INTERNATIONAL REAL ESTATE BRIEFING Acknowledgement Associados - - PDF document

August 2004

INTERNATIONAL REAL ESTATE BRIEFING

SURVEY OF CUSTOMS AND PRACTICES RESPECTING REAL ESTATE BROKERS AND CHARTERED SURVEYORS

enter markets abroad in search of property to purchase or lease for operational

• requirements. Often, advice is sought from international or local real estate advi-

sors with respect to site or building selection, economic terms and the negotiating

• process. The rules of conduct, underlying assumptions and compensation structures

under which such advisors operate vary widely from jurisdiction to jurisdiction. Knowing the general customs and norms under which local real estate brokers, chartered surveyors or other advisors typically operate can save time and money and can lower anxiety in choosing the best advice in the particular marketplace. This International Real Estate Briefing furnishes an overview designed to assist in bridging the “expectations gap” between the multinational client and the local market.

Acknowledgement In addition to the many talented lawyers within Jones Day who contributed to the production of this Briefi ng, we acknowl- edge with gratitude the following professional fi rms that have supplied views, information and often text with respect to particular countries: Romero, Zapiola & Clusellas (Argentina); Blake Dawson Waldron (Australia); Neudorfer Griensteidl Hahnakamper Staps & Partner (Austria); Machado, Meyer, Sendacz e Opice (Brazil); Gowlings (Canada (Ontario)); Borden Ladner Gervais LLP (Canada (Quebec)); Carey & Co (Chile); Plesner Svane Grønborg (Denmark); Roschier Holmberg Attorneys Limited (Finland); Fusthy & Martony (Hungary); Mason Hayes & Curran (Ireland); Santos Elizondo Cantu Rivera (Mexico); Bugge, Arents-Hansen & Rasmussen (Norway); SoltysÐski Kawecki & Szlezak (Poland); Macedo Vitorino e Associados (Portugal); McGrigors (Scotland); Schömherr Rectsanwälte (Slovenia); Webber Wenzel Bowers (South Africa); Mannheimer Swartling Advokatbyra (Sweden); Python Schisserli Peter & Partners (Switzerland); Meher Bon Seigmund Rengifo & Diquez (Switzerland).

United States 2 Argentina 6 Australia 7 Austria 8 Belgium 9 Brazil 11 Canada (Ontario) 13 (Quebec) 14 Chile 15 The People’s Republic

• f China

15 The Czech Republic 18 Denmark 20 England & Wales 22 Finland 23 France 24 Germany 25 Hong Kong 26 Hungary 27 India 28 Republic of Ireland 29 Italy 29 Japan 30 Mexico 31 The Netherlands 31 Norway 32 Poland 33 Portugal 33 Russia 34 Scotland 35 Singapore 36 Slovenia 37 South Africa 37 Spain 38 Sweden 39 Switzerland 41 Taiwan 42 Venezuela 43

CONTENTS

2 ■ INTRODUCTION Businesses seeking to lease or purchase property for opera- tional needs are frequently well advised to have independent advice in seeking suitable property, particularly in unfa miliar

• jurisdictions. The rules and practices under which real estate

advisors offer services in the local environment, however, may vary greatly from those with which management is accus- tomed in the home country. The compen sation of real estate advisors, as well as the determination of which principal may be responsible for advisory fees and expenses, also differ. Moreover, informal discussions with prospective advisors or casual inquiries about property conditions or availability may carry unwanted commitments or liabilities that are unintended by the principal. An overview of the customs and practices country to country may provide a suitable platform from which to begin the process of screening and selecting advisors, as well as to become acclimatized to local conditions. This publication surveys the general framework of real estate advisory services in countries that are repeatedly the focus of major international business enterprises. It is not, however, a comprehensive listing of the rules and considerations relevant to the engagement of real estate advisors or the potential liabilities associated with the property selection process in any jurisdiction. Consultation with a lawyer having appro- priate experience and an understanding of the perspective

• f multinational firms is recommended prior to engagement
• f property advisors or commencement of the property

selection process ■ CONSIDERATIONS There are a variety of questions that should be asked in famil- iarizing oneself with the customs and practices in the local country or marketplace. These issues fall into three basic categories: Responsibilities:

• For whom do real estate brokers or advisors typically

work?

• In what capacity do real estate brokers work for

clients?

• To whom do real estate brokers owe a professional

duty?

• Is there an established duty of loyalty or confidential

aspect to the dealings of the real estate broker with the client? Compensation:

• What is the typical nature of compensation to the real

estate broker?

• Is the compensation wholly negotiable, or subject to

legal or other regulatory requirements?

• Who typically bears the incidental expenses incurred

by the real estate broker ?

• Who is normally responsible for payment of the

broker’s compensation? Can this responsibility arise without a specific contractual agreement with the broker? Regulation:

• Are real estate brokers required to be professionally

licensed?

• What laws or regulations govern the conduct of real

estate brokers? Since the comparative practices country to country are frequently evaluated by decision-makers in the international markets against a background of Anglo-American prac- tice and expectations, this Briefing will first review these issues in their United States context. Following that analysis,

• bser

vations are provided with respect to other prominent commercial jurisdictions around the world. ■ UNITED STATES Overall Practices While professional obligations and expectations as to compensation of real estate brokers are similar throughout the United States, it should be noted that much of the regula- tion of real estate professionals is left to the individual states. As a result, although clients of brokerage service firms may anticipate relative uniformity nationwide, those having partic- ular questions, especially as to the licensing and operation

• f real estate brokerage professionals and businesses, or the

technical rules and proprieties of sharing brokerage, “finder’s”

3

• r similar fees between advisors or with persons not qualified

as real estate brokers or salespeople, should seek specific legal advice from a firm with multi-jurisdictional experience in property and the brokerage industry. Responsibilities Real estate brokerage professionals in the United States may accept assignments on behalf of sellers or buyers, landlords

• r tenants. Although there are distinctions in qualifications,

licensing and responsibilities between real estate “brokers”, “salespersons” and occasionally other categories of profes- sionals under individual state laws, the terms “broker” and “brokerage professional” will be used with their generic, non-technical meaning for purposes of this discussion. With respect to commercial (i.e., office, industrial or ware- house) property requirements, it is typical for each party to have its own property consultant. The role of the seller’s or landlord’s agent, generally speaking, includes the respon- sibility to advise the owner as to offering prices, to design and implement a marketing strategy, to recommend an advertising

• r publicity campaign where appro

priate, to accept inquiries from potential purchasers or tenants (and from brokerage professionals representing these parties), and to advise the client and facilitate the process of selection and the nego- tiation of definitive agreements. The buyer’s or tenant’s agent is engaged most frequently at the point of identification of a future property requirement, prior to the search focusing

• n a particular property. It is not unusual, however, for the

agent to be retained, for example, to assist a tenant in eval- u ating whether to renew or renegotiate terms of its lease of an existing facility, to compare present arrangements with current market conditions, to audit costs, or to accomplish

• ther more specific advisory functions.

Nonetheless, it should be noted that in many state juris- dictions, all real estate brokerage professionals (including those acting for buyers and tenants) owe a duty of loyalty to the seller or landlord. This duty may be limited to specific tasks, or to the residential context, but often applies in some form to commercial property engagements. In some states, this duty must be specially noted to each buyer or tenant client at the commencement of the engagement, in order to highlight this dual relationship under the law. As a practical matter, knowledgeable buyers and tenants depend upon a process of careful selection of a real estate brokerage pro- fessional of established integrity and judgment, rather than upon the nuances afforded under individual state law as to how the agent’s competing obli gations should be managed. Traditionally, real estate brokers have been regarded as agents of their clients. Depending upon the circumstances and the law of the individual state, this creates a potential for the agent to make binding obligations, whether inten- tionally or otherwise, on behalf of its client. Occasionally, this can arise through the agent purporting to make a specific written or verbal commitment on behalf of the principal. More frequently, however, the issue arises in the context

• f statements made by the agent (or, for that matter, facts

known but not disclosed) that have arguably affected the decisions made by the other transactional party or its

• representatives. Details regarding the condition or suitability
• f the property are a frequent source of such disputes; the

laws controlling these matters are complex, vary substan- tially from state to state, and are not within the scope of this

• Briefing. For sophisticated parties, particularly sellers and

landlords, proper legal planning and documentation of the relationship between agent and principal can clarify these risks and the appropriate roles of client and broker in the context of the particular engagement. It may also be possible to structure the relationship as one of independent contractor to reduce the potential for client and broker to be found later to share responsibility for each other’s acts. While the exact provisions differ in each state, real estate bro- kerage professionals have an established set of professional standards and duties that are imposed both by law and by the codes of conduct of the trade organizations with which they associate. These practices, as well as market norms,

• ften include not only a duty of loyalty but a notion of con-

fidentiality with respect to proprietary information supplied by the client. It will be appreciated that, particularly where there exists at least a defined, limited duty to the other trans- actional principal as well, the precise demarcation of these

• bligations can be more esoteric than practical. Again, the

best protection is in careful agent selection.

4 Compensation Principals and real estate brokerage professionals are free to make individual arrangements concerning the nature and terms of compensation to be paid for the broker’s services. It is customary in most markets for the owner or landlord to

• ffer compensation, based upon successful conclusion of

the transaction, to the agent of the owner or landlord, with such compensation to be shared with the purchaser’s or tenant’s broker in accordance with local practices. Typically, there is a general understanding, often unwritten and virtually always prescribed by custom and not by law, within the local brokerage community that establishes an agreed formula, based upon the value of the property that is the

• bject of the sale or lease transaction, in order to estab-

lish the compen sation to be shared by the two parties’ brokerage professionals. Both law and custom provide rules to determine which brokerage professional is the legitimate representative of each principal in the event of disputes concerning which advisor is rightfully entitled to compensation. Not surprisingly, the case law concerning these matters is extensive in many states due to the frequency with which principals find them- selves in situations where more than one broker has assisted

• r had some contact with the principal concerning the

specific transaction or property; such a claim does not require a written agreement with the principal in most

• instances. Occasionally, claims are brought frivolously by

a claimant in an attempt to extract a compromise, but genu- ine misunderstandings routinely result in multiple brokers asserting in good faith their expectations for commissions. Principals should exercise care, as well as fair dealing, in defining the roles of their advisors and in avoiding circum- stances that may give rise to disappointment and potential

• liability. In response to these concerns, purchase documents

and lease agreements typically ask purchasers and tenants to make representations or to give indemnities with respect to the possibility of compensation claims from additional advisors not identified in the document, and purchasers and tenants should expect and require mutual covenants from the

• wner or landlord.

Absent specific arrangements, it is expected that the broker- age professionals will be responsible for their own incidental

• expenses. An express understanding should be reached,

however, about matters such as advertising and the printing

• f promotional literature, both to settle issues of cost and to

assure that the principal’s expectations will be met concerning the marketing program. There are frequent variations on the normal compen sation structure for individual transactions. Moreover, major corpora- tions or other sophisticated tenants or occu piers with multiple property requirements often negotiate comprehensive under- standings with advisors on a regional or sometimes global basis, which may also address and align the incentives of the brokerage advisor with respect to services that may not typically generate compensation from the other party (e.g. audits of lease charges, review of an overall property port- folio, or the renegotiation of existing property commitments to conform to current market conditions). Regulation Certain Federal legislation applies to the activities of real estate brokerage professionals in the United States, such as the handling of escrow arrangements and the settlement of funds upon completion of transactions. In general, however, the principal regulation of real estate brokers is a matter of state and, in limited circumstances, local law. Individuals acting as real estate brokers and salespersons are required to hold licences, issued by the state following a process of study and examination. Rules and requirements are imposed upon the professional with respect to conduct and responsibilities while practicing pursuant to the licence. Increasingly, the states are requiring attendance at seminars

• r other periodic education in order to preserve and renew

licenced status. Normally, the state licence authorizes brokerage or real estate sales activities only with respect to property and conduct in the state of issuance. Rules and procedures differ significantly as to whether a given state may afford reciproc- ity to a brokerage professional from another state. In most cases, if such reciprocity is available, it must be secured through a specific application and licensing process rather than relying solely upon the out-of-state licence and rules of general application

5 Operating without a brokerage or salesperson’s licence in the individual state may create civil and potential criminal liability for the broker, as well as risk the revocation of the licence issued by the home jurisdiction. A number of states also prohibit unlicensed personnel from asserting or collect- ing commissions or other compensation for transactions involving states in which they are not qualified and prohibit properly licenced brokers from sharing their commissions with unlicensed persons or firms. For the principals, using firms

• r persons who are not licenced may raise diffi

culties in completing transactions, cause resistance or resentment among the other advisors necessary to the transaction’s con clusion, or involve the principals needlessly in claims and counterclaims related to the appropriate sharing of fees arising from the matter. There is also legitimate concern in isolated situations that the direct payment of fees or expenses by a principal to an unqualified brokerage professional may consti- tute a violation of law. ■ SURVEY OF THE CUSTOMS AND PRACTICES OF OTHER COUNTRIES The following survey presents an overview of customs and practices regarding real estate brokers and similar profes- sionals in an extensive range of jurisdictions. Since the fundamental structure and rules differ considerably, each country is discussed in a brief narrative format tailored to local considerations. While the topics are considered in a parallel format for each country, an effort has been made to express the commentary for each jurisdiction in a manner, and in certain cases with terminology, which reflect the local climate. It should be noted that the summary anticipates the norms in effect for the local brokerage community in each country. As more and more multinational companies enter local market places, they may not only rely upon carefully selected local real estate brokerage professionals, but come to depend more extensively upon the increasing number of international brokerage firms. These international firms may

• ffer service through fully integrated or seconded employee

personnel in a particular location, or may use local brokerage firms or individuals allied with the international firm through a strategic alliance, informal network or one-off contact. In such cases, the terms and conditions of the arrangement with the client, as well as the compensation structure, may follow the local practice, may be formulated with the client to meet the client’s home country expectations or special requirements,

• r may be a blend of the two approaches.

Particularly for the multinational or other sophisticated client, the customs and practices described below should serve

• nly as the landscape against which to measure proposals,

understand local expectations, and design solutions. Many

• f the topics that are of universal concern to the brokerage

client may be addressed through careful establishment of goals and terms in a written agreement at the commence- ment of the engagement. Often, this can be accomplished in a way that enlists the cooperation and support of the local brokerage professional or may be achieved through the involvement of one of the primary international real estate advisory firms with significant experience or contacts in the local market. The specific terms of the engagement of real estate pro- fessionals, the appropriate documentation of such terms (or the absence of such documentation), and the laws and rules that determine the enforceability of such terms and the regu latory and practical aspects of seeking enforcement of remedies can all have a major impact on whether the advisory relationship, as well as the underlying real estate transaction, satisfy the expectations, timing and budget considerations

• f the brokerage client. For these reasons, capable legal

advice is strongly recommended, whether the documentation

• f the brokerage relationship is intended to be formal or

informal, detailed or simple. This is especially the case where the business and cultural background of the client may not have been developed principally in the country in which the brokerage relationship is being sought. In budgeting or negotiating compensation arrangements, it should be kept in mind that in certain jurisdictions brokerage fees may be subject to value added tax or other governmental charges.

6 ARGENTINA Responsibilities Any Argentinean or foreign individual is free to operate as a real estate broker in the country. They are independent professionals that may be engaged by seller or buyer, landlord or tenant. In some provinces, real estate brokers are required to be professionally licensed or registered. In other provinces, however, such requirements are not applicable. In general, real estate brokers are not required to be registered in Real Estate Brokers’ Associations and, even in those cases where they are registered, these Associations do not control their behavior. On the contrary, in the province of Buenos Aires, real estate brokers are licensed to do business merely by registering in the corresponding Provincial Registry. Once registered, they are entitled to carry out real estate brokerage activities. Real estate brokers are intermediaries who help the parties come to an agreement. The relationship existing between the broker and its client is that of a mandate and the rights and duties of the real estate broker are governed by the terms and conditions of the contract executed by the parties. They can participate in different business activities such as leases, sales, purchases and valuation of real estate depending upon the particular terms of the contract in question. The obligation of loyalty or confidentiality is generally accepted to be an important aspect of the relationship between the real estate broker and its clients. Under section 96 of the Commercial Code, real estate brokers should verify the identity, address and legal capac- ity of the parties involved in the transaction as well as the existence of all the documents certifying the title invoked by the principal. For such purposes, real estate brokers could

• btain the certificate of title from the Real Estate Registry

where the real property has been registered and also verify that no attachment or any other burden has been levied on the premises. Usual conflicts existing between the parties result from the scope and duration of the mandate. In the first instance, it is important to determine the powers of the broker, for exam- ple, if he or she will be entitled to make reservations and/or execute contracts and, in such a case determine the terms and conditions governing the contract. In the second case, however, it is important to determine the term of duration or the mandate so that the parties can establish the period of time during which the real estate broker will be entitled to receive compensation. Compensation Compensation is ordinarily a percentage of the trans action

• value. The percentage is negotiated and fixed by the parties

but is paid only in the event of completion of the transaction. There are certain regulations that determine the minimum

• r maximum percentages applicable to the brokerage

trans actions if the parties fail to come to an agreement. In the province of Buenos Aires, however, Law 10.973 provides for the following fees: (h) Sales of real estate: Each party will pay a percentage

• f the purchase price.

(i) Leases of urban or rural real estate: Each party shall pay a percentage of the amount agreed upon by the parties based on the term of the contract. If there is no written agreement, the basis for such calculation will be a term of two years (j) In seasonal or temporary leases: Each party will pay a percentage of the amount agreed upon by the parties. (k) In the case of transactions with more than two real estate brokers, each of them will be entitled to the above mentioned commissions payable by its own client and will not be entitled to the other real estate broker’s fees, unless otherwise agreed upon in writing. Regulation While in general the brokerage profession in Argentina is regulated by provincial laws, in some cases, such as the city of Buenos Aires, this profession is largely unregulated. National or foreign companies and/or individuals can develop their business activities as real estate brokers. There are two main business sectors: urban and rural estate brokers. In general, brokers are engaged in one of these two fields but not in both of them.

7 AUSTRALIA The real estate brokerage profession in Australia is regulated

• n a state basis. The discussion included in this survey

pertains to New South Wales (“NSW”), the most populous jurisdiction with the largest number of real estate profes-

• sionals. Although one may expect that the general framework

may be similar in other states, specific advice should be sought regarding the norms outside of NSW itself. Responsibilities Real estate professionals in NSW act for the seller, in the capacity of agent. They owe a professional duty to the seller, as client. This is the case even if the agent is retained by a potential purchaser of a property. If the agent is a member

• f the Real Estate Institute of New South Wales, an additional

professional duty is owed to the Institute. Membership of the Institute is not compulsory. Once retained, real estate agents are subject to the duties and obligations arising from an agency relationship, for example, a duty to avoid any conflict of interest. The standard of care which the real estate agent is expected to show towards the client is that of a general agency relation-

• ship. It is not considered to be a special category, such as

lawyer to client, where a higher standard of care is imposed. Compensation Compensation of real estate agents in NSW has been dereg-

• ulated. Generally, compensation is paid on a “percentage of

transaction value upon completion” basis, but as a result of deregulation, it is now entirely negotiable. Generally, the agent and seller establish fees at the time they enter into a written contract which signifies the commence- ment of the agency relationship. There are several types

• f agency contracts available and it is advisable that each

agreement is carefully considered to determine the extent and nature of the agent’s contractual obligations. Responsibility for payment of an agent’s compensation can

• nly arise out of a specific contractual agreement made in

writing between the parties. Typically, the seller is responsible for payment. The incidental expenses associated with a sale

• f property, for example, advertising and signage costs, may

be borne by either the seller or the real estate agent, as determined by the agency contract. Regulation—NSW Real estate brokers (called real estate agents) in NSW are currently regulated through a system of compulsory licensing under the Property, Stock and Business Agents Act 2002 and the Property, Stock and Business Agents Regulation 2003. Property, Stock and Business Agents Regulation Property, Stock and Business Agents Regulation The Act, which came into effect in 1 September 2003, seeks to modernise the NSW property industry by imple menting competency based licensing requirements, mandatory professional indemnity insurance and rules of conduct, and compulsory continuing professional development as precon- ditions to continual licensing. These reforms are aimed at increasing the competency of agents, improving consumer protection levels, and reducing the regulatory burden on the industry. Driven by strong consumer protection objectives, the Act and supporting regulations introduce the following measures to regulate agent conduct: (a) requiring that all agency retainer agreements must be in writing, signed and in conformity with the legis- lation as preconditions to the agent being able to claim commission or brokerage; (b) introduction of a requirement to keep a register of bidders for auctions and limiting vendor bids to one bid; (c) prohibiting misleading advertising in relation to the estimated commencement price at an auction; (d) introducing a requirement that all benefits received by a license holder be disclosed in agency agree- ments; (e) introducing disclosure requirements where agents provide general financial advice to purchasers; (f) allowing for standard agency agreements to be prescribed, introduction of a cooling-off period for agency agreements and requiring that consumers be provided with an information booklet before entering into the agreement; (g) maintaining a compensation fund to provide consum- ers with compensation in the event of defalcation of

8 a licensee, and extend the application of the fund to persons whom the consumer reasonably believed to be licensed; In respect of the disclosure of benefits and interest require- ment, agents are required to disclose in agency agreements all benefits they will receive from third parties, such as commissions, rebates and discounts. Agents are also required to disclose any personal interest they have in the property transaction. Where agents provide general financial advice as an incidental part of selling real estate, they are required to comply with requirements similar to those applying to the provision of general investment advice. This will include warnings that the advice is general advice which does not take into account the purchaser’s individual circumstances, warnings that the person should consult an appropriately licensed finan- cial adviser with respect to any proposed investments and disclosure of any conflicts of interest. The Act provides for a compensation fund to protect consum- ers who suffer loss because of an agent’s failure to account for money or property received on the consumer’s behalf. All licensees and on-site residential property managers and caretaker managers are required to contribute to this fund. Claims against the fund can be made if the person respon- sible for the losses is a licensee or an employee of a licensee and in cases where a consumer suffers financial loss through dealing with a person who they reasonably believed to be licensed. In the case of property valuations and appraisals, the registra- tion and function of real estate valuers in this area will continue to be regulated by the Valuers Registration Act 1975. Valuers Registration Act Valuers Registration Act Regulation in Other States Similar licensing schemes have been established in the

• ther States to regulate real estate brokers operating in

those jurisdictions. It is anticipated that the new initiatives introduced in the NSW Act will soon be incorporated into the regulatory systems which exist in the other States. Legislative change has already occurred in the Australian Capital Territory, with the introduction of the Agents Act 2003. In other States, the current regulatory systems established under the following legislation are expected to change in line with the NSW and Act initiative:

• Property Agents and Motor Dealers Act 2000

(Queensland);

• Land Agent Act 1994 (South Australia);
• Estate Agents Act 1980 (Victoria; and the
• Real Estate and Business Agents Act 1978 (Western

Australia). AUSTRIA Responsibilities Real estate professionals in Austria may work for either party in a sale or lease transaction. Typically, the advisor acts in a broker (agency) capacity. The primary responsibility of the real estate agent is to its client, but the agent is obliged to

• bserve professional diligence in its contacts with other
• parties. The broker holds a duty of loyalty to the client and

must keep confidential those aspects of the engagement which the client specifically directs. Compensation Normally in the sale and purchase of real property, compen- sation of brokerage professionals is a percentage of the value of the transaction, with the percentage often reduced in stages for transactions of higher value. A fixed fee is permitted by specific agreement. It is especially important to note that the stated compensation, whether calculated as a percentage or a fixed fee, is expected to be paid by each party to the transaction (i.e., where a brokerage professional is involved on behalf of each party, each would be required to pay a full fee to its broker). A retainer or minimum payment dependant on success- ful completion of a transaction is not permitted, other than the reimbursement of actual expenses if this has been

• agreed. Nonetheless, the real estate broker ordinarily bears

inci dental expenses. With regard to leases, by practice the landlord will establish with its broker whether the broker will seek compensation

9 solely from the prospective tenant, solely from the landlord,

• r from both of them. Where compensation is to be sought

from the tenant, the landlord’s agent will only disclose the identity of the property available for lease after the tenant has undertaken to pay the agent’s compensation in the event

• f a completed transaction. Once again, the general practice

is for the compensation to be calculated as a percentage of the value of the lease commitment. If a broker’s performance is poor, the broker’s code (“Maklergesetz”, enforced since June 1, 1996) enables the Court to reduce the rate of commission. The court has enforced this law on one occasion where, after completion

• f a sale, it turned out that a specific trade licence which

was lacking was needed for the proper use of the property. The court held that the broker should have investigated this aspect, regarded his or her performance insufficient and reduced his or her commission from what was agreed before. Brokers are required by law to fix in writing beforehand the compensation rate that will be applicable to the engagement. Accordingly, there should not ordinarily be a case where an

• bligation arises in which compensation is required of a prin-

cipal without a specific contractual obligation with the broker. There is case law, however, indicating that licenced brokers always work for consideration, so that even if no specific contract exists the licenced broker will be entitled to “reason- able” compensation. If the potential purchaser/tenant is a consumer, i.e. if the contract being solicited is a consumer contract, the broker is obliged carefully to inform his or her client of all expected costs arising out of the transaction (taxes, notary costs, etc., and his commission). The Austrian Consumer Protection Act grants a consumer who has entered into contractual obligations with regard to real estate on the day when he or she inspected the object for the first time (and provided that the object in question was intended to serve his or her family’s “urgent accommodation needs”) a right to cancel the contract within one week. Such termination will include the broker contract, thereby eliminating the broker’s claim for his or her brokerage fee, as well. Regulation Real estate brokers in Austria must be professionally licenced in accordance with the Trade Code (“Gewerbeordnung”). National regulations govern the conduct of real estate brokers: the Regulation on Real Estate Brokers (“Immobilienm aklerverordnung”). For consumers, the Consumer Protection Act (“Konsumentenschutzgesetz”) and the Broker’s Code (“Maklergesetz”) contain additional protective rules. BELGIUM There are two major types of professionals involved in the real estate industry in Belgium: the notaries (“Notaires/ Notarissen”) and the real estate professionals or consultants (“consultants immobiliers/vastgoedkonsulenten”). The notaries are public officials appointed by the King who are vested with the monopoly to enact notarial (“authentic”)

• deeds. Notaries are key persons in the real estate market:

all deeds of sale relating to real estate and all leases exceeding nine years must be enacted by a notary in order to be enforceable against third parties. Besides this “official” function and the related legal counseling, notaries also pro- vide services which are concurrently offered by real estate professionals, such as brokerage, including advertising and

• ffering properties for sale or lease and expert evaluation.

These activities, however, are usually carried out by real estate professionals, in particular when relating to business

• ffices or facilities, as opposed to residential properties, or

when very specific requirements are imposed by the client. Real estate professionals also advertise administrative and legal capabilities, but these capabilities substantially vary from one professional to another. The assistance of a notary will often be sought for legally sophisticated transactions. In accordance with a traditional division of services, real estate professionals can perform four different kinds of activities: (i) real estate brokerage: finding a contracting party to a proposed sale or lease agreement; (ii) real estate manage- ment: managing common parts of a property; (iii) property stewardship: managing a property on behalf of the agent’s principal; and (iv) property expertise or evaluation: evaluating properties, damages to properties, etc. Except for the major

10 real estate agencies, real estate professionals usually offer

• nly some of the above services.

There are a number of more secondary service providers in the real estate industry, not covered by the name “real estate professionals,” e.g., chartered surveyors and real estate

• developers. The present survey does not address these other

service providers, focusing instead on real estate professionals

• nly and in particular on real estate brokers.

Responsibilities Real estate brokers in Belgium may work for seller or buyer, landlord or tenant. Typically, a broker’s mission is limited to the identification of a purchaser or tenant for a property

• n behalf of its owner. A broker, however, can also be

entrusted with a so-called “research mission” or “research mandate” by a client willing to purchase or lease a property in Belgium. This responsibility usually includes a study of the relevant market. It is not forbidden to hold these two functions concurrently, that is to be representing property owners seeking purchasers

• r tenants while also having accepted mandates from clients

looking to purchase or lease property. This situation, naturally, may give rise to a conflict of interest, in particular when the professional has been granted exclusivity. However, the Code

• f Ethics, referred to hereunder, provides that an intermediary

may not accept remuneration from any source other than his client (unless it has been agreed otherwise). Real estate brokers are self-employed workers; they are not engaged in a constant relationship with their clients. They typically do not have the power to act on behalf of their

• clients. Nonetheless, it is not unusual to have the real estate

brokers entrusted with the power to sign the compromise, which will bind the principal. In the latter case, the real estate broker enjoys actual powers of attorney. In the former case, the real estate broker is only a service provider. The exact qualification and extent of the responsibilities depend upon the terms of the agreement. There is no standard agreement and practices vary from region to region and even from broker to broker in the same region. Until 1993, real estate professionals were not subject to any specific ethics or binding code of conduct other than general civil code rules on contractual liability and torts. At that time, the Royal Decree discussed in the Regulation section below provided for the creation of a Belgian Institute of Real Estate Brokers (the “Institute”), which was formally established in 1995 and which is responsible for defining the professional duties and ethics of real estate brokers. Article 5 of the Royal Decree provides that real estate brokers must comply with the ethics rules established by the institute, namely that they are bound by a professional secrecy obligation and are personally liable for their professional activities. Detailed

• bligations have been worked out by the Institute in its code
• f ethics (“code de déontologe/puchtentes”), the “code
• f ethics” that has been approved by the Royal Decree of

September 28, 2000. The Code of Ethics, mandatorily applies to all real estate brokers whose activities are regulated by the 1993 Royal Decree (as discussed below). It describes the obligations

• f the real estate brokers both toward principals and other

clients, colleagues and other service providers in the real estate industry. It also provides that the professional must respect the confidentiality of the client in his or her dealings, that the broker must have professional insurance, obtain bank guarantees for any moneys held on behalf of third parties and that he or she has to participate in a minimum number of hours of professional development per year. The

• bligations contained in the Code of Ethics are further devel-
• ped and completed in guidelines issued by the Council of

the Institute. These guidelines are subject to approval by the Ministry responsible for independent entrepreneurs. Compensation As a matter of principle, real estate professionals are entitled to remuneration for their services, whatever the nature or extent of such services. As far as real estate brokers are specifically concerned, it is usual to provide that they are entitled to remuneration (usually, a decreasing percentage

• f the transaction value) either when a contracting party has

been identified or, more often, at the signing of the compro-

• mise. It is unusual (although it is the safest way to proceed in

case of real estate sales) to have the commission payable at the execution of the notarial deed, which mandatorily has to take place within four months following the signing of the

• compromise. When a broker has been granted an exclusivity,

he or she is usually entitled to an indemnity if a transaction

11 has been concluded, without his or her assistance, during his

• r her exclusivity period.

In practice, compensation depends upon the transaction. The Institute has drawn up a list including a minimum quote for all major types of assignments, which takes into account the difficulties and responsibilities incurred by the profes-

• sionals. The price list is based on standard services and

normal expenses. Additional responsibilities will normally entitle the professional to a fee increase. For example, the quotes comprise “usual” advertising only. Travelling costs are included within certain thresholds. Above these thresh-

• lds they are generally added and calculated on the basis of
• fficial tables.

This price list, however, is not binding and constitutes a recommendation only. However, the Institute may decide that fees that are abnormally high or low, without an objec- tive justification, are contrary to the dignity of the profession. Although different formulas may be applied, the Institute’s price list is generally considered as a reliable source to set the cost of a potential project. In summary, notwithstanding the fact that the fees are freely negotiable, real estate profes- sionals tend to apply rates that are in line with the quotes of the Institute’s price list. Local customs, however, sometimes qualify the above statement. The fees furthermore need to be determined in writing between the real estate broker and his client. The principal is responsible for the payment of its agent’s

• fees. This is usually the potential seller or landlord. The poten-

tial purchaser or tenant is, on the other hand, responsible for fees ensuing from a “research mandate”. Typically, this issue is dealt with in the agreement between the client and the real estate professional. Regulation Until 1993, neither real estate professionals nor secondary service providers were specially regulated at all. Real estate professionals operated without any specific professional liability and under no binding code of conduct. The Royal Decree of September 6, 1993, with regard to the protection

• f the professional title and the exercise of the profession of

real estate broker, (the “Royal Decree”), which entered into force on October 13, 1993, has partially filled this gap. The Royal Decree is directed at real estate brokers, real estate managers and property stewards only (together, “Real Estate Brokers”); therefore so-called real estate experts fall outside the scope of the Royal Decree. Real estate experts are, accordingly, still not subject to any specific regulation, unless they perform other services subject to specific regulations (e.g., as chartered surveyors). Article 2 of the Royal Decree stipulates that all real estate brokers must be registered. In order to be registered, a candidate must evidence adequate professional experience

• r an advanced education degree. There is no similar obli-

gation for other real estate professionals not subject to the Royal Decree, in particular real estate experts. The only regulations presently applicable to real estate professionals are the Royal Decree implementing the Framework Law referred to above concerning real estate brokers, the Royal Decree of February 17, 1995, regarding the incorporation of the Belgian Institute of Real Estate Brokers and the Royal Decree of September 28, 2000, holding the approval of the code of ethics of the Belgian Institute of Real Estate Brokers. In accordance with Article 3 of the Royal Decree, the regulation is applicable only to those profes- sionals, acting as self-employed persons, who perform, for the account of third parties, (i) brokerage activities with a view to the sale, purchase, exchange, lease or transfer of real estate, immovable goods or on-going businesses, or (ii) activ- ities of an estate administrator or properties manager. These professionals are called “Real Estate Brokers”; they enjoy a monopoly on the use of this name (protected profession). No

• ther real estate professionals are presently subject to any

specific binding regulations, whether national, regional or

• local. They remain subject, however, to the general provisions
• f the civil code and other non-specific pieces of legislation.

BRAZIL Responsibilities The new Brazilian Civil Code (Law No. 10.406 of January 10, 2002) has been in force since January 11, 2003. Articles 722 to 729 regulate real estate brokers’ contracts. Pursuant to article 722 of the new Code, under a brokerage contract

12 a person not associated with another under an agency, services agreement or any other relationship, enters into an

• bligation to obtain for the second person one or more deals

according to instructions received. In Brazil, real estate brokers may work for either party to a proposed real estate transaction. The engagement, while contractual, may be in written or oral form. Before the Civil Code was enacted, there was no specific legislation govern- ing the brokerage contract. This meant disputes concerning brokerage agreements typically have been resolved using general contract principles. While the new Brazilian Civil Code now regulates brokerage contracts, the brokerage profession is regulated by the Law 6.530 and Decree 8 1.871 enacted in 1978. The real estate broker acts as an independent interme diary. The exclusive object of his or her role is to bring supply and demand together; responsibility for forming the con- tract is that of the principals. Nonetheless, the real estate broker may sometimes be charged with other parallel tasks incidental to the broker’s performance as a business intermediary, by direct arrangement with the client. The broker may be appointed, for instance, as attorney-in-fact to discuss conditions of the business, to grant or receive corresponding contract documents, to receive the price or to give discharges. In this event, the real estate broker may act in the name and interests of the client, that is, as attorney- in-fact as well as broker. A broker has professional obligations to the person with whom he or she contracted and must act with diligence and loyalty. Article 723 of the new Code further establishes that the broker must provide the client with all information in respect of the progress as well as of risks of the transaction, under the penalty of being liable for losses and damages. To the same effect, Article 20 of Law No. 6.530 provides that a broker (i) shall not damage, by deceitfulness or fault, the interests entrusted to the broker and (ii) shall not breach pro- fessional secrecy. At the same time, the broker must act in good faith to the parties he or she brings together. Real estate brokers also have certain ethical and professional duties to the bodies that represent them: the Federal Council (headquartered in Brasilia) and the local Regional Council of Real Estate Brokers (each such council located in the capital of the State where the regional council acts). The Federal Council has legal authority to establish rules of professional ethics for real estate brokers. Additionally, the real estate broker is subjected to directive

• No. 304/03 issued on February 21, 2003 by the Internal

Revenue Services. This directive created the DIMOB, a form

• f information on real estate transactions. The DIMOB must

be completed and submitted annually by businesses such as constructors, developers, brokerage offices and real estate management companies. The mentioned businesses shall state all lease and purchase and sale transactions carried

• ut by them, and identify the parties and the amount involved

in the transaction, as well as the amount received for the relevant service. Compensation A real estate broker is entitled to receive compensation, known as “corretagem” (brokerage) or “comissão” (commis- sion). Pursuant to article 724 of the new Code, if not provided in law nor agreed between the parties, the compensation of the broker will be arbitrated according to the nature of the transaction and local practices. Usually, the real estate broker receives his remuneration as a percentage of the value of the transaction on the closing date. Special incentives are sometimes agreed as well, such as an over price (bonus) payable by an owner when a price is achieved beyond levels established by the client. It is common to specify the real estate broker’s remuneration in advance by contract. By practice, the fee should take into consideration the level of difficulty of the assignment, as well as the expected value of the resulting transaction and

• ther relevant factors. The bodies representing real estate

brokers have established tables for the activities of such professionals, which are adopted as guidelines for brokerage compensation. The brokerage contract is an aleatory contract, meaning that it depends upon the conclusion of the object of the contracts (a completed transaction) in order to give rise to a payment

13

• bligation. Accordingly, the broker is at risk for loss of time

and expenses if his or her efforts do not result in success. Brazilian courts acknowledge, however, that a broker may be entitled to an indemnity for certain expenses, particularly those incurred directly for the client. A broker will not nor- mally be reimbursed, however, for overhead or other general expenses inherent to the brokerage business. Once again, prudence dictates that the engagement contract clarify the exact allocation of expenses between client and broker. The prevailing understanding in Brazil is that the broker’s fee must be paid by the person who contracted with the broker. It is important to note, however, that if a broker has performed his or her obligations but the transaction fails to take place due to the fault of one of the parties, the guilty party (whether

• r not the client of the broker) will be responsible for payment
• f compensation. Brazilian courts register numerous claims

relating to such litigation. Regulation Law No. 6.530 regulated by Decree No. 81.871, which regulates the real estate brokerage professional in Brazil, provides that the profession may be practiced only by persons who are Technicians in real estate transactions and who are enrolled with the Regional Council of Real Estate Brokers in the state where they act. In the case of a legal entity acting as an inter- mediary in real estate matters, the company must have, as a partner, manager or director, a real estate broker individually enrolled with the Regional Council of Real Estate Brokers. In

• rder to gain the designation of Technician, the broker must

attend a specific course, albeit of short duration, offered by the Regional Council of Real Estate Brokers. Prior to the new Brazilian Civil Code, it was only Law No. 6.530 and Decree 81.871 that regulated brokerage. Now, with the new Code, the brokerage contract is also regulated. The No.6.530 Law and Decree 81.871 above mentioned limited the brokerage profession solely to those able to provide evidence of moral fitness and of residence in Brazil for ten years, whether or not Brazilian citizens. The current law does not establish residence or similar restrictions, which might

• therwise limit the ability of foreigners to engage in brokerage

services in Brazil. Resolutions and Administrative Rules issued by the Federal Council and Regional Council of Real Estate Brokers are still in force establishing rules of an administrative, ethical and disciplinary nature, since the new Civil Code does not exclude the applicability of the other rules

• f special legislation.

CANADA The laws, customs and practices with respect to real estate brokerage in Canada are largely specific to the individual

• Province. The following commentary has two components: (i)

customs and practices in the Province of Ontario and (ii) cus- toms and practices in the Province of Quebec. Although the situation in other Canadian Provinces may be most similar to that in Ontario, specific professional advice should be sought with respect to variations in effect in the individual Province. Province of Ontario Responsibilities Real estate brokers in Ontario may work for either party in a sale or lease transaction, but normally they work for the seller or landlord. There is a “multiple listing ser- vice” (“MLS”) Trademark of the Canadian Real Estate Associations under which a property may be listed for sale through the MLS to all participating brokers who are members of a local real estate board. In that case, the seller retains a broker who lists the property in the

• system. If the property is sold by a broker (the “Selling

Agent”) other than the listing broker, then the Selling Agent and the listing broker share the commission. The Selling Agent is not necessarily the agent of the owner and may, in fact, be retained by and work for the buyer. Real estate brokers act in an agency capacity. The broker owes a primary duty to the party who retained him

• r her. The listing agent has a duty of loyalty and con-

fidentiality to the owner. The broker may owe duties to

• ther parties in the transaction as well. For example, the

Selling Agent retained by the buyer must not deceive or mislead the seller. Beyond this, the Selling Agent may, in some circumstances, have no fiduciary duty to the owner.

14 Compensation Generally compensation is a percentage of the price or rent, payable only upon successful completion of the

• transaction. The seller or landlord customarily pays the

broker’s compensation, subject to sharing in the event

• f multiple brokers as specified above. Responsibility

for compen sation may arise without an express contract, as a matter of restitution or implication, in certain circumstances. Incidental expenses are typically borne solely by the

• broker. If abnormal restrictions are placed on the broker,

such as exclusions to the contract affording no com- mission in the event of sales to named persons, then by agreement the client may have to reimburse expenses. Regulation The brokerage profession in Canada is controlled by Provincial law and regulation. In Ontario, real estate brokers and sales persons are required to be professionally licenced. A broker may lose the right to a commission under an other wise binding contract if he

• r she contravenes or fails to fulfill particular obligations

under the Real Estate and Business Brokers Act (Ontario) (“REBBA”), such as being registered and disclosing certain information. Province of Quebec Responsibilities While real estate brokers in Quebec may act for any party granting a mandate or instruction, it is most typical for the broker to represent a seller or landlord in prop- erty transactions. Brokers have a range of traditional responsibilities on behalf of the client. Engagements typically begin with the identification of a range of

• ptions available to the client with respect to its prop-

erty and to procure a mandate or instruction from the client to proceed. An investment analysis (marketing brochure) may be prepared, and advice is often rendered with respect to market trends including the assembly

• f specific property data. The broker may gather nec-

essary documents for closing, provide limited advice with respect to finance, and facilitate negotiations as an intermediary. Compensation Compensation is ordinarily a percentage of transac- tion value. The percentage is negotiated and fixed at the point of signature of the mandate, but is paid only in the event of completion of the transaction. While the historical practice was for the compensation payment to be funded from the proceeds of closing, recent market conditions have often resulted in the cash component of transactions being minimal. Accordingly, brokers may be expected to negotiate as to the source of payment of the eventual commission. Incidental expenses are the responsibility of the broker except in unusual circumstances such as where the cli- ent has not prepared the property for sale and extensive effort must be invested by the broker prior to marketing. Extraordinary travel may also be the subject of separate arrangement, with the client approving reimbursable travel expense in advance. The mandate itself determines who is responsible for payment of the broker’s compensation. Most frequently, the seller will pay the fees due its broker acting to sell the property. Investors may engage a real estate broker to act in identifying and acquiring properties for purchase, in which case the broker is compensated by the purchaser. Regulation The regulation of real estate brokers in Quebec is effected by the Association des Courtiers et Agents Immobiliers du Québec (“ACAIQ”). Any person wishing to pursue the activity of real estate broker or use the title

• f real estate broker must obtain a real estate broker’s

certificate from the ACAIQ. Since there are no reciprocity agreements between Quebec and the other provinces

• f Canada, should a Quebec real estate broker wish to

sell a property in Ontario, for example, such broker will be required to either obtain a real estate broker’s registra- tion to act in Ontario or act through a broker registered in such province.

15 CHILE The real estate brokerage profession in Chile is largely unreg-

• ulated. It is noteworthy that any Chilean or foreign individual

is free to operate as a real estate broker in the country. Responsibilities Real estate brokers in Chile are independent profes sionals, not employees or agents of the parties. They may be engaged by either seller or buyer, landlord or tenant. Brokers

• we a professional duty only to their clients; an obligation
• f loyalty or confidentiality is generally accepted to be an

aspect of such a relationship. The arrangements between client and broker are not the subject of separate legislation and, as a result, are governed by the provisions of the Civil Code relating to contracts of

• mandate. Article 2116 of the Civil Code reads: “The mandate

is a contract under which a person entrusts the handling of

• ne or more business deals to another, that accepts them for

the account and at the risk of the former”. The person confer- ring the trust is known as the constituent or principal, while the person accepting it is the attorney-in-fact, procurator or, generally, “attorney”. Compensation The broker’s commission is determined by mutual consent

• f the parties. There is no official regulation governing fees
• r other charges made by real estate brokers. In the case of

sales, the usual commission is a percentage of the price. The amount determined by this formula is payable by both the buyer and the seller. In the case of leases, the norm is for the tenant to pay a commission. Both commissions and percent- ages are negotiable and flexible. The commission obligation matures when the mandate or sales and purchase orders from the parties involved have been created. Expenses incurred during the engagement are ordinarily paid by the broker, for as long as the broker has an exclusive mandate for the sale or lease of the property. If the mandate is subsequently given by the owner to another broker in exclusivity or otherwise such expenses are collectable from the owner. Regulation Real estate brokers in Chile are not subject to licensing

• r other professional qualifications or requirements. The

conduct of brokers is subject to the provisions of the general Civil Code regarding mandates and to the provisions of the Commercial Code regarding commercial transactions. PEOPLE’S REPUBLIC OF CHINA Introduction The real estate brokerage business in China is in its devel-

• pmental stages. The Chinese real estate industry itself is

relatively new, emerging from what was once a planned economy which has since transformed into a rapidly evolving “socialist market” economy. China’s real estate brokerage business is primarily regu- lated as a form of real estate intermediary services that also include real estate consulting and appraisal. Regulators of the real estate brokerage industry include: the State Ministry

• f Construction, the State Administration of Industry and

Commerce (and its local branches), and the local real estate administrative departments and pricing bureaus. National regulations governing the real estate brokerage industry include the Urban Real Estate Intermediary Services Administrative Regulations (“Intermediary Regulations”), the Notice on Real Estate Intermediary Services Fees (“Fees Notice”), and the Brokers Administrative Measures (“Brokers Measures”). These national regulations are supplemented by local regulations on brokers, real estate intermediaries

• r real estate brokers. None of these regulations appears to

distinguish between commercial and residential real estate. As current Chinese law permits foreign investment in the real estate brokerage business, many foreign-invested real estate brokerages have been established and operating in China, either as wholly foreign-owned enterprises, as Sino-foreign joint ventures, or through representative offices that provide liaison services. In respect of the subject matters touched upon in this survey, the following discussion pertains to the generally applicable

16 Chinese regulatory framework which is still fast-developing and may be subject to constant changes, variations and

• exceptions. Thus, the discussion is not meant to be compre-
• hensive. In respect to specific issues or

inquiries, detailed and fact-specific legal consultation should be obtained. Responsibilities Depending on client needs, real estate brokers in China may represent sellers, buyers, landlords or tenants, though a broker’s representation must be through and in the name

• f one (but only one) professionally qualified and registered

brokerage. A broker’s representation of a client must be evidenced by a written contract signed by the brokerage that employs the

• broker. In Shanghai, an important Chinese real estate mar-

ket, the contract must also be signed by the broker and be identified by the broker’s professional qualification certificate

• number. Even so, only the brokerage (and not the broker)

may be held directly liable for breach of brokerage contract and resulting damages. The brokerage, however, is expressly authorized to seek indemnification from the responsible broker. The brokerage contract itself must include certain terms, such as details of the services to be provided and their performance standards, contract term, amount, method and timing of payment of commission, and dispute resolution

• mechanism. While not legally mandated, in significant real

estate markets such as Shanghai and Beijing, substantial adoption of standardized form brokerage contracts devel-

• ped by the local regulators appears highly encouraged. In

addition, once a brokerage contract becomes effective, certain information about it is required to be on file with the relevant local authorities. A broker generally provides brokerage services to clients by ways of an intermediation contract or an entrustment

• contract. In the former case, the broker would almost always

serve only as an information provider and trans action facili- tator and rarely has any authority to bind the clients. In the latter case, the broker would generally act as the clients’ agent with limited authority to assume binding obligations

• n the clients’ behalf. Note, however, under Chinese Contract

Law, unless definitive evidence exists to the contrary, a contract between an entrusted agent and a third party within the scope of entrustment legally binds the entrusting prin- cipal if (1) the contract is concluded in the name of the agent and (2) the third party knows the entrustment arrangement between the entrusted agent and the entrusting principal. In performing services, real estate brokers are bound by the general principles of equality, free will, fairness, honesty, and integrity and the general prohibitions against concealment of material facts or commission of fraud. Real estate brokers’ professional duties include maintenance of con fidentiality, loyalty to clients, avoidance of conflict of interests (particularly upon the client’s request), and safe- keeping of advances or other assets entrusted by the clients. These duties are based on regulations, local professional codes of conduct, and the terms of the brokerage contracts. Given, however, that enforcement of these duties varies widely from locale to locale within China and may well be sporadic and inconsistent at best, these duties by themselves shall be no substitute for careful selection of brokers with well- established records of integrity and judgment. Chinese regulators at both the national and local levels are in the process of attempting to establish information deposi- tories that record and rate, or even publicize, credit histories

• f real estate enterprises and practitioners alike, including

real estate brokerages and brokers. Some local brokers asso- ciations might establish a similar system as well. Compensation Compensation for real estate brokers’ services is in the nature of commission the cap of which is set by regulations, depending on the type of transactions involved (i.e. lease or sale). For a lease transaction, irrespective of the lease term, brokerage commission shall generally be a percentage of

• ne month’s rent. In respect of a sale transaction, brokerage

commission shall be a percentage of the transaction price and, subject to negotiation, could be further increased to a higher percentage of the transaction price if the brokerage arrangement is exclusive. Within China’s special economic zones, brokerage commission could be charged up to 30% higher than otherwise permitted by regulations applicable to areas outside of such zones.

17 Within these regulatory limits, the nature, amount, timing (usually upon successful conclusion of a transaction), and method of calculating and paying real estate commis- sions are generally subject to negotiation by the parties and are typically provided for in a written contract. To mini- mize misunderstanding, brokerages are required to display conspicuously at their places of business or places

• f accepting payments details of commission schedules,

listing, among other things, the types and scope of services available, and the formula and standards for calculating

• commission. In addition, before a brokerage relationship

is formed, brokers are also required to initiate discussion

• f this subject matter with prospective clients. Violation of

commission-related regulations could give rise to adminis- trative penalties, or, if warranted, be referred for criminal prosecution. Unless otherwise agreed, a brokerage commission incurred pursuant to an intermediating contract should generally be shared by the parties of a successfully brokered and com- pleted transaction. Even though under Shanghai regulation the entrusting party must pay the commission, in practice, it is not uncommon for both parties to compensate brokers. In the absence of any contract provision on commission or in the case of any ambiguities, the parties could either jointly amend the brokerage contract and come to an agreement,

• r resolve any commission dispute based on other provi-

sions of the contract or commonly used methods for similar contracts or prior practices of the parties. In the absence of such agreement or resolution, the broker’s labour shall be appropriately compensated based on multiple factors. As only the brokerage is a party to any brokerage contract, it (rather than the performing broker which it employs) is entitled to any commission. Receipt of the commission must be evidenced by a written instrument (or “fapiao”) on account

• f which the receiving brokerage must pay relevant taxes.

Subject to agreement otherwise, the performance of an entrustment contract, by itself, could give rise to commission (unless the broker is at fault). For an intermediating contract, however, there will be no commission unless a transaction is successfully brokered and completed. In an entrustment context and subject to agreement other- wise, the entrusting principal shall be responsible for the incidental expenses incurred by real estate brokers. In an interme diating context, brokers are entitled to request for reimbursement of necessary expenses only if the transac- tion is not successfully concluded and are not so entitled if a transaction is successfully brokered and completed. In practice however, expenses are reimbursed only pursuant to specific provisions of brokerage contracts for significant activities such as conducting detailed market research, designing and implementation extensive marketing strategies,

• r long-distance travel.

Regulations Professional qualifications and registration with the relevant authorities are both required in order for either real estate broker or brokerage to engage in the brokerage business. A real estate broker could practice either with Practicing Qualification (“PQ qualification”) or with Practicing Assistant Qualification (“PAQ qualification”), with the PQ qualification required for taking any key position within, or establishing, a real estate brokerage. In order to obtain the PQ qualifi cation, brokers are required to pass a uniform national examination, register with the relevant construction or real estate authorities, and obtain a practicing registration certificate. To gain the PAQ qualification, only a locally administered examination is

• required. Pre-requisites for taking the PQ qualification exami-

nation include certain education attainments, professional work experience, and, after 2005, qualification as a PAQ real estate broker. The real estate PQ qualification certificate is valid all over

• China. The real estate PQ qualification registration certificate

is valid for three years and its renewal requires proof of con- tinuing professional education and training. The real estate PAQ qualification certificate is, however, only valid locally. Both Chinese citizens with at least high school education and qualifying foreign nationals are permitted to take the PAQ examination. Real estate intermediaries engaged in consulting services

• r appraisal services (and particularly, those holding out

as Professional Appraisers) are subject to independent and additional national or local examination, professional qualification, and registration requirements. All real estate intermediaries (including brokers) are subject to an annual

18 inspection the failure of which could, under certain circum- stances, impact upon the professional qualification status of the brokerage that employs the intermediaries. In order to engage in the brokerage business, a real estate brokerage must obtain a business license and file with the relevant local real estate department. In Shanghai, the filing is valid for two years. To obtain the business license, the brokerage must meet a minimum assets test and have a sufficient number of professionally qualified and registered practitioners, depending on the corporate form of the broker- age and its scope of business. At a minimum, a real estate brokerage in the form of a company or a partnership is required to have five professionally qualified and two regis- tered real estate brokers. Engagement in real estate brokerage or other intermediary services without the requisite professional qualifications or registration by either brokerage or broker could result in civil penalties (such as warning, order to comply, order to cease business, monetary penalties, confiscation of illegal gains,

• r revocation of professional qualification) or criminal

prosecution. THE CZECH REPUBLIC Introduction Since the change of the political and economic regime in 1989, the Czech Republic has undergone many changes. One

• f these changes has been the development of professional

and legal regulations relating to real estate brokerage. Legal regulations of real estate brokerage have become more professional and specialised. According to Czech laws, a real estate broker must obtain a licence from the local Trade Office but as no specific qualifications are required the quality of service to clients may vary. Contractual regulations between brokers and clients are based on General Civil and Commercial law. In addition, real estate agencies and individual brokers voluntarily have formed several professional associations that determine certain rules of conduct governing the brokerage

• practice. Most of these rules are derived from the principles
• f General Civil law, which have been adapted to cover the real

estate sphere. Responsibility Real estate brokers can work for any party—the seller, buyer, landlord or tenant—depending on who hires them. For example seller and buyer may each have its own broker but it is possible for one broker to act for both parties. The relationship between the broker and his or her client is mainly based on brokerage contract regulation included in the Civil Code and the Commercial Code, the broker’s role being to bring the parties to the conclusion of the contract. This type of contract is predominantly used for a single transaction but may also be used as a retainer for multiple

• contracts. Brokers may also act as agents on the basis of a

mandate contract i.e. the broker may act in the client’s name and on the client’s account. Legal regulation of both contractual types—brokerage and mandate—is limited and rather general, allowing the parties the freedom to agree what they wish. There is no prescribed written form of contract. It is not the broker’s responsibility to ensure that the third party actually enters into the contract but he must discourage the client from entering into a contract with a person if he knows (or should know) that there is a possibility such person will not properly fulfil his contractual

• bligations. If the broker is asked, he must disclose to the

client the information necessary to determine whether the third person is reliable. In the contract the parties can agree that the broker will be liable for the fulfillment of the obliga- tions by third person. Real estate agencies tend to develop their own standard terms and it is advisable for the client to include as part

• f such contract what the client considers important, for

example the obligation to act exclusively for the client, to keep confidentiality. A written form of contract is particularly important to avoid any doubts about the terms of compen- sation payment. Although a broker (as well as an agent) is assumed to work for his or her client, it is usual that in the final stages of con- cluding the contract the broker acts for both sides. This is

19

• ften the case when only one of the parties has a broker.

Such practice is not prohibited in a brokerage relationship, but it is not in compliance with a mandate relationship. Ethical rules of the real estate broker’s associations try to fill gaps in legal regulation. The rules require that the broker shall act in a professional way, shall not in any way harm the client’s interests and shall not misuse his or her position to the detriment of the client. The rules also stipulate that the broker shall not disclose confidential information about third parties, even after termination of the deal. The broker shall co-operate with other brokers, behave politely and in a collegial way. The broker should not, without the consent of the client, mediate business for him or herself, or for members

• f his or her family or relations. In case of violation of the obli-

gations provided by such rules, a fine may be imposed on the broker. The fines vary from admonition to exclusion from the association. Although there is no legal duty to act with professional care, this is required by the professional ethical code of conduct

• f the real estate associations.

Compensation Clients and real estate brokers are free to agree upon the amount and terms of the compensation to be paid. There are few legal provisions in the sphere of contract law and no regulatory requirements concerning any aspect of compen- sation other than that neither party may act in bad faith and that the exercise of a right which is not in compliance with honest business principles is not protected by law. The latter principle may apply, for instance, to the inadequacy of fees. According to the Commercial Code, the brokerage and mandate contracts are contracts for value (i.e. the broker is entitled to compensation when the contract is concluded). In the event that the amount of compensation has not been agreed, the broker is entitled to compensation customary at the moment of the conclusion of the contract. The broker is not entitled to compensation if the contract was concluded without his or her assistance or if he or she also acted for the

• ther party in violation of the agreement. Nevertheless it may

be agreed in the contract that the right to the compensation shall arise only after the conclusion of the appropriate contract with a third person. Unless otherwise agreed by the parties, compensation usually includes compensation for all costs connected with the broker’s activity, including lawyers’ fees for drafting the brokerage contract for the broker and the broker’s expenses. Compensation in the case of a sale and purchase is usually agreed as a percentage of the agreed price. The percentage received is graduated inversely to the value of the transaction. Compensation for brokerage of leases generally amounts to one or two months’ rent. In the event that the lease con- tract is concluded for a period longer than 10 years, brokers usually ask clients for similar rates as for concluding a sale i.e. a percentage of the total rent for the agreed period. Compensation is payable upon completion. However, when the transaction is agreed in principle, and before the contract is drafted, the buyer is asked to pay a certain amount of the brokers’ compensation in advance. Also, the seller may be asked to pay a certain amount to secure that he will not withdraw from the deal in the final stages. Such payments are irrecoverable if the transaction fails due to a breach by the client. Compensation is usually paid by the client requiring the ser- vices, but the parties (the buyer and the seller) often share the costs of the transaction. Brokerage agreements usually contain an exclusivity period

• f 4-6 months. In this case, a contractual penalty is often

agreed so that the expenses of the broker would be covered if the client breaches this exclusivity. Regulation Real estate brokers carry out their practice either in firms (usually a company) or individually. In both cases a busi- ness licence is required, which is issued by the local Trade Authority. No specific qualification is required, but a declaration of clean criminal record and good standing is

• necessary. Further requirements are to be met if the broker is

not a Czech national, such requirements being common for all kinds of businesses. Trade Authorities carry out inspec- tions checking the fulfillment of duties stipulated in the Trade Licensing Act and conditions governing the carrying on of a

• business. The Trade Authority may also impose fines for viola-

20 tion of the broker’s duties arising from the Trade Licensing Act or may force the broker to remedy any such violation. Brokers carrying on their business in the form of a company have to observe corporate law provisions set forth in the Commercial Code. Brokers and brokerage firms form various professional

• associations. The oldest and the largest is the Association of

Real Estate Agencies of Bohemia, Moravia and Silesia (“ARK”) which is also a member of international associations like the European association “CEPI”. There are regional associa- tions with a number of members as well, like the Association

• f Real Estate Agencies in Olomouc and the Association
• f Real Estate Agencies in the area of Plzefi. The role of

the Association is to set rules and assist the members in co-operating with their clients. It is also responsible for training and educating brokers, assisting in joint deals, setting

• ut rules for fair competition etc. Each Association issues

rules for its members, particularly ethical rules in respect

• f clients and rules on mutual co-operation. Membership of

an association is not obligatory and it is not a condition for acting as a real estate broker. Possible breach of the rules issued by an association is not an impediment for acting as a broker and a trade licence cannot be withdrawn by the Trade Authority on the basis of such a breach. DENMARK Introduction The real estate brokerage and advisory business in the Kingdom of Denmark is intensely regulated with respect to residential properties. The regulation does not apply to commercial real estate and transactions and advice pertaining to commercial real estate are not regulated at all. A broker has to be licensed in order to be permitted to use the title “Real Estate Broker”. Most real estate profession- als are licensed and registered as real estate brokers. The vast majority of all real estate brokers are members of the generally well-esteemed professional organisation Dansk Ejendomsmaeglerforening (“DE”), which has prepared a Code

• f Conduct applicable to all members of DE.

Chartered surveyors may also be found in Denmark but it is uncommon not to use brokers and therefore chartered surveyors will not be specifically dealt with in this briefing. In the following commentaries, all references are to commercial real estate unless otherwise specified. Responsibilities In Denmark real estate brokers (brokers) may work for anybody who retains their services. Traditionally brokers have worked for sellers and landlords, whereas buyers and tenants have been represented by a law firm. However, in recent years, brokers have offered a wider range

• f services and today it is not unusual for a broker to assist a

buyer or a tenant in a transaction. Moreover, potential buyers and tenants or their advisors frequently order an assessment

• f the market value of the relevant real estate from a broker,

who is independent of the seller or the landlord of the real estate in question. The Danish Act on Trade in Real Estate (“the Act”) is only applicable in relation to residential real estate and consum-

• ers. Accordingly, the Act does not cover services pertaining

to real estate to be used for commercial purposes or real estate purchased by companies. However, a broker is always required to exercise due care and to act in accordance with generally accepted brokers’ standards and, if he or she is a member of DE, with the codes of conduct imposed by DE on it’s members. Responsibilities of the broker will, of course, depend on the services requested by the client and may range from an assessment of the value of a property to a general agree- ment to assist a seller with the sale of real estate. It is customary that a written agreement is entered into between the broker and the client and normally this agreement describes in detail the obligations and responsibilities of the broker. When acting on behalf of a seller, the broker is obliged to investigate all legal matters concerning the real estate, including encumbrances, planning permissions, operational costs etc., and to advise the seller with respect to the market

21 value and the condition of the real estate, quotations, costs related to the sale, revenue of the sale, marketing strat- egy, offers from potential buyers and the consummation of the transaction. When consumers purchase residential real estate, the broker must adhere to the very detailed require- ments in the Act provided for the protection of consumers. A broker is appointed by one of the parties to a transaction. The other party may at any time engage it’s own profes- sional adviser. A broker will normally not act for both parties because a dual representation is considered to create a con- flict of interest and, in consumer relations, a broker is only allowed to represent one party in a real estate transaction. Unless one is familiar with the market conditions in Denmark, it is therefore advisable to engage a professional advisor to assist in real estate transactions irrespective of whether or not the other party has already engaged a broker. While being obliged to attend to and safeguard the inter- ests of the client, the broker is, however, also expected to be professional, objective and fair towards all parties to the

• transaction. A broker representing one party may accord-

ingly not recommend unfair terms and conditions to the

• ther party or participate in misinformation of the other party.

Thus, a certain standard of fair and professional behaviour is expected of the broker. A broker also has to treat personal and business information concerning each party as confidential. The broker is an independent service provider and is not serving in an agency capacity. Generally, the broker would not be regarded as an agent of the client and would for example normally not be empowered to accept an offer or down payments on behalf of the client. Compensation Fees are completely negotiable and are not subject to any legal or regulatory requirements. However, certain limitations apply in relation to consumers. Except for agreements with consumers, brokers are as a result free to make individual agreements concerning the nature and terms of the compen- sation to be paid for the broker’s services. When a commission agreement is executed, a provision concerning compensation is almost always included and the commission agreement will also comprise provisions relating to incidental expenses. Unless otherwise agreed, incidental expenses incurred by the broker are presumed to be included in the fee. Compensation related to a sale is usually a fee equal to a (fixed) percentage of the sale price, payable upon conclu- sion of the transaction. It is not unusual to make commission payable at the execution of the deed of conveyance. The fee is normally to be defrayed by the party enlisting the services

• f the broker. Generally, compensation is considered earned

when a transaction is concluded between the seller and a buyer introduced by the broker, and the broker has interme- diated in the transaction. There is a fairly wide range of typical percentage compen- sations, which also varies by type of real estate. If the contract between client and broker grants the broker an exclusive right of sale for a period of time, the compen- sation will be payable to the broker whether or not the sale is completed as a result of the broker’s introduction and efforts. It should be noted that, under certain circumstances, the bro- ker is entitled to compensation after the expiry of the broker’s appointment, if a sale is concluded with a party introduced by the broker. With regard to services rendered to buyers, including assessment of the value of real estate or an appointment to identify interesting properties on behalf of potential buyers, the compensation may be fixed, based on time consumed or calculated as a percentage of the value of the property. Regulation The Act governs the conduct of brokers throughout the Kingdom of Denmark. Brokers are required to be professionally licensed in order to act on behalf of consumers. Lawyers are, however, not obliged to be licensed as brokers in order to act on behalf of sellers and purchases of residential houses. In any event, a broker or lawyer has to be licensed in order to

22 be permitted to use the title “Real Estate Broker” (ejendoms- maegler). The licence is obtained by virtue of registration with the Danish Commerce and Companies Agency and granted to brokers and lawyers who fulfil certain requirements, including professional standing, and who carry malpractice insurance. With respect to consumers, the Act on Protection of Consumers in Relation to Real Estate Trading comprises fur- ther regulation of issues like limitation of liability, prep aration

• f detailed reports pertaining to the condition of the property

embodying comments to all defects and errors, etc. Brokers, who are members of the DE, are also obliged to comply with the professional standards and codes of conduct issued by DE. ENGLAND & WALES Introduction In England and Wales, no license is required in order to hold

• ne’s self out as a property advisor. However, there are classifi-

cations of property advisors based upon qualification by and affiliation with various professional organizations, such as the Royal Institute of Chartered Surveyors (“RICS”), the Institute of Surveyors, Valuers and Auctioneers (“ISVA”) and the National Association of Estate Agents. Membership in the RICS is considered the most prestigious

• f these affiliations. The classification of Chartered Surveyor

is protected by law and only those who have passed certain examination and a specified test of professional competence can become associates of RICS. In the commentary that follows, all references are to Chartered Surveyors unless specified otherwise. Responsibilities Chartered Surveyors work for whomever may grant the

• appointment. In sale and lease transactions, each side

usually appoints a separate Chartered Surveyor. A single Chartered Surveyor would not act for both sides because a dual representation is considered inevitably to create a conflict of interests. Chartered Surveyors are commonly referred to as “agents” and do in fact act as agents of the client in certain situations. Generally, however, they would not be regarded as the agent

• f the client and, by example, normally would not be empow-

ered to accept an offer on the client’s behalf. Note, also, that the concept of “subject to contract” exists in England and Wales: acceptance of an offer does not constitute a binding contract in the sale or granting of an interest in land unless it is included in a written agreement that contains all the terms agreed by the parties. Just as there are limits to the authority of Chartered Surveyors, so too are there limits to their obligations. Chartered Surveyors owe a professional duty to the client. For example, if providing valuation advice, the valuation report usually specifically provides that only the named client is entitled to rely upon it. A bank or funding party other than the client may well require written confirmation from the Chartered Surveyor that it can rely upon the valuation. It is extremely difficult in England and Wales for a funding party to rely upon such a valuation where it is not the appointing party nor has contrac- tual recourse against the Chartered Surveyor. The professional organizations for property advisers establish mandatory codes of conduct for their members. These codes include an obligation of client confidentiality. Notwithstanding, information moves quite freely and this free movement is deemed important to the proper functioning of the market. During the early 1990’s, confidentiality undertakings have become increasingly more common, in part because of the major property recession. Landlords often have attempted to keep others from knowing how generous a letting package may have been. Compensation Fees are completely negotiable and are not subject to any legal or regulatory requirements. Arrangements vary widely depending upon the nature of the transactions and pressures

• f the market.

On a purchase or sale of real estate, a Chartered Surveyor would normally charge a percentage of the price. In the case

• f a letting, a Chartered Surveyor acting for the landlord

23 would generally charge a fee equal to a percentage of the initial annual rent. In the event that the landlord had granted a joint appointment to two or more Chartered Surveyors with respect to one assignment, the same fee would be split equally between them. Fees are payable by the owner of the property who, as client, has engaged the Chartered Surveyor. Similarly, to the extent that the purchaser or tenant has engaged a Chartered Surveyor in connection with the trans- action, the attendance fees would be paid by the client granting the appointment. A Chartered Surveyor advising a tenant, for example, ordinarily would charge a percentage of the initial annual rent. In the case of investment agency work, where the Chartered Surveyor may either identify a property for a prospective purchaser or a prospective purchaser for the property, a fee is normally due to the party making the introduction. Liability for fees can arise without a specific contractual agreement. If the Chartered Surveyor makes the introduction, he typically would say to the client or prospective client something to the effect, “Here are the details of a property in which you may be interest. I am not retained by the vendor and therefore if you wish to proceed I will require the fee of X”. When the Chartered Surveyor thus initiates the introduction between principal and property, and the principal proceeds with the transaction, liability will arise for the fee. Regulation As mentioned above, the term Chartered Surveyor may law- fully be used only by those qualified and registered with the Royal Institute of Chartered Surveyors. Similar restrictions apply to the other professional bodies. However, those that designate themselves simply “property advisers” need not be licenced in any way. Certain national laws of England and Wales pertain to the property industry. The Property Misdescription Act applies to persons undertaking estate agency business in the sale

• f properties and governs what can and cannot be included

in sales particulars, which is an initial sheet of information containing details of a Property to be sold or leased and which is supplied to potential purchasers or tenants. The Estate Agency Act governs the relationship between clients and Chartered Surveyors (or brokers) in relation to estate agency business; regulations include disclosure require- ments to ensure that Chartered Surveyors or Brokers notify their clients of any potential conflicts of interest that may exist in their dealings with that client. FINLAND Responsibilities Real estate brokers in Finland may work for seller or buyer, landlord or tenant. Typically, a real estate broker is, however, engaged by the owner of the real estate to be sold or the property to be leased. Brokers usually act as independent intermediaries for their clients and are generally not autho- rised to conclude agreements on behalf of their clients. A client is, however, entitled to authorise its broker to conclude agreements. The Finnish Act on Real Estate and Rented Flat Brokers (1075/2000) applies to all real estate brokers and it sets forth the legal framework for brokers. The said act obliges brokers to act in accordance with “good broking practice” (“hyvä välitystapa”), which includes a duty of loyalty to both parties of a transaction. In addition, the ethical code for brokers of the Finnish Real Estate Brokers’ Association pro- vides for a confidentiality obligation concerning customer infor mation received in his or her business. There are further

• bligations and rights entailed in the Finnish Act on Broking
• f Real Estates and Rented Flats (1074/2000). This applies

to the relationship between broker and client or the client’s counter-party when a private individual not acting for his or her business activities, is a party to the mediated real estate or

• ther property sales or lease agreement.

Compensation Brokerage compensation is normally a fee equal to a percentage of the value of the sale or lease transaction, but it may be a fixed sum as well. The percentage usually depends on the property and the broker in question and is usually negotiable. Brokerage compensations relating to the brokerage of a private person’s private property are subject to the limitations set forth in the above Act on Broking of Real

24 Estates and Rented Flats. The limitations include, amongst

• ther things, that a fee shall be reasonable and that it can
• nly be charged from the client. If the broker represents both

the seller and the purchaser, the aggregate fees charged may not exceed the amount of one commission. There are no provisions concerning responsibility for incidental expenses and they are generally presumed to be included in the broker’s fee. The market rates for the fee are generally a percentage of the value of the sale and one to two months rent in lease transactions. Under the Act on Broking of Real Estates and Rented Flats, a broker can only charge his or her client for the brokerage

• fee. In relation to commercial dealings, there are no restric-

tions and thus the client and the broker have the freedom to charge the client’s counter-party for the fee, subject to such counter-party’s approval. A broker can also agree with the client that he or she shall have a right to an after- commission for services if the client concludes an agreement with a party introduced by the broker. The Act on Broking of Real Estates and Rented Flats limits such right to six (6) months after the expiry of the brokerage agreement. If the client has entered into a new brokerage agreement for the same property, the client is only obliged to pay a commission to the second broker with whom there is a valid brokerage agreement in force and it is then left to the brokers to agree on the division

• f the fee paid.

Regulation In Finland, real estate brokerage is governed by the two above mentioned acts, i.e. the Act on Real Estate and Rented Flat Brokers and the Act on Broking of Real Estates and Rented Flats. All real estate brokers must be registered in the Brokers’ Register held by the Country Administrative Board (“läänin- hallitus”). Registration is subject to application and, among

• ther things, that the applicant is entitled to carry on busi-

ness in Finland and holds liability insurance. In addition, the responsible manager of a brokerage firm must have profes- sional competence proved in a test for real estate or rented flat brokers. FRANCE Responsibilities Real estate brokers in France regularly work for clients

• n either side of a property sale or letting. Their role is as
• agents. The agency must be evidenced in a written agreement.

The broker is limited to searching and negotiating, without the power to complete, any transaction in the name and on behalf of the client unless otherwise expressly provided in the agency agreement. Real estate brokers have a professional duty to their clients generally in the performance of their agency agreement and particularly in counseling and eventually drafting any nec- essary instruments. For instance, if a sale option or a lease agreement fails to have a binding effect due to a mistake made by the real estate broker, this would trigger a liability for the broker. Real estate brokers also owe a duty of loyalty to their clients, which would include confidentiality of client sensitive information in addition to any specific provisions provided in the agency agreement. Compensation The written agency agreement must include (i) what the real estate broker’s compensation will be, by amount or method

• f calculation, and (ii) who will be responsible for payment of

compensation upon completion of the transaction. Any sum

• f money to be paid to the real estate broker must be men-

tioned in the agency agreement. Compensation to the real estate broker is wholly negotiable. It is customary that the commission be a percentage of the value of the transaction which, in the case of leases, would be based upon the first year’s rent. No retainers are ordinarily contemplated in the agency agreement. Incidental expenses incurred by the real estate broker are generally borne by him or her; any contrary arrangement must be reflected in the agreement. The buyer or tenant is customarily responsible for payment of the real estate broker’s compensation. Most sellers and land- lords in the current market, however, contribute to payment

25

• f the broker’s compensation. Where a contribution is made,

there is no norm with the amount varying from case to case. Regulation Real estate brokers are required to have a professional licence, issued by the police department, which must be renewed every year. The conduct of real estate brokers in France is governed by national Law no. 70-9 dated January 2, 1970 (called the “Loi Hoguet”). The “Loi Hoguet” is public policy so that the parties to the agency agreement cannot validly waive its provisions. For instance, as the “Loi Hoguet” requires that the agency agreement be limited in time, any agency agreement with an indefinite term will be automati- cally null and void. The “Loi Hoguet” also applies to property management agreements and property managers. The issuance of a professional licence is subject to various requirements, including required diplomas, a financial guar- antee granted by a bank or an insurance company or a surety bond deposited at the “Caisse des Depots et Consignations” and professional civil liability insurance. Acting as a real estate broker without being duly licensed constitutes a misdemeanor. GERMANY Responsibilities In Germany, real estate brokers typically work for buyers

• r sellers. They often represent landlords, and sometimes

tenants, in lease transactions. Traditionally, services of real estate brokers in these engagements are limited to either indicating the existence of a party seeking to conclude the contract (“Nachweistätigkeit”) or to acting as intermediary (“Vermittler”). Real estate brokers owe a professional duty to the party which has contracted with the broker. A broker must inform the client of all relevant facts and must act in the client’s best interests, but the broker is not obligated to make inde- pendent inquiries of any specific aspects of the real estate, unless otherwise provided in the brokerage agreement. Apart from this defined professional duty, other duties such as confidentiality and loyalty depend to some extent upon the terms of the particular agency agreement. If the broker breaches a contractual obligation to act exclusively on behalf

• f one of the parties, the German Civil Code provides that

the broker cannot collect a fee or expense reimbursement. In addition, German court decisions have established that a broker is not entitled to a fee if the broker has some financial connection to the other party, for example where the broker represents the landlord as building manager. However, the “double activity” of a real estate broker who works with both

• f the contracting parties is not generally excluded.

Compensation The real estate broker is entitled to a fee if his or her con- tribution, either in terms of indicating the existence of a party seeking the contract or in terms of acting as interme- diary, resulted—either alone or in combination with other factors—in the conclusion of a real estate contract. The mere fact that the real estate broker has indicated that there is an

• pportunity to conclude a contract is sufficient to commit

the buyer to pay the fee, unless an intermediary’s agreement has explicitly been concluded with the real estate broker. Under an intermediary’s agreement, the broker must actively induce the other party to the contract to conclude the real estate contract. The typical nature of compensation to the real estate bro- ker is a percentage of transaction value upon completion. The amount of compensation is negotiable, but the actual rates differ by region and by size of the property. In the case

• f sales, an agreed percentage factor is usually applied to

the rent in order to determine the compensation. The com- mission is usually a percentage of the purchase price, plus value added tax. In big real estate transactions, the percent- age determining the fee can be lower. In the case of leases, an agreed number of months’ rent usually determines the compensation and varies usually between 1.5 and 3 times the monthly rent, plus value added tax, again depending on the transaction volume. If the fee is not previously agreed upon, then by statute the customary rate applies. Local brokers’ associations publish customary rates for the region. By statute, the broker’s fee is not due until a valid purchase agreement or lease has been concluded. If the purchase or lease agreement is void or avoided, the broker has no claim for compensation. In the case of sales of property, the buyer is customarily responsible for the payment of the broker’s compensation.

26 This responsibility exists even without a specific contrac- tual agreement between the buyer and the broker. In some regions, the broker’s fee is split between the buyer and the

• seller. If, however, the client retains the broker to represent

the client exclusively, the client may become liable for the fee whether the client is the buyer or the seller. In such cases, the agent is viewed as representing the client as a profes- sional consultant rather than as a broker. For lease transactions, the customary practice varies by region and by size of the property. The fee may thus be paid by the landlord, the tenant, or split between them. The broker bears his or her own incidental expenses, unless the client has agreed by contract to pay them, even if the purchase or lease agreement is not concluded. Services that go beyond acting as mere agent or inter me- diary, such as furnishing of special marketing analysis or facilities management, are usually regulated by contract. Project management functions, such as the supervision

• f building construction or the planning of fit-out works,

are often subject to the Fee Regulations for Architects and Engineers. Regulation Real estate brokers must be professionally licensed pursuant to the German Trade Law (“Gewerbeordnung”). The actual licence is issued by the local trade office. The conduct of real estate brokers is generally governed by national laws. These include the Civil Code, the Trade Law and the Broker and Building Contractor Ordinance of November 7,

• 1990. In addition, the General Terms and Conditions Law may

be applicable to the formation of brokers’ contracts. HONG KONG Responsibilities Traditionally, real estate brokers have worked for the seller with respect to property sales and for the landlord with respect to leasing. As the Hong Kong real estate market has become more difficult, it has become increasingly more com- mon for tenants to pay or to retain agents to act exclusively

• n their behalf.

The brokerage professional serves in either an agency or consultancy capacity, depending upon the particular instruc-

• tion. Brokers owe a professional duty to the instructing

client, except in the very unusual case where there is a specific contractual responsibility to another party. Loyalty to the client is an inherent duty in the relationship; confidentiality may be imposed if specifically requested by the client. The responsibilities of estate agents are set out in the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulations as well as the Code of Ethics issued by the Estate Agents Authority. Compensation There is no regulation on the amount of compensation. However, when a dispute regarding compensation arises, such dispute may be referred to the Estate Agents Authority for a binding decision. Typically, compensation is based upon a percentage of the value of the transaction, either sales price or a percentage of the initial rent in the case of

• leasing. All compensation is negotiable in the individual case.

Alternatively, fixed fees or retainers may be agreed, depend- ing on the nature of the brokerage or consultancy role. In the absence of specific provision to the contrary, the broker is responsible for incidental expenses which he or she may

• incur. Separate arrangements may be made with respect to

marketing costs, for example, where the broker is selected as the sole agent for a large project. There is an established practice to take fees from both seller and purchaser. Each party normally pays any compensation due by such party to the broker, unless differently agreed between the principals. There may be responsibility for fees implied by law based upon particular facts, such as the broker bringing an opportunity to the attention of the land- lord or tenant. Regulation With effect from January 1, 1999, every individual or company carrying on estate agency work in Hong Kong must hold a valid licence issued by the Estate Agents Authority. They are governed by the Estate Agents Ordinance, the Estate Agents (Licensing) Regulation and the Estate Agents Practice General Duties and Hong Kong Residential Properties

27 Regulations, breach of which may subject a licensed estate agent to criminal sanctions and/or disciplinary actions. In addition, the Estate Agents Authority issues non-legally binding practice directions for the purpose of providing guid- ance and directions to practitioners in the conduct of estate agency work. HUNGARY Responsibilities Hungarian real estate brokers work under a mandate contract, the legal nature of which is set forth in Chapter XL

• f the Civil Code. A mandator (client) can be either the seller
• r the buyer, the landlord or the tenant. Brokers can work for

both parties to a transaction, provided that each party agrees to the arrangement pursuant to the terms of a written mandate and prior to the commencement of the broker’s activity. While lawful, the representation of both parties by a single real estate broker is rarely found in practice. Brokers are to act on the instructions of their clients: they intermediate for and on behalf of their clients between their clients and the other proposed contracting party. As a result, Hungarian real estate brokers by practice are usually agents and do not conclude contracts in the name of the client or in their own names. Real estate brokers also may perform prop- erty appraisals and valuations but only if they are registered and qualified to do so and hold the necessary certification. Since the legal relationship between broker and client is established as a mandate by civil law, the broker owes a professional duty first and above all to his or her client. The Civil Code provides that the broker must abide by the client’s instructions, or, in the event that such instructions are illogical

• r contrary to professional rules, to call the client’s attention

to the matter. Where the client insists upon an instruction that is contrary to the broker’s judgment, the broker must dis- charge it except where it may be unlawful to do so, and the principal alone shall bear any loss. Since the client and broker are free to specify the terms of the mandate, they can agree upon confidentiality as a condi- tion of the engagement. The broker’s agreement to secrecy may extend to the identity of the client, as well as confiden- tial client information. The broker may be liable for breach of contract, under the general civil law, should that confidence be broken. It should be noted that the Civil Code generally recognizes

• ral as well as written contracts. Accordingly, brokerage man-

dates can be created, or found to have been created, without the existence of a written agreement. A real estate purchase agreement, however, is not legally binding and enforceable unless it is concluded in writing. The brokerage community in Hungary prefers written, albeit typically simple, mandate contracts with clients. Compensation Brokerage compensation is negotiable within broad param- eters, with little legal or other regulatory restriction. The general principles of the civil law provide that there cannot be an unreasonable difference between a service provided and the consideration received, which may permit a client in an individual case to seek moderation of the specified fee from a court. According to general practice, brokers acting for private individuals collect a retainer, usually called a “registration fee,” within parameters established by the marketplace. This amount is to be paid at the conclusion of the contract. In addition, to the extent that a transaction is completed as contemplated by the mandate, the broker receives a per- centage of the purchase price, which is set in advance. The percentage depends on the market situation, the broker’s qualifications and experience, the time schedule achieved, the value of the transaction and other factors. Incidental expenses usually are borne in advance by brokers and later reimbursed by the client, so long as the expenses were incurred in connection with the client’s interests. Advertising costs, however, are not chargeable to the client absent prior agreement. The mandate contract may provide specific rules relating to expenses. The client giving the mandate is responsible for the pay- ment of the broker’s fee. Without a contract, no mandate will arise and no fee obligation should be found to exist. A broker

28 working for a purchaser cannot claim compensation from the seller unless agreed by all parties. Regulations Real estate brokerage activity has been regulated in Hungary since 1983. Government’s Ordinance No. 49 of 1982

• n Real Estate Brokerage in effect from January 1, 1983 and

Ordinance No 13. of 1988 of the Minister of Construction and Town Development in effect from January 1, 1989, defined brokerage activity as purchasing and bartering houses and building lots as well as bartering flats and premises for purposes other than residence, including necessary market research work, preparation of the deal and appraisal

• work. These Ordinances establish what entities or persons

may offer brokerage services; the broad range includes all business associations, cooperatives and state owned enterprises if they are registered to do so, and allows the employment of persons with the appropriate qualifications. Individuals may offer brokerage services if they are listed with the relevant body and hold a “certificate of good behavior”. Ordinance No. 13 of 1988 of the Minister of Construction and Town Development prescribes the conditions for striking someone off the list, that is if he or she has committed a criminal offence of a business nature, has been warned for unprofessional performance twice within three years or has failed to meet the qualification requirements. Real estate brokers can pursue their activities only with special qualifications and a “certificate of good behavior”. Attorneys-at-law and law offices are allowed to provide brokerage services without such a qualification but cannot issue appraisals unless they are qualified to do so. Since January 1, 1992, no real estate broker can operate in Hungary without special qualifications. Nowadays, profes- sional requirements applicable to real estate brokers are set forth in Ordinance No. 16 of 2003 of the Minister of Interior in effect from 26 April 2003. A real estate brokerage certificate is issued to those applicants who have attended and met the “qualification requirements” of a training program, the topics, themes and rules of examination of which are supervised and controlled by the Ministry of Interior. The Hungarian Real Estate Association (“HREA”) constitutes the most important professional association for real estate

• brokers. HREA membership is approaching 150 firms, among

the nationwide brokerage community as well as individuals. There are some other associations, as well. Membership is optional. INDIA Responsibilities In India, real estate brokers are characterized as agents though the nature of the relationship often varies with the responsibilities assumed by a broker in a particular trans

• action. They may work for one or both sides of a trans-

action, fulfilling the role of bringing the two sides together and liaising between them. Each side is represented by a

• broker. While brokers owe a professional duty to the client and

there is an established concept of loyalty and confidentiality, there may be serious practical difficulties in enforcing these

• bligations.

Compensation Compensation for brokerage services is entirely negotiable. Fees based upon a percentage of the transaction value, or

• n a fixed fee (often with some relationship to value), are
• common. Retainers or minimum payments are not normal.

Liability for incidental expenses of the broker is determined by contract and is again negotiable. Often, a broker receives fees from both sides to a transaction, unless he represents only one of the parties. It is important to note that written agreements are not necessary to give rise to the obligation to pay brokerage fees and, in practice, the arrangement may be verbal. Regulation The brokerage profession is not specifically regulated in India and a broker is not required to be licenced. The imposition of legal requirements, if any, is largely under general principles related to contracts and agency. However, real estate brokers are typically members of a local or national brokers’ association or both. One of the

• ldest examples of such associations is the Estate Agents

29 Association of India. These associations generally issue guidelines for their members such as recommended rates

• f commission chargeable for services rendered. On the

whole, however, the real estate broker associations are not very strong. Although efforts are being made to rectify the situation, a regularisation of brokerage services has not yet been achieved. REPUBLIC OF IRELAND Responsibilities Real estate brokers typically act on behalf of vendors (sellers) and landlords in the Republic of Ireland. Occasionally, they may act for the tenant. Representation of the purchaser in a sale transaction is quite unusual, although multinational firms may be more likely to grant such a mandate. The brokerage professional serves in the legal capacity of agent to the client. As such, there are established duties of loyalty and confidentiality imposed upon the broker. Compensation The typical brokerage compensation in acting for a vendor is a percentage of the sales price, payable upon completion of the transaction. In the event of sale of a leasehold property, the formula may be based upon a combination of a percent- age of the sale price and that of the annual rent provided by the underlying leasehold. While traditional norms exist, the applicable percentages for compensation are subject to reduction by advance nego-

• tiation. The responsibility for payment of fees is ordinarily

that of the vendor or landlord, but cannot arise unless the broker has first been specifically retained. Incidental expenses incurred by the real estate broker are frequently borne by the client. The Irish Institute of Auctioneers also issues a recommended scale of fees to its members with respect to various services which may be offered to clients. Naturally, these recom- mended rates are also subject to negotiated adjustment. It is noteworthy that the Irish Institute of Auctioneers’ scale anticipates engagements on behalf of purchasers as well as sellers. Other scheduled services include rental and capi- tal valuations. Regulation Real estate brokers are not required to be professionally licensed in the Republic. A licence is required, however, in

• rder or engage in the conduct of public auctions. The perfor-

mance of real estate brokers is regulated by national law. ITALY Introduction Entry into the Italian real estate market is facilitated by two types of professionals functioning under distinct legal systems; brokers and agents. The agency relationship is governed by Article 1742 of the Italian Civil Code: “In an agency contract, one party under- takes, for consideration and on behalf of another party, to promote the conclusion of an agreement in a designated

• territory. Each party is entitled to obtain a copy of the agree-

ment as signed by the other.” The brokerage relationship is governed by Article 1754 of the Italian Civil Code: “A broker is a person who places two or more parties, with whom such person has no connection by way of collaboration, employment or representation, in con- tact for the purpose of effecting a transaction.” The main difference between an agency and a brokerage is that a broker functions with respect to one specific trans- action whereas an agent handles an unspecified number of transactions of the same kind and/or in the same area. Agents must be enrolled in the official register of agents as provided by law # 316 dated March 12, 1968 and have applied for registration in the National Social Security Institute (“INPS”) within 30 days after the beginning of their agency activity. Responsibilities Agents and brokers regularly work for buyers and sellers of real estate. The agency agreement must be in writing (Law 303/1991 (D.L.)), whereas a brokerage agreement need not be in

30

• writing. The broker may evidence its participation in a sale

(in order to justify compensation) by witness statements. The brokerage relationship can include an exclusivity clause for a specified duration. Brokers are bound to their clients by a duty of loyalty and impartiality and are considered third parties in the context of a transaction between a buyer and seller. An agent may act on behalf of its principal (with no employ- ment relationship) and is responsible to the principal for fulfillment of the relevant appointment. The agent cannot be deemed responsible for the payments due by customers. However, it may be agreed from time to time that the agent wholly or partially guarantees the payments due by the customers for single pre-determined transactions. The agent is entitled to receive a specific compensation for such guar-

• antee. In no event can the amount guaranteed exceed the

commission due to the agent for the guaranteed transaction. Compensation If not separately agreed upon by the parties, a broker’s commission is set by local public entities or local customs. Generally, the commission is a percentage of the sale price and is paid in equal shares by buyer and seller. In the absence of local customs or a specific agreement, the amount is decided upon by a Court. A broker is entitled to compensation only if the transaction has been concluded; further, the broker’s right to compensation is not prejudiced if the broker was involved only in the introductory phases of the transaction and did not participate in negotiations through to the final closing (although the burden of proof on the broker’s role lies with the broker). Brokers are entitled to reimburse- ment for their out-of-pocket expenses even where the sale is not concluded. The agent’s right to compensation is triggered upon closing

• f the transaction. The agent is entitled to compensation on

transactions entered after the termination of the agreement if such transactions were proposed before such termination

• r were concluded within a “reasonable period” of time after

the termination of the Agency Agreement (the “reasonable period” of time is a factual determination based on how long the agency agreement had been in effect). The principal is therefore liable to the Agent for commissions on all orders taken. Real estate brokers must have a professional licence, pursuant to the Rules set forth in Law #39, dated February 3, 1989 and Law # 57, dated March 5, 2001, which modify and update Law # 253 dated March 21, 1958. To obtain the professional license and to be listed in the real estate Register it is necessary to pass an examination. Individuals must enroll themselves. Therefore the applicant must declare if the brokerage activ- ity will be carried out on behalf of a company or in his or her

• wn name.

JAPAN Responsibilities It is the responsibility of each individual real estate broker- age firm to act as an intermediary on behalf of clients during the sale, exchange, or lease of land or buildings. Clients may be sellers or buyers as well as lessors or lessees. Japanese brokers usually negotiate all the details of transactions. They must explain to the client important aspects of the trans- action, such as the identity and condition of the property, applicable zoning regulations, rights existing on the property and terms of the contract and so forth, and deliver to the client a document describing the same. Such explanation is the responsibility of the registered real estate transaction manager (see “Regulation” below). When the contract has been concluded, it is also the responsibility of the broker to deliver to the parties the papers where important legal terms are stipulated. A ministerial notification sets forth a ceiling of the compensation that a real estate broker may receive. In Japan, the law governing real estate brokerage firms is the Land and Building Transaction-Business Act (Takuchi Tatemono Torihiki Gyo Ho) Law No. 176, 1952, as amended. According to this legislation, each brokerage firm must hold a business licence, which is granted by the Minister of Land, Infrastructure and Transportation or a prefectural governor, and it is a requirement that for every five real estate brokers within the firm (and any fraction thereof), one must be a regis- tered real estate transaction manager, a special qualification registered with the local Infrastructure and Transportation

• Ministry. As such, a real estate transaction manager should

have passed a prescribed qualifying examination and so

31 hold a valid licence for contract closing. From time to time a brokerage firm may act on behalf of both parties to the trans- action if the brokerage agreement so allows. Compensation If a lease is the subject matter of the brokerage, the amount

• f compensation recoverable from both parties is limited to
• ne month’s rent payment in total. When a sale is involved,

the compensation recoverable from each party is generally calculated as being three percent of the price of the real estate plus sixty thousand yen, if the property is more than four million yen, which is almost always the case. Additionally it should be borne in mind that a five percent consumption tax is levied on the compensation. Whilst it is true that a broker may only demand compensa- tion for a contract properly concluded through its own efforts, if a client negotiates directly with another party after an intro- duction by the broker, and subsequently reaches a contract, then the broker is entitled to demand the same compen- sation as if the contract had been formed through his or her

• wn brokerage.

Regulation In order to secure the responsibility of a real estate broker- age firm, it is required that all the real estate brokerage firms make a business guarantee deposit with the competent Legal Affairs Bureau. The main office of a firm is obliged to deposit ten million yen, and all other offices must deposit five million yen, as a general rule. Brokerage activities are, however, the subject of laws of gen- eral application, including those existing and developing laws regarding real estate, construction, commercial and criminal matters, as well as the fundamentals of civil legislation, priva- tisation and taxation. MEXICO Custom and practice with respect to real estate brokerage in Mexico may be found to vary by locality. The following comments reflect specific observations of the Mexico City and Monterrey markets; particular inquiry should be made concerning prevailing factors in other parts of the country and with respect to particular transactions. Responsibilities Real estate brokers work for either party to a sale or lease of

• property. In this capacity, they serve as independent contrac-

tors in the role of intermediaries and are not normally granted agency authority on behalf of clients. A professional duty is owed by the broker to the client, which may imply duties

• f loyalty or confidentiality as to client information. These

matters should be addressed expressly, however, in the agreement between broker and client. It may not be uncom- mon for the broker to request a period of exclusivity as part

• f the engagement.

Compensation Brokerage fees are currently unregulated by Mexican law and are fully negotiable. Typically, compensation for the sale of property is based upon a percentage of transaction value; for leasing transactions, compensation is often set as a factor of rent (e.g. a fee equal to one month’s rent). While incidental expenses may be expected to be absorbed by the broker, prudence dictates that the responsibility for expenses and the expenditures to be undertaken be detailed in writing. While it is usual for the brokerage compensation to be paid by the property owner, absent arrangement between the par- ties the client which engaged the broker may be responsible for the fee. It is normal for both broker and principal to insist

• n a written understanding at the commencement of the

engagement, without which the rights of the parties may be in some doubt and depend upon the factual circumstances. Regulation There is no present requirement for the licensing of real estate brokers in Mexico. The conduct of real estate brokers is regulated by federal law and may also be the subject of local law and regulation. THE NETHERLANDS Responsibilities Real estate brokers work for either party to a sale or leasing transaction, acting in the capacity of agents. There is an professional duty owed by the broker to the client. In addition, real estate brokers who are members of the NVM, a profes- sional organization of real estate brokers in The Netherlands, have a duty of loyalty, as well as other requirements includ-

32 ing confidentiality, imposed upon them in their dealings. Membership in NVM is only possible after the successful completion of specified training programs. Compensation NVM brokers, as well as many brokers who are not members

• f that organization, charge for their services on the basis
• f a percentage of transaction value, but fixed fees have

been abolished. Fees are contingent upon, and payable at, successful completion of the transaction. It should be noted that, where a transaction under contract is terminated, the broker who arranged the contact between principals would still have a valid claim to a commission if the same parties consummate a transaction with respect to the property within a period of three months. Incidental expenses are typically paid by the client, unless

• therwise agreed. It is usual for the broker to agree to a

minimum, modest number of advertisements or listings, for example, after which further advertising and listing is at the client’s expense. The client which has instructed the broker is responsible to pay the resulting compensation. This obligation cannot arise without a specific contractual agreement. Regulation The regulation of real estate brokers in The Netherlands is a matter of national law, supplemented by regional custom. NORWAY Responsibilities Both real estate brokers and chartered surveyors may be found in Norway. Real estate brokers in Norway may work for either party to a transaction which cares to commission their services. It is, however, most common for real estate brokers to work for the seller or landlord. Brokers are required to take due and adequate care of the interests of all parties involved. The Norwegian act of June 16 1989 No.53 on Real Estate Broking (the “Act”) forbids brokers to act solely in the interest of one party. The broker has a specific obligation to provide all information necessary for the buyer to make his evaluation of the property (prior to submitting a binding offer with the intention to purchase the property). The Act also obliges real estate brokers to treat personal and business information of each party as confidential. Compensation Compensation for real estate brokers in Norway is usually based on a percentage of the value of the transaction. This percentage, while within a customary range, varies depending upon the type of property, the area in which it is located, and

• ther factors. Frequently, a fixed minimum fee is also agreed.

Compensation is entirely negotiable. It should be noted that, under certain circumstances, the Act may afford the broker compensation in the event that a transaction takes place within the period of the broker’s appointment even if the transaction did not result from the broker’s efforts. Whilst also negotiable, incidental expenses are usually borne by the principal instructing the broker. Pursuant to the Act, the seller is responsible for payment

• f the broker’s compensation. The compensation is to be

agreed in writing between the brokers and client, however, prior to the commencement of the broker’s engagement. Regulation Norway requires real estate brokers to be professionally licensed in order to practice. The Act, adopted by Norwegian parliament, governs the conduct of real estate brokers throughout the Kingdom of Norway. Chartered surveyors do not have to be professionally licensed in order to be able to practice. Most financial institu- tions and other substantial parties require the use exclusively

• f chartered surveyors approved by the Chartered Surveyors
• Organisation. This organisation establishes qualifications

and examination requirements and authorises the use of the professional abbreviation MNT to indicate membership.

33 POLAND Responsibilities Real estate brokers may act for individuals and firms and may be involved in all types of properties. Brokers may represent both sellers and buyers, as well as landlords and tenants. It is also typical that both parties to the same transaction are represented by the same broker. Real estate brokers act in capacity of mandatee; the broker is obligated to perform actions for the client conducive to conclusion of the subject-matter contracts. The scope of real estate brokerage projects are specified in a pertinent contract prepared in written form. During the performance of real estate brokerage projects, the broker shall comply with provisions of law and profes- sional standards and codes of conduct. The broker shall also

• bserve the principle of protecting the interests of persons

for whom the projects are performed. Compensation Generally, compensation of real estate brokers is a percentage of the price or rent, usually payable upon suc- cessful completion of the transaction or its part (such as a preliminary agreement). The amount of compensation is freely negotiable, but the actual rates differ subject to location

• r size of the estate or expected value of the transaction. In

case of leases, a broker’s commission is typically expressed as a percentage of the rent. The client is liable for payment of the compensation; whereas incidental expenses are typically borne solely by the broker. If compensation is not determined in a contract, it will corre- spond to the work performed by the broker. Regulation Polish law does not specify the professional code of conduct, however, the Polish Real Estate Federation (“PREF”) adopted the Code of Ethics and Professional Standards in

• 1996. The PREF is an independent professional organisation

established by six regional real estate broker associations in January 1995. Currently, the PREF incorporates 27 regional associations and it strives to play a positive role in the economic development of the country by clearly defining the rules of activity of real estate professionals as well as participating in legislative processes facilitating the real estate market and strengthening the right of ownership. Failure to observe the Code may be subject to the lia- bility applicable under the contract between the broker and the client. Activity of real estate brokers is regulated by the Act of 21 August 1997 on Real Estate Management (Journal of Laws

• f 2000 No.46, Item 543, as amended). The Act provides

that the real estate brokerage profession may be practiced

• nly by individuals having professional licence granted

by the Minister of Infrastructure. Licences are granted

• n the basis of qualification proceedings conducted by

the State Qualification Commission. Individuals may also conduct activities involving real estate brokerage, provided the actual brokerage activities are performed by licenced real estate brokers. PORTUGAL Introduction In Portugal, the legal regime for real estate agencies is governed by Decree law no.77/99 of March 16: 1999 and by Decree law no. 258/2001 of 25 September 2001. Under the Portuguese legal framework, a real estate agency can only carry out its activities if it holds a conveyancing licence. This license is issued by a recognised body—the Institute of the Public and Private Construction Industry and Real Estate (“the IMOPPI”). This institute exercises statutory functions in the regulation of real estate agencies. Responsibilities Traditionally, real estate agencies have worked for either the buyer or the seller, the landlord or the tenant. Real estate businesses are customarily referred to as “agencies” (“agen- cias de mediação imobiliária”) as they act as agents or interme diates on behalf of their instructing clients. However they are not normally empowered to complete contracts in the name of their clients or to bind their clients in any way. There are statutory duties owing to their clients as listed in

34 Article 18 of Decree law 77/99 of March 16, 1999. A Portuguese real estate agency owes a professional duty to the party with whom it has contracted. The agency must inform the client

• f all relevant facts, must act in the client’s best interests and

must make independent enquiries with respect to the capacity

• f the contracting parties and to potential charges existing
• ver the property before the date of execution of the agency
• agreement. The extent of duties, such as loyalty, depends on

the particular terms of the agency agreement. In any event, Portuguese law imposes a duty as to information. Breach

• f Article 18 of the Decree law Decree law no.77/99 creates

a civil liability and is punishable by a fine that may extend from 2.244,59 EUROS (450.000 escudos) to 24,939.89 EUROS 500.000 escudos). To this end, the law provides that all real estate agencies must deliver a form of guarantee to secure their obligations. This guarantee must be delivered in favour of IMOPPI and may take the form of a bank deposit, collateral, a bank guar- antee or a Portuguese government bond. In addition, estate agencies (i.e. real estate agencies) must take out an indemnity insurance to cover the material damages caused by the agencies’ activities (refer to Decree law no. 258/2001 of 25 September 2001). Compensation According to the regulatory regime for real estate agencies, fees are contingent upon, and payable at, successful com- pletion of the transaction. Compensation may however be due to the agency for the non-execution of the desired agreement caused by the instructing client (only if the agency is the exclusive service supplier) or in case of a pre-agreement (“contratopromessa”) in respect of the trans- action is reached between the instructing client and the third party. The law does not allow real estate professionals to be remunerated or to receive a deposit before the clos- ing date of the transaction. In the absence of a fixed fee established by law, it is custom and practice in Portugal that compen sation is based on a percentage of the value of the

• transaction. Typically, the seller is responsible for payment.

Save as otherwise agreed between the seller and the buyer, real estate agencies cannot receive compensation from both parties to the same transaction. In principle, compensation is only owed by the party who first instructed the agency although the parties may agree otherwise (Article 18/2 of Decree law no.77/99). According to Article 20/1 of the Decree- Law 77/99 the agency contact must always be in writing. The contract must include, amongst other things, the price payable to the broker, be it a fixed sum, a percentage

• r another means of consideration. It remains common prac-

tice that the compensation of the broker is a percentage of the transaction. Regulation Decree law 77/99 of 16 March 1999 requires all real estate agencies to be licenced. The licence, which must be renewed every three years, is granted by a recognised body, the IMOPPI, to real estate agencies that have to fulfil certain requirements including a requirement of professional stand-

• ing. One of the agency’s managers must be at least of three

years’ standing. He also must have the minimum standard of education required by law, and he must have undergone a training period approved by the IMOPPIA Articles 5/1/c and 6 of the Decree law no.77/99 of 16 March 1999 and ministerial decision no. 204/2000 5 April 2000. RUSSIA Introduction Following the adoption by Russia of its Land Code in 2001, it can be expected that the real estate market will expand and the role of professional realtors will become more important in the future. Responsibilities In Russia, real estate brokers work for whichever party may engage them, be it seller or buyer, landlord or tenant. In addi- tion, Russian real estate brokerage companies often buy and sell real estate for their own account. Real estate agents may work for customers on a contractual basis as independent contractors or as agents. Since real estate brokers are not regulated by governmental organi- sations, and given the fact that the real estate market in Russia is still in its infancy, it may be somewhat premature

35 to rely on the notion of professional responsibilities, includ- ing duties of loyalty or confidentiality, outside the context

• f explicit responsibilities defined by individual contract

between client and broker. Compensation Compensation of real estate brokers in Russia is entirely negotiable and is not subject to any specific regulations

• r legal requirements. There is little clear guidance, or any

established norms, with respect to an appropriate basis or amount of compensation. It is unclear whether the respon- sibility to pay a broker can arise without an express contrac- tual arrangement on the basis of some general legal theory

• r verbal agreements. Specific legal advice should be sought

prior to embarking on any relationship with professionals or any negotiations with respect to property. Regulation Presently, brokers do not have to be professionally licensed in Russia. Also there are no specific laws regulating the activ- ities of realtors/brokers. In Russia, the provision regulating the obligatory licensing of realtors was abolished by the federal law “Licensing economic activities in the Russian Federation” in 2001. At the beginning

• f 2002, the Duma failed to adopt the draft law about “Realtor

Profession in the Russian Federation” which was supposed to re-establish the obligatory licensing of realtors. While the provisions requiring licensing of real estate agents were established, it is still necessary for real estate appraisers to be licensed. A Russian Association of Realtors has intro- duced its own Code of Ethics and practical standards. More information is available on the Associations’ homepage. In addition, a standardised licensing system for realtors and real estate companies was introduced by the Russian Association

• f Realtors. Finally, the Moscow Association-Guild of Realtors

(MAGR) established an Independent Real Estate Arbitration Court in 2003. This court is becoming increasingly influential even though it does not have explicit jurisdiction to regulate the real estate market. Brokerage activities are, however, the subject of laws of general application, including those existing and develop- ing laws regarding real estate, construction, commercial and criminal matters, as well as the fundamentals of civil legis- lation, privatisation and taxation. SCOTLAND Introduction For the uninitiated, it is important to note that the law and practice in Scotland concerning property (real estate) matters is independent from, and often considerably different from, that in effect in England and Wales. The term “real estate broker” is not recognized in Scotland. Real estate professionals are most commonly either Chartered Surveyors, “estate agents,” or unregulated prop- erty agents. Chartered Surveyors must be members, either as associates or fellows, of the Royal Institution of Chartered Surveyors in Scotland (RICS). Other types of agents are not subject to the practice standards of the RICS, which provide protection for clients. The summary which follows focuses primarily upon Chartered Surveyors, since they are the professionals most frequently engaged for advice in commercial property transactions in Scotland. Responsibilities Chartered Surveyors may and do typically act for either principal in a property transaction. In significant matters, it is usual for each party to be represented separately by a Chartered Surveyor, although this is not required. It is not common for a single broker to attempt the representation of both parties to a commercial transaction, which would give rise to concerns of potential conflict of interest. The Chartered Surveyor acts in the capacity of agent for the client, to whom a professional duty of care is owed. There is also an obligation to observe a duty of care to the Chartered Surveyor’s partners and professional colleagues if in the same firm or practice, as well as to the RICS concerning the

• rganization’s code of conduct. The duty to the client is in all

events regarded as paramount. Part of the duty imposed upon the Chartered Surveyor is that of loyalty and of confidentiality as to information regard-

36 ing client dealings. In practice, nonetheless, there is a fairly free flow of information and the market depends upon this exchange. Compensation Brokerage compensation is wholly negotiable. A fee is normally owed to the Chartered Surveyor only where the transaction is consummated, colloquially known as “no hay— no pay.” Compensation is most frequently based upon a percentage of value of the sale transaction, letting or rent review in which the Chartered Surveyor is involved. While the RICS furnishes recommendations of the appropriate percentage fees and the level set is still regarded as a stan- dard benchmark, these are not compulsory. In practice, the percentages vary in any event depending upon the nature

• f the assignment, lot size and the particular relationship

between the client and the Chartered Surveyor. Incidental expenses, including advertising, marketing and

• ther third party costs, are almost always borne by the
• client. The Chartered Surveyor may typically advance funds

to satisfy these expenses, with the right to reimbursement in due course or at the time of completion, as a supplement to compensation. The principal which engages the Chartered Surveyor is responsible for the payment of the ultimate compensation which may be owed. In the absence of specific agreement between the principals, each party to a property transaction would be expected to pay its own Chartered Surveyor. Regulation There is no requirement to be licensed by the government in

• rder to operate as a property agent in Scotland. Certification

by the RICS is required to practice as a Chartered Surveyor. Applicable laws of Scotland and the United Kingdom govern aspects of the conduct of Chartered Surveyors and other property professionals. SINGAPORE Introduction Generally, a relevant bachelor’s degree in real estate, successful completion of the Common Examination for House Agents (the “CEHA”), relevant work experience and membership of either the Institute of Estate Agents (“IEA”)

• r the Singapore Institute of Surveyors and Valuers (“SISV”)

are the necessity qualifications to becoming a real estate practitioner in Singapore. There are no regional and/or local restrictions within Singapore and an estate agent can market properties anywhere within the country. While the Inland Revenue Authority of Singapore (“IRAS”) is the relevant licensing authority, the industry is largely self-regulated. Responsibilities Real estate agents market their services as primarily to assist in sale and rental transactions. These would include advertising and marketing, matching of prospective parties, assisting in negotiations and documentation and the dis- pensing of general advice. Lawyers are legally permitted to sell properties but this practice is not encouraged by the Law Society of Singapore. As such, there is generally no other pro- fession involved with the sale or rental of properties for a fee. Compensation Real estate agents are remunerated based on a percent- age of the relevant sale or rental price. The commission is usually payable upon closing of the deal (i.e. completion of sale). Although professional bodies like the IEA and SISV have issued guidelines in this respect, the market remains extremely competitive. Regulation Under the Act, generally any person, firm or company carry- ing on the business of a house agent is required to take out a licence. The licences are granted by the Controller of Property Tax, which in practical terms, is the IRAS. Though housing agents (essentially agency firms or compa- nies) are licensed, training of the individual agent varies from

• ne licensed real estate agency to the other. At the industry

level, estate agents are encouraged to join an industry body, two of the more established ones being the IEA and the SISV. These industry bodies may also have a supervisory role vis-à-vis their members. The IEA requires their members to be

37 individually covered by compulsory Professional Indemnity Insurance policies and also makes available to the public the Commission Guidelines practised by their members in property transactions. SLOVENIA Introduction In Slovenia, real estate brokers typically work for the owner of property, whether seller or landlord. There is no prohibition, however, on brokerage professionals being engaged by buy- ers or tenants. Brokers serve clients in an agency capacity; brokerage professionals also transact for their own account. A professional duty exists from broker to client, with confi- dentiality of client information a fairly established part of the accepted code of professional conduct. Besides, brokerage contracts often include specific confidentiality provisions. Compensation Compensation payable to real estate brokers is entirely negotiable and is not subject to any legal or regulatory

• requirement. A draft for a Law on Real Estate Brokerage pro-

viding for legal standards is currently in the legislative process. In practice, the amount of compensation agreed upon is usually a percentage of the transaction value of the real estate, payable upon completion. These percentage rates are also mentioned in the Code of Professional Conduct for Trading with and Transfer of Real Estate issued by the Chamber of Real Estate Brokers. Its application is only oblig- atory to the members of the Chamber of Real Estate Brokers. Incidental expenses are normally recouped by the broker. Under civil law principles, an obligation to pay a brokerage commission can arise even if no explicit stipulation in this regard is made in the contract. Regulation Real estate brokers in Slovenia are not required to be

• licenced. However, in practice, reliable real estate brokers

have a licence issued by the Association for Real Estate Brokerage and/or are members of the Chamber of Real Estate Brokers. The draft for a Law on Real Estate Brokerage provides for a mandatory licence for all real estate brokers to be issued by the Chamber of Real Estate Brokers. SOUTH AFRICA Introduction The real estate brokerage profession in South Africa is gov- erned partly by common law and partly by statute (The Estate Agency Affairs Act 112 of 1976) (“the Act”). Although South Africa is divided into nine provinces, the legislation is appli- cable throughout the country and is not province specific. Responsibilities Real estate brokers in South Africa, commonly known as estate agents, usually act for the vendor (seller) of immovable property (real estate) or the landlord in the case of the letting

• f immovable property, in the capacity of agent. As an agent,

they owe a professional duty to the vendor as their client or the landlord, as the case may be, in the first instance but they are however bound by a code of conduct which requires them to take into account the interests of a purchaser or tenant, as the case may be. The code of conduct is in effect a code of ethics to which every estate agent is bound. Generally, rules of broader application respecting agency relationships at law pertain to estate agents. Compensation Compensation payable to estate agents in South Africa has been deregulated. There is no statutory tariff but a guideline tariff applies which is regularly the subject of negotiation. The compensation is usually expressed as a percentage of the purchase price or transaction value in the case of leases, and is usually negotiated by the agent and the vendor

• r landlord.

The responsibility for payment of an estate agent’s com- mission arises out of the specific contractual agreement between the parties and the vendor/landlord is liable for payment in the ordinary course. Regulation Estate agents are governed by a board established in terms

• f the Act which has powers of regulation.

38 Every person who operates as an estate agent, as defined in the statute, is obliged to have in his possession a valid fidelity fund certificate. If the estate agent is a company or any other incorporated body, every director of such company

• r member of that body must be in possession of that certifi-
• cate. The protection afforded to the general public as a result
• f the issue of a fidelity fund certificate by the Estate Agents

Board is that the public will be reimbursed if there is a theft of monies held in trust by an estate agent, either by that agent

• r any of his employees. The reimbursement is effected out
• f a fund established for this purpose. There is no other

specific form of licencing the requirement to complete an examination does not exist at present although in the past this has been a requirement. SPAIN Introduction As of May 2003, by virtue of the enactment of Law 10/2003 of Urgent Measures for the Liberalization of the Real Estate and Transportation Sectors, the functions which are typical of real estate brokers, known in Spain as “agentes de la propiedad inmobiliaria”, as listed in article 1 of Decree 3248/69, (which approves the Regulations of the Official Associations and Central Board of Real Estate Brokers), can be carried out by either real estate brokers (“agentes de la propiedad inmobiliaria”), in accordance with the professional qualification requirements provided for in their specific regulations or an individual or company. Individuals need not hold a particular

• degree. Neither individuals nor companies need to be regis-

tered with a professional association. There may of course be

• ther requirements that, based on consumer protection rea-

sons, may be established. Spanish regulatory authorities are currently working on the development of these requirements. Article 1 of Decree 3248/69 defines the proper functions of an “agente de la propiedad inmobiliaria” as mediation and brokerage in the following transactions: (i) sale and purchase and permutation of urban and rural real estate; (ii) loans with mortgage guarantee over urban or rural real estate: (iii) urban or rural rentals, as well as assignment and transfer

• f the same. It also includes answering consultations and

issuing reports as requested regarding the sale, assignment

• r transfer value of real estate in respect of the three pre-

ceding points. This measure introduced by Law 10/2003 does not, however, imply the disappearance of the “agentes de la propiedad inmobiliaria” who, as described below, need to be profession- ally licensed and registered with a professional asso ciation and who, prior to Law 10/2003, held a monopoly on real estate brokerage funds. To the contrary, they continue in the exercise of their activities in compliance with their applicable regulations offering an added value, as well as a guarantee

• f quality, to consumers of intermediary services in the real

estate sector. While the matters described in this summary are believed to be of general application in Spain it should be noted that the regulations of local regional associations may dictate a different result in a given territory or circumstance. Also, attention must be drawn to the fact that, due to the recent enactment of Law 10/2003, and to the task that is currently being effected by the Spanish regulatory authorities the law governing real estate brokers in Spain is continually evolving. Responsibilities Real estate brokers in Spain may represent any party to a Spanish property transaction. In such an engagement, the broker serves as an agent to the client, assuming no lia- bility as a principal with respect to the transaction and, unless specifically authorized and empowered by the client, without being entitled to execute agreements or bind the client. Applicable professional regulations require that real estate brokers must provide services in an efficient, honorable, discrete and legal manner, observing ethical principles. To this extent, the broker may be viewed as owing a professional duty to all parties. The regulations assume a stricter duty to the client, however, and particularly state that the broker must defend the interests of the client and exercise full loyalty and

• diligence. Preservation of the confidentiality of client informa-

tion is also expressly required, unless disclosure is authorized

• r required by law or regulation. Real estate brokers must

cooperate in complying with regulations governing the use

• f real estate and, particularly, with those governing official

protected residences (“viviendas de protección oficial”).

39 Compensation Fees can be agreed between broker and client. The terri- torial professional association (“Colegio”) provides, solely as guidance, a non-binding scale of fees to be received by the

• broker. Previous restrictions to determine fees between client

and broker were lifted in April 1997 and also the obligation on the client to pay a minimum fee to the broker (determined according to a scale of minimum fees set by the Colegio) was abolished. Incidental expenses incurred by the broker are normally paid by the client. The parties are free to decide who shall pay the fees of the “agente de la propiedad inmobilinà”. The obligation to pay the compensation can arise without a written agreement. Regulation In order to practice as a “agente de la propiedad inmobiliaria” in Spain a licence is required. To qualify for a licence, the bro- ker must have passed the exams required by the pertinent administrative body, as well as to have obtained the degree “título universitario oficial”. The particular degree required has been the matter of some dispute. In addition, the broker must be registered with the profes- sional association for the territory where the broker carries

• ut his or her activities. However, it should be noted that

a broker may carry out his or her activities outside such territory provided certain minor administrative steps are taken with the professional association of such additional

• territory. There are local associations, a regional board of the

local associations in each territory and a national board of all

• associations. Any association may enact its own regulations,

which in concept must be consistent with the regulations of any superior (e.g. national) association. SWEDEN Introduction In Sweden a real estate broker is an individual who in his or her business acts as an intermediary in real property trans-

• actions. There is a requirement for the broker to register with

a central authority for which he or she needs to, inter alia, have certain relevant education and as a result he or she is subject to control by governmental authorities. There are further market practice rules which sets the framework within which the broker shall conduct his or her business. Responsibilities The activities of a real estate broker in Sweden are primarily regulated by the 1995 Act on Real Estate Brokers (the “Act”). The Act applies to the procurement of real estate, including also co-operative apartments, buildings, and leaseholds. The Act is applicable if a substantial part of the mandate is carried out in Sweden—it is not necessary that the real estate is located in Sweden or that the broker is established in Sweden. The Act may thus be applicable to a situation where a foreign broker spends a certain amount of time in Sweden, conducting business to which the Act applies, and then returns to his home country, provided that a substantial part of the business is carried out in Sweden. The Act may also apply where a Swedish broker markets foreign objects in Sweden and the contact with potential clients takes place in Sweden. The Act permits brokers to work for either party to a property transaction, albeit in practice it is more common for a man- date to be given by the seller. The Act requires mandates to brokers—including all the contractual provisions— to be made in writing, breach of which precludes the broker from invoking an agreement which is not in writing against the

• client. The client, however, is not precluded from invoking an
• ral agreement against the broker (except for certain oral

amendments of a written agreement) Mandates given to brokers by private consumers are regulated by rules which may not be deviated from to the disadvantage

• f the consumer. As regards business clients, however, all of

the provisions of the Act are optional and do not restrict the freedom of the parties to agree on the terms of the mandate, which must be in writing. Mandates giving a broker an exclusive right of a sale can only be given for successive periods of up to three months and a prolongation requires that less than one month remains of a previous period of mandate. The broker is not prevented

40 from acting as an agent for one of the parties if the tasks to be performed are adequately limited and in accordance with what is referred to as standards generally accepted by brokers (Sw “god mäklarsed”) As regards mandates to klarsed klarsed procure the sale of real estate, the broker is not allowed to purchase the property himself, or to sell it to a person or entity to whom he is related. This restriction only applies during the mandate period. Following such a mandate period, the broker is obliged to notify the Public Board of Real Estate Brokers (“Fastighetsmäklarnamnden”) should he or she or klarnamnden klarnamnden anyone closely related purchase a property. The Act further prevents brokers from carrying out business consisting of the purchase, holding and sale of real estate. In general terms, the broker is required to fulfil the mandate diligently and with care, and in all of these tasks (not only in the fulfillment of the mandate) he or she must act in accor- dance with standards generally accepted by brokers. These standards are not codified and derive from different sources, inter alia, decisions from courts or tribunals and codes of conduct of Brokers’ Associations. The standards are rather dynamic and may thus vary over time, as well as differ in respect of business clients and residential buyers. While requiring the broker to protect and observe the client’s interest in fulfilling the mandate, the Act further imposes on the broker an explicit obligation to safeguard the interests

• f the other party to a transaction. This may include giving

advice to the other party relating to the market price level and the factors upon which this price level is based. As a result of this obligation, the standard agreement used by the broker should be balanced and is normally of the same wording regardless from which party the broker has received his mandate. A broker thus has an obligation to maintain a delicate balance between the interests of all parties and to act objectively, impartially and fairly to all parties to a transaction. More specifically, the broker shall verify the ownership of the real estate and investigate whether there are any mortgages, easements, or other rights which may encumber the property. The broker shall further give both parties advice and instruc- tions which they may need with respect to the transaction, for example regarding the real estate itself or on matters such as capital gains tax. The broker is further required to advise the seller to present information about the property which can be assumed to be of importance to the buyer, amongst other things, if the buyer is able to take over loans which the seller may have secured by a mortgage on the property and seek to bring about an inspection of the real estate by the buyer. The broker is, in addition, under an obligation to assist the parties in the preparation of the necessary documents and to agree on matters arising in connection with the sale. In rela- tion to the purchase of real estate by consumers, the brokers must produce a written description of the estate, and present an estimation of costs connected with the acquisition and

• wnership of the property, including, but not limited to, capital

costs, terms of loans, interest rate, running expenses and tax effects based on the personal situation of the purchaser. Compensation Unless otherwise agreed, the Act provides that broker- age compensation is to be a commission in the form of a percentage of the value of the transaction. The size of the commission is negotiable and in practice tends to display a fairly wide range, normally a percentage of the purchase price (including VAT on the commission), depending on the type and value of the property. Discounts are not unusual with regard to transactions with a high value. In the absence

• f an agreement, a broker cannot claim compensation for

expenses incurred. A commission is deemed earned when the transaction between the client and a party introduced by the broker relating to the relevant real estate has been concluded, pro- vided that the transaction is the result of the broker’s efforts. The question as to whether or not the transaction is the result

• f the broker’s introduction and efforts does not arise if the

broker has an exclusive right of sale whereby a commission is deemed earned when a sale is concluded within the man- date period. The mandate is normally exclusive. The commission is payable at the conclusion of a transaction. Whether the seller or the buyer is responsible for payment

• f the commission is not regulated by the Act. According to

general principles of agency, however, the client, that is usu- ally the seller, is normally considered responsible absent a specific agreement requiring payment by the other party. Such agreements are unusual.

41 Regulation The Act requires all real estate brokers, other than Swedish advocates (lawyers) and brokers acting exclusively with respect to leases, to be registered by the Public Board of Real Estate Brokers. The requirement of registration applies to persons working as brokers. Penal sanctions such as fines

• r up to six months imprisonment apply to unregistered bro-
• kers. The Act and secondary legislation provide for details of

the registration procedure and on matters such as applica- tion fees and annual fees. Eligibility for registration requires a broker, among other things, to fulfil specified educational standards, to possess a certain professional standing, and to hold sufficient malpractice insurance. The Board supervises all registered brokers and has a duty to report unregistered brokers for criminal investigation. The Board has the right to revoke registration in the event of, for example, breach of professional duties. Decisions of the Board can be appealed to the General Administrative Courts. As of 1 October 2003 brokers acting exclusively with leases are also to be registered as a separate category of brokers. Such brokers are bound only by such regulations of the Act which refer to supervision by the Public Board of Real Estate Brokers. SWITZERLAND Introduction Before describing the rules and practices applying to broker- age contracts in Switzerland, it is important to keep in mind four important facts: 1) Switzerland is a federation of relatively independent states called Cantons. There are thus rules of federal and cantonal law that apply. Basic rules with respect to brokerage contracts are federal law and apply therefore to all Cantons, to the extent they are man-

• datory. Cantonal law complements and adds detail to

these federal rules. 2) Real estate investments by foreign individuals and legal entities are subject, with respect to housing (apartments, houses and apartment buildings) to a federal statute called Lex Friedrich. Under the Lex Friedrich, the acquisition of real estate by non-resi- dents is restricted and generally subject to authoriza-

• tion. However, the Lex Friedrich has been relaxed pro-
• gressively. Since October 1, 1997, it no longer restricts

the purchase of administrative, commercial and industrial buildings used in a business. Since then, such buildings can be acquired without prior authori- zation by persons domiciled abroad. 3) Farmland properties having a certain minimum area cannot be acquired except in specific cases unless the purchaser is a farmer according to the federal statutes on farmland property. 4) Switzerland has enacted a federal statute on money laundering which aims at identifying the origin of

• funds. This can also apply in transactions involving

the purchase of real estate in Switzerland. Responsibilities Real estate brokers in Switzerland generally work for the seller and, in a lease transaction, for the landlord. It is nev- ertheless frequent that the purchaser or future tenant hires a broker to indicate transaction opportunities and/or intervene as intermediary in a transaction. Brokers serve in the capac- ity of agent of their clients according to the conditions of the law and the contract. They are liable to their clients for the faithful and careful performance of their obligations, which include the obligation to personally perform their obligations unless they are duly authorized to entrust or substitute a third person with the performance of such obligations. Brokers shall submit at any time a proper accounting of the performance of their obligations upon demand. Under the general rule of federal law, brokers are not obliged to perform the services unless they are acting in an exclusive capacity. The brokerage contract does not have to comply with any particular form requirement. It is however recommended to execute it in a clear and precise writing. Because the federal law is very brief on that issue, cantonal professional associa- tions have drafted form contracts and ethical rules that their members have to follow (Geneva: Association Professionnelle des Gérants et Courtiers en Immeubles (APGCI); Zurich: Schweizerischer Verband der Immobilien Treuhander). Compensation The brokerage fee can be determined freely except that if it is disproportionate, the judge may reduce it to a reason- able amount. If the amount of a brokerage fee is not prede- termined, then the brokerage fee will be set according to the

42 local usual tariff schedule. The brokerage contract can pro- vide for a success fee or a flat fee. The brokerage fee is earned as soon as there is an executed contract of sale provided (i) that the broker can demonstrate that he or she has been effectively mandated (this can occur through concluding acts without any documents in writing) and (ii) the broker has provided the opportunity for such con- tract or has acted as intermediary in relation with the con-

• tract. If several brokers have acted, the customer shall pay
• nly one agreed fee, which shall be allocated among the

brokers according to the respective contributions to the suc- cess of the transaction. Brokers are not entitled to reimburse- ment of their expenses unless the broker’s contract provides

• therwise.

Regulation The matter of licensing is cantonal. Real estate brokers are not required to be licensed in Geneva and Zurich. Client and broker relationships are governed by the federal law on agency contract, particularly Article 412 and following of the Code of Obligations. These federal rules have a minimal con- tent and can, for the most part, be modified by contract. One

• f the mandatory rules with respect to mandate contracts

such as the brokerage contract is that it can be terminated at any time by either party. If, however, termination is effected at an improper time, the party terminating is liable to the other party for the damages caused. TAIWAN Responsibilities By practice in Taiwan, real estate brokers frequently work for and represent both sides in a property transaction. Brokers may in many cases, however, represent and be remunerated by just one side. A professional duty is understood to exist with respect to any party paying a fee to the broker; those parties from which the broker is not seeking a fee are gen- erally not thought to be owed any obligation by the broker and by practice no duty would be expected of the broker by such a party. Even in circumstances where the broker is representing both parties to a transaction and is receiving a fee from each party, it is assumed that confidential information supplied to the broker by either party will be respected and preserved. The key is often for the principal to make clear that the particular information being supplied is confidential in nature. Ordinarily, the broker’s role is as agent. Brokers may serve instead as independent consultants or advisors on behalf

• f purchasers or tenants, but this is usually for new investors

such as overseas parties investing in Taiwan or Taiwanese nationals transacting abroad. Compensation Compensation is typically a percentage of transaction value and payable only upon successful conclusion. The level

• f compensation is regulated by the government authority

in charge of real estate affairs, the Ministry of the Internal (“the MOI”). Retainer fees are not normally paid, except where the broker performs services outside of the accepted scope of brokerage duties such as an extensive or detailed market research report. Brokers almost always bear incidental expenses, even in consultancy engagements. Clients wish to impose the responsibility upon the broker to control expenses. As indicated above, brokerage compensation may be payable by one or as many of the parties as engage the broker in the transaction. While a commitment must be made by the client to engage the broker, a verbal contract

• r understanding is sufficient to give rise to a valid brokerage
• claim. Prudence dictates a specific written contract between

client and broker. Regulation There is a registration system for real estate brokers practicing in Taiwan and a licence is required in order for companies to engage in an agency business. The Management Statute Governing the Real Estate Brokers authorizes the MOI to establish a statutory fee schedule regarding compensation for brokers. This statute provides that any compensation received by the real estate brokers in excess of the statutory standards set by the govern- ment should be returned (in double) to the customer. This fee schedule came into effect on July 1, 2000. Real Estate brokers should be qualified and licenced by the MOI. The

43 Statute does not require the contract between the real estate broker and the customer to be in writing but it is common practice and preferable to have a contract signed in writing with the agent. The statute also imposes a confidentiality

• bligation on real estate brokers regarding information they

may know or acquire during the course of their business. VENEZUELA Responsibilities Real estate brokers in Venezuela typically work for the owner

• f the property, whether as seller, landlord or contracting
• wner with respect to property management assignments.

Occasionally, brokers are engaged by buyers or tenants. Brokers serve their clients as independent contractors and in this capacity have no authority to negotiate terms or make commitments on behalf of the principals. The primary professional duty of real estate brokers is to the client, but a lesser duty may extend to other parties. It is important to understand, however, that there is no established duty of loyalty, or of confidentiality with respect to client information; these aspects must be specifically addressed in a contract between client and broker. A number of brokers have joined forces to create a multiple listing service to broaden their

• reach. Some real estate agencies are also being contracted

by clients (typically potential buyers and lessees) to perform market research/analysis projects assessing such areas as price and availability. Compensation Compensation for brokers involved in sales of property is typically a percentage of the transaction value. Leasing trans- actions are expected to generate a brokerage fee based upon rental value (e.g. the equivalent of one month’s rent from both the lessor and the tenant), with the full amount payable by the tenant. Property management is, once again,

• rdinarily a percentage of the monthly rents generated from

the property. In larger transactions, fees below the prevail- ing percentages are not uncommon. Negotiation of fees is particularly prevalent during periods when demand is weak and competition more aggressive. While several real estate associations in Venezuela have attempted to establish mini- mum fee guidelines, these efforts have only had a moderate influence in the market. This trend has also been tempered by the advent of Venezuela’s first antitrust legislation within the past few years. A new compensation trend is emerging whereby brokers and clients may agree to compensation on the basis of professional billable hours instead of on commission, or to a mixture of both. Incidental expenses of a routine nature, such as news paper advertising, background checks on potential purchasers

• r tenants, and travel and related expenses of the broker’s

personnel, are routinely absorbed by the broker. Extraordinary expenses, such as extensive advertising or out-of-town travel, are customarily borne by the client and, when anticipated in advance, may be negotiated by the broker as a part of the initial arrangement. Responsibility for payment of brokerage compensation rests with the seller in the case of property sales, the owner in cases of property management engagements and the tenant in the case of leases. The obligation to pay compen- sation to a broker can arise even in the absence of a specific contract between broker and principal, although Venezuelan law generally requires that an implied contract must be found to exist. Moreover, Venezuelan law has defended victims of unjust enrichment at the expense of another by awarding appropriate damages as compensation. In brokerage matters, the court should require the broker to prove a reasonable basis for believing that the client had contracted for services and to compensate the broker in accordance with customary standards. Regulation There are no requirements that real estate brokers be licenced to practice in Venezuela. No Venezuelan law or regulation exists specifically with respect to the conduct of real estate brokers. All aspects of contractual and transac- tional relationships between parties are controlled by the basic applicable laws of Venezuela, including the Civil Code, the Commercial Code and, under certain circumstances, consumer protection legislation. The essential duties imposed are not to cause harm to other parties, whether intentionally (fraudulently) or negligently, or based upon more specific concepts such as untruthful inducement.

44 The national real estate industry chamber has enacted self- regulating rules which include (i) the formalities to be certified as real estate broker and agent by such chamber; (ii) a set of ethical principles and rules governing the scope of work of real estate brokers. Once certified, real estate brokers and agents have the endorsement of the national real estate chamber and must abide by the ethical rules enacted by this chamber, which are aimed to protect the relations of the brokers and agents before third parties. According to such rules, alternative dispute mechanisms must be used to solve any disputes between brokers or between broker and client in a real estate transaction. ■ FURTHER INFORMATION This Jones Day Briefing is only an overview of customs and practices that may be found to exist in the specified jurisdic-

• tions. This summary should not be construed as a definitive

statement of any specific legislation or as legal advice on any particular set of facts or circumstances. The publication is intended for general information only and should not be relied upon when making investing decision in lieu of seeking proper professional advice. For further information about the matters discussed in this Briefing, please consult your regu- lar contacts at Jones Day or any of the following Partners in Jones Day’s Real Estate practice: UNITED STATES James Hagy Jones Day Chicago 1-312-269-4152 U.K./EUROPE David Roberts Jones Day London 44-207-039-5286 ASIA Masatomo Suzuki Jones Day Tokyo 81-3-3433-1817