Spanish Real Estate Sales Agreements: When Exclusive is Not So Exclusive

June 19th, 2010

I have, for some unknown reason, always been suspicious of professionals wearing a short sleeve shirt and tie combination, unless, of course, they were cheesy used car salesmen or fast food managers. I have to say in my defense, however, that I have tried to leave behind my prejudices and move on, trying to intimate with the suspect (generally some other lawyer) in spite of his attire when work circumstances demand it, and also because I am told that looks are not everything.

The same happens with exclusive real estate commission agreements. They look one thing but may mean something, nothing, or something different from what they say or mean. And this baffling scenario is what we encounter if we research court rulings issued all over Spain when the principal, who is the property owner, decides to sell the property himself or through another agent, in spite of having signed an apparently impregnable contract with his chosen agent and shaken hands subsequently, with or without a beer.

By analyzing no less than 20 court rulings, we find out that most, if not all, agree that if the property owner sells directly, then no damages are applicable to the agent as exclusive contracts cannot impede the owner from disposing of his own property privately, unless specifically agreed (already departing from what we think “exclusive” means).

This clarified, we now look are the solutions arrived at by courts when an agent different from the initially commissioned to sell, exclusively, does the deal.

Solution Pro-Owner: This is a restrictive opinion (also shared by French law), whereby the exclusive agent is not entitled to a commission because the essence of the mediation contract is to find a buyer, and where this has not been achieved, then no right to a commission arises. At the most, the exclusive agent will be entitled to damages, but only where these can be proved to have existed, such as meetings, sales or promotional literature,trips, staff hiring etc.In line with this view, courts have pronounced that giving the exclusive agent the right to his commission would produce “unjust enrichment”, since the main obligation of the agent is to sell, and this has not occurred as a result of his activity (it omits an important detail which is that not selling the unit may have happened due to it being sold by someone else!).The Supreme Court has added that the agent’s right to his commission (“loss of earnings” theory) when the seller breaks the exclusive contract can only be applied where there is sufficient verisimilitude to repute the earning of the commission as very probable, in its maximum approximation to an effective certainty so that the result is neither a loss nor an unjust enrichment. It also adds that the loss of earnings have to be proved, not being dubious, unfounded or founded on hope or hypothesis.Again, the courts here redefine what “exclusivity” means, and almost gives cheeky property owners carte blanche to break exclusivity property sales contracts, without visible penalties.
Solution Pro-Agent: This more harsher solution is more in line with common law, and determines that the exclusive agent did not have the opportunity to complete the task he was assigned with, and, therefore, considers that the exclusive agent would be entitled to any costs incurred in so far, plus full commission (loss of earnings). This opinion is based on the fact that, in the absence of a clear regulation, damages are to be calculated primarily by reference to the lost commission. However, it adds that courts are entitled to “moderate” or “adjust” the application of it on the basis of other circumstances, such as the dedication of the exclusive agent to selling, number of buyers who viewed the property, other sales made with the same client, bad faith displayed by the owner, final sales price, etc. There is an interesting local ruling (Malaga Appeal Court) involving the Kempinski Hotel owners and Sauer International real estate agent, where the latter was given entitlement to 5% commission (half of that agreed on contract) on a number of apartments that were sold by another agent (Kristina Szekely), because the courts understood that by having sold 74 apartments out of a total of 89 it could easily be inferred, with objectivity, that the remaining 15 would have also found a buyer through the services of the original agent.

So if we thought we knew what the penalty would be to an infringer property owner by reading a simple contract, be wise and stay away from assumptions, because Spanish courts are here to prove your assumptions wrong!