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09 March 2020
czech republic

New regulation of real estate agencies | Czech Republic

A new Act No. 39/2020 Coll., on Real Estate Brokerage, came into effect in the Czech Republic on 3 March 2020.

The Act tightens the requirements on real estate brokers (including real estate agencies) and implements new elements of protection for those using real estate brokerage services.

The main line of business of real estate agencies, i.e. real estate brokerage, is newly considered a regulated trade. This means that besides proving impeccability (including the impeccability of the beneficial owner and executive body), the real estate broker must prove professional qualification, i.e. sufficient level of education, the combination of both education and experience, or have passed a professional exam.

During the performance of his activities, the real estate broker has the duty to be insured. The indemnity limit is at least CZK 1,750,000 (approx. EUR 69,200) on one insurance claim and CZK 3,500,000 (approx. EUR 138,000) in case of the concurrent occurrence of several claims. These limits are reduced to 50 % for real estate brokers who provide real estate brokerage (i) on behalf of a legal entity or (ii) in their own name, but with the unmistakable use of the business name (or brand name) of a legal entity.

To be valid, an agreement on real estate brokerage must be concluded in written form and contain statutory requirements (including the amount of commission or the method of its determination). Only the user of the service can raise an objection of invalidity of the agreement for such reasons.

The commission is due at the earliest on the day of the conclusion of a real estate agreement (i.e. purchase agreement, lease agreement, etc.). The commission may be agreed to come due by the day of the conclusion of the real estate agreement if the real estate brokerage agreement (e.g. an agreement between a real estate agency and a user) contains an acknowledgement of the user that the due date of the commission is not bound to the conclusion of the real estate agreement. However, the commission may not come due before the moment the opportunity for the user to enter into a real estate agreement was created. It is possible to agree on a commission deposit, which in the case of a consumer may not exceed two-thirds of the commission amount agreed.

The real estate broker has several notification duties towards the user, e.g. he must provide him, to the extent stipulated by law, with (i) information on the amount of the commission or the method of its determination in case it was agreed on with the other party, and (ii) information on encumbrances on the object of transfer or lease.

Agreements on exclusive real estate brokerage with a consumer are newly limited to a maximum period of six months. Subsequently, the parties may extend the real estate brokerage agreement (however, not earlier than 30 days before the expiry of the agreed time period).

The real estate broker is newly authorised to accept funds into escrow only if the user explicitly requires so in writing on a separate document. At the same time, the real estate broker must fulfil a number of duties, e.g. to establish a separate bank account for each transaction, to inform the bank of the beneficial owner of the funds and to keep records of the escrow.