Estate Agent: No Commission if Sale Falls Through, Even with Penalty Clause

Imagine: you own a house in Borgo, you sign a preliminary sale agreement, the estate agent tells you everything is in order. Then the buyer withdraws, the sale collapses. And then the agent demands €18,000 from you under a penalty clause (a penalty provided for in the contract to compensate for his loss of earnings). Unfair, isn't it?

Yet clauses of this kind exist in many agency mandates and preliminary sale agreements. But can they really oblige the seller to pay even though the sale has not taken place? A crucial question for any owner putting their property up for sale.

The Court of Cassation put an end to the debate in a judgment of 9 July 2014 (No. 13-19.061). It clearly states: an estate agent cannot claim any sum, even under the guise of a penalty clause, if the transaction has not actually been concluded. Analysis of a decision that changes the situation in Bastia, Furiani, and throughout France.

The Facts: A Story Like Many Others

Mr. X, an owner in Borgo, entrusts an estate agency with the sale of his property. A buyer comes forward, and a preliminary sale agreement is signed. This document contains, in its Article 9, a penalty clause: if one of the parties does not complete the sale by notarial deed (before a notary), that party must pay the estate agent an indemnity of €18,000, i.e., the amount of the expected commission.

Unfortunately, the sale does not go ahead. The preliminary agreement contained a condition precedent (a condition that must be fulfilled for the sale to become final, such as obtaining a loan) which was not satisfied. The estate agent then turns against Mr. X, claiming the €18,000 on the basis of the penalty clause. Mr. X refuses, arguing that since the sale was not concluded, the agent is entitled to nothing.

The case goes to court. At first instance, the judge rules in favour of the agent: he orders Mr. X to pay the claimed sum. Mr. X appeals. The Court of Appeal upholds the decision. But Mr. X does not stop there: he appeals to the Court of Cassation. The Court of Cassation quashes (annuls) the appeal judgment and refers the case back to another court. The legal battle lasted several years.

The Reasoning of the Court — Analysed

The Court of Cassation relies on Article 6, I, of Law No. 70-9 of 2 January 1970, known as the Hoguet Law. This text is of public policy: no one can derogate from it by contract. It provides that no commission or sum of money whatsoever may be demanded by an estate agent if the transaction has not been actually concluded.

The judges specify that the notion of a concluded transaction refers to the sale itself, not merely the signing of the preliminary agreement. In this case, the sale was never completed by notarial deed. Therefore, the agent cannot claim any remuneration, even in the form of a penalty clause (a contractual penalty intended to compensate for loss). The penalty clause cannot circumvent the Hoguet Law.

The Court also rejects the agent's argument relying on Article 1134 of the Civil Code (now Article 1103) on the binding force of contracts. It recalls that the special law (the Hoguet Law) prevails over the general law of contracts. In other words, even if the contract provides for a clause, it is void if it contradicts a law of public policy.

This decision is neither a reversal nor an evolution: it confirms constant case law. As early as 1994, the Court of Cassation held that a penalty clause cannot serve to remunerate the agent in the event of a failed sale (Civ. 1ère, 20 December 1994, No. 92-21.695). The 2014 judgment merely reaffirms this principle forcefully.

What This Changes for You — Practically

If you are a seller-owner in Furiani, this decision protects you. You cannot be compelled to pay an indemnity to the agent if the sale fails, even if the preliminary agreement contains a penalty clause in his favour. Any such clause is null and void.

For buyers, the principle is symmetrical: if you sign a preliminary agreement and you withdraw (within the 10-day legal withdrawal period), the agent cannot claim anything from you. However, if the sale fails for another reason (e.g., unjustified lack of financing), the agent still cannot demand a commission, but the seller could claim damages from you if you are at fault.

A concrete example: a preliminary agreement provides for a commission of €20,000 for the agent, and a penalty clause of €20,000 in the event of non-completion. The sale fails. The agent cannot obtain anything. You save €20,000. If the agent sues you, you have a solid defence: the 2014 judgment.

If you are in this situation, you should: 1) refuse to pay, 2) keep all documents (preliminary agreement, correspondence), 3) consult a lawyer as soon as you receive the first formal notice. The limitation period (time limit to bring legal action) is 5 years from the date the agent demands the sum (Article 2224 of the Civil Code).

Four Tips to Avoid This Type of Dispute

• Read the mandate and preliminary agreement before signing. Check that no clause provides for a commission in the event of a failed sale. If so, ask for its removal or refuse to sign.
• Require a mandate compliant with the Hoguet Law. The mandate must clearly state the conditions of remuneration: only if the sale is concluded. Any ambiguous mandate should be challenged.
• In case of a dispute, do not pay under pressure. The agent may threaten legal action, but the law is on your side. Reply in writing, citing the Court of Cassation judgment.
• Consult a lawyer specialising in property law. A professional can analyse your contract and assist you in proceedings. In Bastia as elsewhere, a quick consultation can save you unnecessary costs.

Further Reading: Related Case Law and Developments

The position of the Court of Cassation is consistent. In addition to the above-mentioned 1994 judgment, one can cite a judgment of 12 July 2012 (No. 11-20.989) which holds that the penalty clause cannot be used to circumvent the prohibition on remuneration in the event of a failed sale. More recently, the Court of Cassation extended this principle to search mandates (Civ. 1ère, 10 March 2021, No. 19-24.765).

The courts are therefore very protective of consumers. The trend is towards annulling any clause that attempts to remunerate the agent without an effective sale. This means that agencies must now draft more balanced contracts, on pain of nullity.

For the future, this case law could apply to other property intermediaries, such as property traders or business introducers. The Hoguet Law is of public policy: any claim for a commission without a concluded transaction is doomed to fail.

Frequently Asked Questions

Can an estate agent demand administration fees from me if the sale fails? No, because the Hoguet Law prohibits any sum of money, whatever its name (administration fees, indemnity, penalty clause) if the transaction has not been concluded.

What if the agent has already made me pay a sum under a penalty clause? You can ask for reimbursement in court. The limitation period is 5 years from the payment. Consult a lawyer.

Is the penalty clause always void? Yes, if its purpose is to remunerate the agent in the event of a failed sale. However, a penalty clause between seller and buyer (e.g., if the buyer wrongfully withdraws) remains valid, but the agent is not the beneficiary.

Can I sell without an agent to avoid this risk? Yes, that is your right. If you use an agent, ensure the mandate is clear and does not provide for anything in the event of failure.

Are there exceptions? Yes, if the failure of the sale is due to the seller's fault (e.g., wrongful refusal to sign the notarial deed). In that case, the agent could claim damages under Article 1240 of the Civil Code (civil liability). But a mere penalty clause is not enough.

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