Estate Agency Commission: Beware the Date of the Contract!

You have signed a preliminary sale contract for a flat in Beausoleil, with an unobstructed view of Monaco. The estate agent asks for their commission as soon as the preliminary contract is signed. Yet the sale is not yet final. Are you really obliged to pay now? This question is asked by hundreds of owners and buyers every year. The Court of Cassation answered it in a judgment of 29 January 1991, which remains an absolute reference. It held that a promise to pay the commission, if made before the notarised deed, is void. Explanations follow.

The facts: a story that happens every day

The case began in Nice in 1981. An owner, Mr Y, instructed an estate agent to sell his property. On 30 June 1981, a preliminary sale contract was signed under private seal (a non-notarised act between individuals). On the same day, Mr Y signed a document by which he undertook to pay the agent a commission of 158,760 francs (approximately €24,200 today). The sale was completed by notarised deed on 15 September 1981. But the owner did not pay the commission. The agent sued him. The Tribunal de Grande Instance of Nice ordered him to pay, relying on the preliminary contract and the promise of 30 June. The Court of Appeal confirmed this decision. But Mr Y appealed to the Court of Cassation. He argued that his promise to pay the commission, made on the day of the preliminary contract, was prior to the notarised sale and therefore void. The Court of Cassation agreed with him. It quashed the appeal judgment on the ground that the promise to remunerate the agent is valid only if it is made after the completion of the sale by notarised deed.

The court's reasoning — broken down

The judges of the Court of Cassation here apply a fundamental principle: the estate agent can only claim his commission if the sale is definitively concluded. This principle is enshrined in the Hoguet Law of 2 January 1970 (regulating the activities of estate agents) and its implementing decree. Article 6 of the law provides that the commission is only due if the sale is effective. A prior promise, even if signed on the same day as the preliminary contract, is devoid of effect. Why? Because the preliminary contract is a synallagmatic promise of sale (a reciprocal undertaking) but not yet the final sale. The notarised deed before the notary is the step that transfers ownership. Allowing the agent to claim his commission before this date would expose the seller to paying fees for a sale that might not go through (for example, if the buyer withdraws or if financing fails). The Court of Cassation here confirms a consistent line of authority, already established in a judgment of 18 December 1985. It rejects the agent's argument that the promise is a separate and valid contract. No, says the Court: the promise is ancillary to the sale and cannot exist before the final sale.

What this means for you — practically

This decision has direct consequences for all parties in property transactions. For the seller: you should never sign a promise to pay the commission before the notarised deed. If the agent asks you to sign an undertaking at the time of the preliminary contract, refuse. In the event of a dispute, you can rely on the nullity of the promise. Example: a seller in Monaco signs a preliminary contract for a studio at €500,000. The agent gets him to sign a promise of commission of 5% (€25,000) on the same day. The sale falls through because the buyer's loan is refused. The agent claims the commission. The seller can oppose the nullity of the promise. For the buyer: if you are the buyer, be vigilant. If the seller signed a promise of commission before the notarised deed, that promise is void. The agent cannot claim it. But beware: the agent may be able to pursue the seller on another basis (for example, if the seller caused the sale to fail in bad faith). For the estate agent: this case law requires you to only ask for the signing of your remuneration mandate after the signing of the notarised deed. In practice, many agents include a clause in the preliminary contract providing that the commission will be due upon completion of the sale. Such a clause is valid because it does not constitute a promise to pay before the sale, but rather a condition precedent. The Court of Cassation validated this mechanism in a judgment of 19 March 1991.

Four tips to avoid this type of dispute

• Never sign a commission undertaking before the notarised deed. Beware of documents titled "visit slip", "promise of remuneration" or "undertaking to pay" that are presented to you at the time of the preliminary contract. Read every line carefully.
• Insist on a clear condition precedent clause. In the preliminary contract, make sure that the commission is only due on condition that the sale is completed by notarised deed. If the clause is ambiguous, ask your notary to redraft it.
• Keep all documents. Retain a copy of the preliminary contract, the promise of commission if it was signed, the notarised deed and all correspondence. In the event of a dispute, these documents will be crucial.
• Consult a lawyer before signing. If you have any doubt about the validity of a commission clause, seek advice. A 30-minute consultation can save you months of litigation.

Further reading: related case law and developments

The judgment of 29 January 1991 forms part of a consistent line of authority. Earlier, the Court of Cassation had held on 18 December 1985 (no. 84-12.987) that "the estate agent's commission is only due if the sale is actually concluded and completed by notarised deed". More recently, in a judgment of 17 March 2011 (no. 10-10.519), it clarified that even if the preliminary contract provides that the commission is due if the sale does not go through due to the seller's fault, that clause is void as contrary to public policy. The trend is therefore very protective of the seller. The courts are strict: any promise of commission made before the notarised deed is void. For the future, it is likely that the case law will continue, especially as consumer law strengthens consumer protection.

Frequently asked questions

• What if I have already signed a promise of commission before the notarised deed? You can rely on the nullity of that promise before the court. Consult a lawyer to bring an action for nullity. Note that the limitation period is 5 years from the signing of the promise.
• Can I refuse to pay the commission if the sale did not go through? Yes, if the promise of commission was signed before the notarised deed. The agent cannot claim the commission. However, if the sale was completed, you must pay it.
• What are the time limits for taking action? You have 5 years from the signing of the promise to seek nullity. If the agent has already sued you, you must act immediately.
• What if the agent tells me that the promise is a separate contract? He is wrong. The Court of Cassation has clearly held that the promise is ancillary to the sale and cannot exist without it.

Are you in a similar situation? A 30-minute initial consultation with Maître Zakine (€45) can save you months of litigation — and often much more. Book an appointment →