The last year has seen some changes to the legal environment for real estate agents: some unfavourable, like lower caps on commissions paid by lessees, and some favourable, like a recent decision on double agents.
Real-estate agents are often subject to conflicting interests in Austria. On the one hand, they are regularly instructed by the lessor to find a suitable lessee. Also, according to the Austrian Agency Act (Maklergesetz), real estate agents are obliged to prove a so called "deservingness" (Verdienstlichkeit) to the lessor as client. If the agent does not fulfil its obligations, its commission may be reduced or even cancelled. This results in dependency.
On the other hand, real estate agents are bound to observe a high level of fiduciary duties towards the lessee, particularly if they are consumers according to the Austrian Consumer Protection Act (Konsumentenschutzgesetz). Also, real estate agents are usually paid by the lessee, especially when dealing with residential properties. The amendment to the Austrian Regulation on Real Estate Agents (Immobilienmaklerverordnung), which became effective on 1 September 2010, has introduced lower caps on commissions for lessees but has not changed the long practice of no commission being paid by the lessor.
Recent decision on double agents
Generally, agents are not allowed to act in the interest of both parties to a transaction (Verbot der Doppeltätigkeit) except if this is considered common practice, as is the case for real estate agents. As a general rule, to be considered a double agent, it is not necessary for the agent to be paid by both parties. It is enough that the agent provides services to both parties. If an agent is working as a double agent, it must notify both parties. This obligation does not apply in circumstances where the agent may assume that its status as a double agent is known.This general rule, however, is reversed in the case of real estate agents. The real estate agent is obliged to notify the third party if it is – as an exception to common practice – working for one side only. When it comes to transactions with consumers, the agent is additionally obliged to notify the consumer in writing if it is acting as double agent. When acting as a double agent, the agent is obliged to act in the interest of both clients.
However, this obligation is a reduced one. In a recent decision, the Austrian Supreme Court declined damage claims against a real estate agent due to a breach of its duty to disclose. A real estate agent is, for example, not obliged to investigate damages in an apartment which do not match the age of the apartment, nor is it obliged to point out visual damage to the apartment to the interested buyer or to inform the buyer that the purchase price slightly exceeds the market price (the range is +/- 15%).
Amendment to the Regulation on Real Estate Agents
The amendment became effective on 1 September 2010 and aims to reduce the above conflict of interest by placing a lower cap on commissions to be paid by the lessee upon successful placing. So far, the expected shift of the payment of parts of the commission to the lessor has not happened. While some agents have simply lowered the level of services or stopped dealing with residential properties, others ask the lessee for commission payments under the table.
According to the amended regulation, for business premises, the agent may ask the lessee for a commission of no more than three gross monthly rents if the lease term is indefinite or longer than three years. If the lease term is between two and three years, the commission may not be higher than two gross monthly rent payments. For a lease term shorter than two years, the maximum commission is no more than one gross monthly rent payment. The commission paid by the lessor can still be up to three gross monthly rent payments.
For the successful placing of residential apartments or single family homes, the maximum commission to be paid by the lessee is two gross monthly rent payments if the lease is indefinite or for a term longer than three years. If the lease is limited to a term shorter than three years, the commission paid by the lessee may not be higher than one gross monthly rent payment. If the commission is paid by the lessor, it can still be up to three gross monthly rent payments regardless of the lease term.
Additional opportunities
While the legislator reduced the income of real estate agents, legal practice shows that they tend to offer additional services to increase their income, such as aftersale and after-lease-services, like the registration of electricity. The Austrian Supreme Court stated in a recent decision that real estate agents may be paid for extra services, not only performance-related but service-related services. Such payments are not subject to the Austrian Agency Act. Traditional work in connection with the processing of applications to the land register or escrow duties are still reserved for attorneys and notaries. Only the setting up of a contract when reduced to the completion of a form of agreement can also be done by a real estate agent.
This article was originally published in the schoenherr roadmap`12 - if you would like to receive a complimentary copy of this publication, please visit: pr.schoenherr.eu/roadmap.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
