A common practice among real estate agencies is the conclusion of so-called reservation agreements with parties interested in buying property – customers. As a rule, in such an agreement, the customer undertakes to conclude a (future) contract of sale with the owner of the property within a certain period, and to pay the real estate agency a reservation fee. Another common part of reservation agreements is often an undertaking that if the customer does not conclude a contract of sale for any reason on the customer’s part, the customer will pay the real estate agency a contractual fine in the amount of the reservation fee. In this way, the real estate agency ensures that it is paid even if the customer ultimately changes his/her mind and decides not to conclude a contract of sale with the owner of the property.

However, this common reservation agreement can, under certain circumstances, be invalid on the grounds of contravening the law. This was the conclusion of the Supreme Court of the Czech Republic in its judgement of 24 July 2013, ref. no. 33 Cdo 3448/2012.

According to the Supreme Court, if the real estate agency does not act as the agent of the future vendor (owner of the property), an arrangement by which the customer undertakes to conclude a contact of sale with the owner of the property within a certain period is invalid, as such an arrangement circumvents the provisions of Section 50a of the Civil Code, under which an undertaking to conclude a future contract can only be legitimately assumed by the future parties to this contract. The real estate agency is not a party to this future contract of sale and therefore the customer cannot undertake to conclude a contract of sale with a third party – the owner of the property – by signing a reservation agreement with the real estate agency.

Thus, if the reservation agreement includes an undertaking on the customer’s part to conclude a contract of sale with the owner of the property, it must be concluded by the real estate agency as an agent of the property owner on the basis of a power of attorney, otherwise the agreement is invalid.

The real estate agency should therefore pay particular attention to the manner in which it concludes reservation agreements, in order to avoid their possible invalidity and consequent loss of profit.

For more information, please contact K&A partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz; tel.: +420604242241