Based on a recent Czech Supreme Court decision, a real estate agent cannot keep the deposit or reservation amount as a contractual penalty.
Up until recently, the practice was for a reservation agreement to be signed between the prospective buyer and the real estate agency which had listed the property. The general terms of the agreement were that the agency would not offer the property to other prospective buyers and in turn the prospective buyer committed to purchasing the property – or forfeiting the reservation money.
A reservation contract was always a source of great risk for a buyer.
In actual practice we would that the reservation agreements were a source of real contention and sometimes, outright fraud. Here are some of the problems we had encountered:
1. Since exclusive listings are not common a prospective buyer would sign a reservation contract with one agency while unbeknownst another prospective buyer signed with another agency.
2. The seller would not be informed or be in agreement with the terms of the reservation.
3. Serious negative information regarding the property would only be passed to the prospective buyer once the reservation agreement was signed and deposit paid.
4. A very disadvantageous contract would be presented to the prospective buyer after the reservation contract was signed.
5. When the prospective buyer did withdraw for any reason the reservation money was kept exclusively by the real estate agency and would not be shared or given to the owner.
6. Even when the seller withdrew from the agreement or substantially changed the initial terms the real estate agency would keep the deposit.
The recent decision by the Supreme Court changed a number of things including:
1. The parties of the future agreements must be party to the reservation contract. Thus the seller must be a party.
2. Any contractual penalty can only be demanded by the seller and not by the real estate agency. The seller may decide not to claim the penalty and the real estate agency cannot force them to do so.
We strongly believe that this decision is a very good step in the right direction and will help to clean up this previously contentious and often abused area of real estate practice in Czech Republic.
Updated/Aktualizováno: November 27, 2014,
