional third-party liability insurance, to be taken out by the real estate broker with a limit of at least CZK 1,750,000 per insured event. In connection with the above-mentioned escrow services, we need to add that damage which was caused deliberately is usually exempt from insurance, i.e., the embezzlement of client funds will as a rule not be covered by the insurer.
Even under this new law, real estate brokers may provide their services to both sides of a real estate deal and agree with each on them on the payment of a commission fee. The law merely requires the broker in such a case to inform the respective other party of the amount of their fee which they charge the erstwhile party.
It remains to be seen whether the Real Estate Brokerage Act will really deliver the effective protection of clients of real estate brokers, or whether it will allow the brokers to hide behind a facade of greater trustworthiness and credibility merely by fulfilling formal requirements under the law.
It is moreover unclear when the new act should come into force: the draft bill had anticipated 1 January 2020 as the effective date, but the legislative process ultimately took longer than that. The effective date of laws is governed by the rules contained in the Act on the Collection of Laws and the Collection of International Treaties and Agreements. However, with regard to the amendment of this Act and the not entirely clear transitional provision, discussions arose as to whether the Real Estate Brokerage Act would come into effect on the fifteenth day from its publication in the Collection of Laws (3 March 2020) or only 1 July 2020.
Act No. 39/2020 Coll., Act on Real Estate Brokerage and Amendment of Related Acts