Brokerage law in Germany

Commission, liability, contract drafting under german law

The broker and his activity are an essential part of many real estate transactions as well as other business areas in Germany (M&A advisors). The legal relationships between the brokerage firm, the buyer and the seller of the property are often complex and prone to dispute in german practice.

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Legal services in german brokerage law

Brokerage law is one of the most important areas of our real estate and corporate law advice in Germany. Our lawyers, certified specialists and tax advisors, who specialize in german commercial law, advise brokerage companies and transaction parties on all legal and tax issues relating to the broker's activities:

  1. Drafting and review of brokerage contracts and general terms and conditions (B2C and B2B)
  2. Representation in disputes concerning brokerage commission, liability, etc. - in and out of court
  3. Examination of individual issues in german brokerage law, including a possible right of withdrawal of the broker client
  4. Advice on german competition law for brokerage companies
  5. Tax advice for brokers and examination of individual tax issues relating to brokerage activities

Overview of german brokerage law

In german practice, the brokerage contract includes as a service of the broker the verification and/or mediation activity, the broker customer owes the brokerage commission in case of success. For the area of german real estate law, the subject of the brokerage contract can be, in particular, land, apartments and commercial space. German brokers are also frequently involved in company acquisitions (asset/share deals). In principle, brokerage contracts can be concluded verbally or conclusively by implied action and only require the text form if the German Act on the Mediation of Residential Property (Wohnungsvermittlungsgesetz) is applied.

The broker's request for commission must be clear, in particular by whom and in what amount the commission is to be paid. In the following, we present some central aspects of the german brokerage law that frequently concern us in our consulting work. The starting point is usually, on the one hand, the broker's need to secure his claim to a fee ("commission protection") and, on the other hand, the customer's need to refuse payment of the broker's fee with legal arguments.

You can find more information about the broker's commission on this page as well as here: Brokerage Commission under german law

Effective agreement of the commission in german practice

The broker can conclude a brokerage contract with his client, which determines the amount of the commission. In german practice, the contract can also be concluded orally. However, it is advisable to always conclude brokerage agreements in writing. The commission becomes due for payment when the broker has rendered his service according to german law (providing evidence and/or mediation). Due to the numerous possible legal objections of the broker's client against the broker's commission (see in detail below), the broker can secure his commission claim very extensively in german practice by means of a so-called independent commission promise.

Frequently, the broker's commission is also regulated in (notarial) purchase agreements, in particular which contracting party of the purchase agreement has to pay the commission in Germany. The claim to commission can be strengthened here to the extent that the broker is granted his own right of claim against the broker's client in the purchase agreement by way of a so-called genuine contract in favor of third parties (Section 328 (2) BGB).  

Relationship between main contract and brokerage contract under german law

In Germany, a claim to commission further presupposes that a main contract (e.g. rental contract or purchase contract) is effectively concluded on the basis of the evidence/brokerage. Therefore, in the case of a contract that has been concluded subject to a condition precedent, the commission claim under german law only arises upon the occurrence of this condition (e.g. real estate purchase contract that only becomes effective once the consent of a co-owner has been obtained). The claim for commission expires if the main contract is null and void (e.g. a non-notarized property purchase contract) or is contested (e.g. due to fraudulent misrepresentation) - but also if the broker client asserts a right of revocation to which he is entitled.

Causality of the broker's performance in Germany

The broker only earns commission if the service provided by him was (co-)causal for the conclusion of the main contract. The broker has already set a contributory cause, if by its achievement the conclusion readiness of the contracting party was increased somehow in german practice. Typically, the broker of record provides his client with information about a certain object and the client was not yet aware of this information. If in Germany the client concludes a purchase contract about this object, the broker's performance was causal for the conclusion of the contract.

In the case of the verification activity, prior knowledge may preclude the entitlement to commission in german practice. This is given, if the customer already knows the contract opportunity and the contract readiness of the proven contracting party. The previous knowledge refers therefore not only to the object, but also the person of the potential contracting party as well as the contract matter at all. In Germany, the broker can protect himself if he has his customer assure him in the written brokerage contract that no prior knowledge exists. No claim for commission arises if the originally given causal connection has been interrupted. This is the case, for example, if the customer does not conclude the contract with the contractual partner named by the broker, but with an intermediate purchaser.  

Lack of independence of the german broker - interconnectedness

The broker should basically stand as an independent third party between the contracting parties in Germany. If the broker is economically or personally connected with a party, this is referred to as interlocking. The interconnection creates a conflict of interests, the broker is no longer independent. Interlocking exists between the broker and a party to the main contract if the broker is economically identical with the party. This is the case, for example, if the broker is the majority or sole shareholder of the company to be sold in Germany. Even if there is no economic control of a contracting party (e.g. broker holds 20% of the shares in the company to be sold), there may be a conflict of interest which precludes the broker's entitlement to commission. This is the case, for example, if the broker and the seller are spouses or if the broker is also the administrator of a condominium owners' association and in this capacity must approve the sale of one of the apartments.  

In spite of the existing interdependence, the broker can claim his fee if the customer commits himself by means of a so-called independent promise of commission ("abstract acknowledgement of debt"). In this case, however, the broker must fully inform the customer of the interlocking relationship existing between the broker and the other contracting party in Germany.  

Caution double broker in Germany!

A double activity of the broker, i.e. a simultaneous activity for seller and buyer is in principle not forbidden. In the german real estate business, brokers often first act on behalf of the seller and then also conclude a brokerage contract with the prospective buyer, demanding commission from each side (internal and external commission). In real estate transactions, german case law generally considers a dual activity of the broker to be permissible if the broker has acted as an agent for both parties or as an intermediary for one party and as an agent for the other. This applies even if the broker's client was unaware of the broker's dual activity. This makes sense, since a brokerage activity, i.e. the representation of interests vis-à-vis the contracting party on both sides is not conceivable without a conflict of interests.

However, despite this liberal case law in Germany, the dual broker always runs the risk of forfeiting his commission claim in individual cases, because he will often not succeed in fulfilling his duties to both contracting parties in a strictly impartial manner. Often, the broker will be well advised to disclose his dual activity at an early stage and to obtain the consent of the parties.

Breach of duty and compensation under german law

The broker must disclose to his client all circumstances known to him that are relevant to the decision to buy or sell. If the broker violates this duty, he is generally liable for damages under german law. In principle, the broker is not obliged to make his own investigations and verifications. The broker may limit himself to passing on the information he has obtained himself to his customer. If the broker obtains information from third parties, he is not liable for the accuracy of this information. Sales forecasts or estimates in Germany do not justify any liability on the part of the broker. However, if the broker subsequently learns that information passed on is inaccurate, he must inform his customer of this without delay.  

Forfeiture under german law

In Germany, the broker can also forfeit his claim to commission through blatant misconduct. He then receives no remuneration despite the brokerage service rendered. However, the violation of his contractual obligations alone is not sufficient. German case law requires the existence of a serious breach of fiduciary duty. This is only the case if the broker has violated his duties intentionally or at least grossly recklessly. This can occur, for example, in the following cases:

  • The broker violates his duties of disclosure or exerts pressure on a buyer in the form that a scheduled notarization appointment would fail if the customer does not sign the commission agreement.
  • Likewise, forfeiture occurs if the broker wrings an invalid reservation agreement from the customer, which gives the customer the impression that he is obligated to conclude the brokered transaction (so-called obligation to conclude).
  • The broker also forfeits his claim to commission in cases of impermissible dual brokerage.

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