Condition Precedent Not Fulfilled: The Estate Agent Is Not Entitled to Commission

Imagine: You are the owner of a flat in Créteil, and you sign a preliminary contract (compromis de vente) with a couple of buyers. Everything seems to be going well, the estate agent is already asking for their fees. But then, the bank refuses the loan to your buyers, and the sale falls through. You think the agent cannot keep their commission, right? Yet, some clauses in contracts provide that, even in the event of failure of the condition precedent (i.e., the condition that suspends the completion of the sale), the agent can demand payment of their fees. That is exactly what happened in the case decided by the French Supreme Court on 11 July 1988. But what did the highest court decide? It put an end to a common practice: as long as the condition precedent is not fulfilled, the transaction is not effectively concluded and the estate agent is not entitled to any commission. A decision that protects owners and buyers, and whose implications we will analyse.

The facts: a story that happens every day

Mr X, owner of a property in Créteil, entrusts the sale of his flat to an estate agency. A preliminary contract is signed with buyers, Mr and Mrs Y. The contract provides for several conditions precedent, the fourth of which is the consignation (deposit) of the price and the costs of the final deed with the notary. The preliminary contract also contains a specific clause: if the condition precedent is not fulfilled, the seller may choose either to proceed with the sale or to treat it as rescinded. In the latter case, the agency fees will be paid by the seller, not exceeding half of the amount retained as a forfeit (holding indemnity). Unfortunately, the fourth condition precedent is not fulfilled: the buyers do not deposit the funds. The final deed is never signed. The seller, Mr X, treats the sale as rescinded and keeps the forfeit. But the estate agent claims commission, relying on the clause in the preliminary contract. Mr X refuses. The agent sues him. The Tribunal de Grande Instance of Paris rules in favour of the agent, but the Paris Court of Appeal reverses that judgment and orders Mr X to pay the commission. Mr X then appeals to the Supreme Court.

The reasoning of the court — analysed

The French Supreme Court quashes the Court of Appeal's decision. Its reasoning is simple and inexorable: it relies on Article 6 of the Law of 2 January 1970 (the Hoguet Law, which governs estate agency activities) and on Article 74 of the Decree of 20 July 1972. According to these texts, the estate agent is entitled to commission only if the transaction is "effectively concluded". However, a transaction subject to a condition precedent is effectively concluded only when the condition is fulfilled. In other words, as long as the condition precedent is not satisfied, the sale is not perfect, and the agent cannot claim anything. The Court of Appeal had nevertheless applied the clause in the contract that provided for payment of commission even in the event of non-fulfilment of the condition precedent. But the Supreme Court considers that this clause is contrary to the law: it cannot have the effect of giving rise to a right to commission before the condition is fulfilled. In short, the law protects the seller against unfair clauses that would require him to pay the agent even though the sale did not go through. What is interesting is that the decision does not challenge the validity of the clause itself, but limits its scope: it cannot create a right to commission that does not yet exist. undefined, I have come across cases where agents tried to apply this kind of clause, and the 1988 case law is a formidable weapon to counter them.

What this changes for you — concretely

Whether you are a seller-owner, a buyer or even an estate agent, this decision has important practical consequences.

• Seller-owner: If a sale fails because a condition precedent (obtaining a loan, planning permission, etc.) is not fulfilled, you can refuse to pay the agency commission, even if the contract contains a clause to the contrary. Example: in Montreuil, a seller signed a preliminary contract with a condition precedent of obtaining a loan. The buyer did not obtain his loan. The agent claimed €10,000 in commission. Thanks to this case law, the seller was able to keep his money.
• Buyer: You are not liable for the commission if the condition precedent is not fulfilled. But beware: if you are the cause of the non-fulfilment (for example, you do not submit your loan application), the agent might claim damages from you.
• Estate agent: You must wait for all conditions precedent to be fulfilled before invoicing your commission. If you invoice before, you risk having to refund and face disciplinary sanctions.

Four tips to avoid this type of dispute

• Check the clauses of the preliminary contract: Before signing, carefully read the conditions precedent and the clauses relating to fees. If a clause provides for payment of commission even in the event of non-fulfilment, know that it is ineffective according to the Supreme Court.
• Keep all supporting documents: If the condition precedent is not fulfilled, keep the evidence (loan refusal, etc.). In case of a dispute, you will need to demonstrate that the condition was not satisfied.
• Consult a lawyer before signing: A professional can help you negotiate clauses that comply with the law and avoid pitfalls.
• In case of a dispute, do not accept payment: If an agent claims commission even though the sale did not go through, refuse and consult a lawyer. The 1988 case law is still relevant.

Further exploration: related case law and developments

This 1988 decision is part of a consistent line of case law from the French Supreme Court. For example, in a judgment of 19 May 1998 (No. 96-14.070), the Court held that commission is only due if the sale is effectively concluded and the agent played a decisive role. More recently, the Court clarified that the condition precedent must be stipulated in the interest of both parties, and its non-fulfilment must be independent of the parties' will. The trend is therefore towards enhanced protection of clients against overly hasty agents. However, note: if the condition precedent is fulfilled but the sale fails for another reason (e.g., refusal to sign the final deed), commission may be due.

In practice: what to do

Checklist: What to do if a condition precedent is not fulfilled

1. Check the contract: Identify the condition precedent that was not fulfilled and read the clauses relating to fees.
2. Gather evidence: Obtain a written statement from the bank, notary or any third party confirming the non-fulfilment.
3. Notify the estate agent: Send a registered letter with acknowledgement of receipt to inform him that the condition is not fulfilled and that you consider the sale void.
4. Refuse payment of commission: If the agent claims fees, invoke the Supreme Court's case law.
5. Consult a lawyer: If the dispute persists, a specialised lawyer can assist you and, if necessary, initiate legal proceedings.

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