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Real estate brokerage contract: essential legal aspects

Definition

The real estate brokerage contract has its rules defined in the Portuguese Law no 15/2013 (Legal Framework for real estate brokerage activity) and, if there are no specific definitions in this Law, in Chapter IX from the Portuguese Civil Code that regulates the general service agreements. In accordance with the national case laws, the real estate brokerage contract – as well as other species of mediation agreements – is a subspecies of service agreement.

This contract can be defined as an agreement where one of the parties commits herself to find a third party interested in celebrating a business with her client and arranges a meeting between that third party and the client. The business must aim to constitute or acquire an effective right, such as exchange, rental, assignment of rights and obligations (purchase and sale), in respect of an immovable property.

Important aspects

Moreover, the mediator’s provision of services is legally considered an obligation that concerns the means, not the outcome, although the remuneration is payable only after the brokerage contract conclusion (in which the business translates into the profitable transfer of real estate ownership to the third party) without any nullities or conditions with suspensive effects. This is the current interpretation in the light of case law, mentioned also by Higina Orvalho Castelo. Therefore, the real estate agent must publicize the offer and search for people interested in doing business with the agent’s client and also to introduce him to the person interested, without being compelled to participate on the negotiations development and consequent business execution.

According to article 19, n. 1 and 2 from the Law n. 15/2013, the compensation is due with the conclusion and completeness of the real estate brokerage’s concerned business or if a promissory contract was concluded between the purchasing parties and a remuneration to the real estate company is foreseen in the brokerage contract; it is also due, even if the purchase is not perfectly concluded, when the foreseen business in the real estate brokerage contract was established on an exclusive basis and the purpose is not achieved because of the client/owner.

It is important to highlight that, as it was understood by the Porto Court of Appeal in the Process, 484/13.7TBPVZ.P1 if the real estate brokerage contract is explicitly established on an exclusive basis, an assumption that the activity practiced by the broker or real estate company definitively contributed to bring closer the client and third party interested in buying the property is recognized; therefore the compensation is due without the need to prove a causal link between the activity practiced by the broker and the business conclusion. However, as it was decided by Lisbon Court of Appeal in the Process 3199/08-4TBCLD.L1-2, if the property’s selling was concluded more than a year after the termination of the brokerage contract, the aforementioned assumption between the broker’s work and the selling will not be recognized.

Finally, two important aspects about the brokerage contract should be highlighted: the first one is that the real estate professional must transform potential stakeholders in real and effective parties or promising purchasers, so his activity is considered payable. The second and last aspect is that, even though the compensation is due only after the conclusion and completeness of the brokerage company’s concerned business, if one of the parties in the purchasing agreement does not comply with the contract after its conclusion, this does not affect the obligation to compensate the broker for the services provided.

In the following article we will specifically discuss the exclusivity clause in the brokerage contract, including jurisprudential decisions regarding it and the opinion of two real estate consultants that work in Portugal about the fact that this clause is not legally binding and its consequences.