New draft bill: Brokerage fees will be split in the future!

On May 14, 2020, the German Bundestag (Federal Parliament) approved the Federal Government's draft bill on the distribution of brokerage fees when brokering sale and purchase agreements for apartments and single-family homes. According to the bill, the buyer will in future pay a maximum of 50 percent of the total brokerage fees for the purchase of real estate.

What is new and when do these new regulations become effective?

The following new regulations are to be introduced into the German Civil Code (Bürgerliches Gesetzbuch – BGB) (§§ 656 a to 656 d BGB):

  • Brokerage agreements for apartments and single-family homes require text form to be effective (e.g. via email).
  • The new regulations on the distribution of brokerage fees only apply to consumers.
  • If the broker acts on behalf of both the buyer and the seller based on two brokerage agreements, the broker can only demand commission from both parties in equal parts. If, on the other hand, only one party has made the decision to engage a broker, this party is obliged to pay the brokerage fee. Agreements with the aim of imposing these fees on the other party are only effective if the fees passed on amount to a maximum of 50 percent of the total brokerage fees. Moreover, the buyer does not have to pay his/her share until the seller has provided proof of payment.
  • Additionally, the term „Mäkler“ for broker in the meaning of the German Civil Code was changed to the more modern term “Makler”.

Unless the German Bundesrat (Federal Council) raises objections, the new regulations shall become effective six months after their promulgation - presumably in mid/end December 2020 or January 2021. They shall apply to brokerage agreements concluded after the bill has become effective. This transitional period should enable brokers to adapt their business practices to the new legal situation.

What types of brokerage clauses are commonly included in sale and purchase agreements?

So-called declarative clauses, which merely clarify that the sale and purchase agreement was concluded through the services of a broker, are considered unobjectionable in terms of notarial professional law and notarisation law. These clauses do not constitute a material legal claim for payment by the broker. They serve only for the purpose of proof. Furthermore, they do not trigger any additional costs.

In addition, a so-called transfer agreement can be considered, which is also unobjectionable in terms of notarial professional and notarisation law. This option applies if the parties wish to transfer an existing obligation for payment of broker fees from one party to the other as part of the performance or consideration. The purpose of this clause is to fulfil the obligation to pay the broker's commission by one of the parties, without this constituting an independent claim of the broker. Such a clause requires notarisation, as it is in this respect an agreement between the parties concerning the costs to be borne. It is also conceivable that the broker's fee is imposed on one of the parties by way of an assumption of the contract or debt or on the basis of an abstract acknowledgement of debt (with submission to immediate enforcement).

So far controversial are broker clauses designed as a contract for the benefit of third parties in the sense of § 328 German Civil Code, according to which an independent claim in favour of one of the contracting parties and/or the broker is directly established, irrespective of whether the broker is actually entitled to it. As a rule, this constitutive broker clause establishes an independent claim of the broker against the buyer which leads to an increase of notary and court costs.

What effects do these new regulations have on notarial practice?

In previous practice, brokers have tried to secure their commission claims for brokering purchase agreement for apartments, real property or development agreements by including a constitutive brokerage clause in the notarial sale and purchase agreement. 

Even if the inclusion of a constructive brokerage clause does not usually correspond to the actual will of the buyer, this constitutive brokerage clause is nevertheless still used in notarial practice. This is because in most cases the buyer is put under pressure if he believes that he cannot purchase the property without accepting this brokerage clause. Whether and to what extent this so-called constitutive broker clause is effective has been disputed for decades.

In its ruling of November 24, 2014, the Federal Court of Justice (Bundesgerichtshof - BGH) addressed the official duties of a notary in the case of notarisation of such a clause, and the Federal Chamber of Notaries (Bundesnotarkammer) has issued a circular letter to each regional chamber of notaries and their members urging them to handle these clauses with utmost care. When including a constitutive broker clause, the notary should always carefully consider whether the inclusion of such a clause is at all necessary and required and how this clause should be legally structured. If there are no objective reasons, e.g. a concrete threat of pre-emption, the inclusion of a constitutive clause at the unilateral request of the broker against the will of the parties is not advisable.

Due to the obligation of neutrality of notaries and taking into account the interests of the contracting parties, a constitutive brokerage clause should not be included as a regular case in the notarial contract. It is possible for the broker to secure his/her commission claim in other ways, e.g. by concluding a written brokerage agreement.

Taking into account the new draft bill, it can be summarised that such a broker clause will only be effective in the future, if the contracting parties who have appointed a broker by mutual agreement are obliged to pay at least the same amount of commission. If, on the other hand, only one party (either the seller or the buyer) has commissioned the broker, that party alone must pay the broker's commission. Agreements with the aim of imposing the brokerage fees on another party are only effective if the costs passed on amount to a maximum of 50 percent of the total brokerage fees.

If the buyer acts within the scope of a commercial activity, the distribution of the brokerage fees can also be agreed upon otherwise. The inclusion of such clauses always requires careful examination, especially with regard to their legal effectiveness.

 

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DSC Legal focuses on rendering legal advice and providing notary services with respect to M&A, real estate transactions, startup & venture capital, IP/IT, banking & finance and property construction.

Advice on issues in the field of real estate law is one of the core areas of our legal practice.

The information in this newsletter cannot and should not replace in-depth legal advice under extensive examination of the individual case. Our real estate law experts will be delighted to advise you on your legal options and represent you with their outstanding professional competence and extensive experience in the extrajudicial and judicial enforcement of your claims.

We would be pleased to advise you on the applicability of the new case-law to your personal financing, and to represent you against the financing bank in the enforcement of repayment claims.

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