When the buyer pays the French estate agent.
This article is for general information only. French law is a highly specialised area and you should only act or refrain from acting after receiving full professional advice on the facts of your particular case. This article is for general information and does not constitute investment advice.
A common practice in France is for the estate agent to be appointed by the seller by a written mandat. This authorises the agent to find a buyer at or above a specified price and in some case the agent can sign the contract on the seller’s behalf. When a buyer is found the notaire or agent often suggests that the buyer pays the commission so that the price of the property is reduced by the amount of the commission and the French equivalent of stamp duty is also reduced. Effectively this means the buyer avoids costs of about 6% of the amount of the commission. The agent then typically asks the buyer to sign a mandat agreeing to pay a commission for finding the property for the buyer.
Mandate must pre date negotiations
This practice, although widespread, has some major legal problems. Firstly Article 72 of the Decree of 20 July 1972 requires all mandats to be signed before any negotiations start. This was certainly the case when the seller instructed the agent and signed the seller’s mandat but is definitely not the case when the buyer subsequently signs the mandat after he has agreed to buy the property. After he has agreed to buy it, it is difficult to see what further negotiation the agent has to do.
Some agents who are aware of this problem backdate the mandate to the same date as the original seller’s mandate which is a very dubious practice. Others amend the original seller’s mandat to change the person who pays the fees from the seller to the buyer. This is probably better than having a new backdated mandat but introducing a new party to the mandat is legally equivalent to creating a new mandat and so is probably ineffective. Breach of Article 72 above means the agent cannot legally recover the commission.
Article 6-1 in the Loi Hoguet
A new Article 6-1 in the Loi Hoguet requires estate agents in any sales literature to state their commission when it is to be paid by the buyer. Most agents are reluctant to do this as they prefer to have a price for the property with their fees built into the sale price. This does not result in the commission being unrecoverable but can lead to the agency being fined. It has increased the pressure on the legality of this practice.
Completion and notaire’s responsibility
All this comes to a head on completion as usually the agents are at the notaire’s office to be paid by the notaire. The notaire should always ask to see the mandat and should refer to this in the transfer deed (acte authentique). In practice the agent will produce the mandate signed by the buyer agreeing to pay the commission. The date on this document is important. If the mandat is dated after the contract (compromis) was signed then it must be after the date of negotiations and so is null and void and the agent should not be paid. If it was signed say one day before the compromis was signed or shortly beforehand then the notaire should reach a similar conclusion. In practice this often is not considered in the pressure at the end of the completion meeting.
Buyers however who are unhappy with the way the sales process has been handled by the estate agents could raise this at the end of the completion meeting and ask the notaire to withhold payment to the estate agent. It is likely that the notaire will hold onto the agent’s commission until the matter is resolved either by agreement or by a court order.
The notaire is in a difficult position. Most notaires will want to pay the estate agents because they refer work to them. However paying out money to someone who is not legally entitled to it against a client’s wishes and being party to a breach of the law will make the notaire liable to the buyer and could result in other sanctions.
Most people do not read estate agent’s mandats properly. There are many difficulties with them and caution is the best approach.