Real estate business in Bulgaria often requires the use of various services, such as brokers. This includes intermediation, through which the future buyer or seller entrusts another person who carries out this activity on a professional basis with the execution of specific legal or other acts for the desired real estate contract, in particular with the main task of establishing contact between the future parties. According to Article 49 of the Bulgarian Commerce Act, an agent is a businessman who undertakes the brokering of transactions on a professional basis. In practice, the agent in real estate transactions is called a "broker" or "real estate agent".
Although it is an officially regulated professional activity in Bulgaria, covered by the National Classification of Professions and Occupations, this activity is not yet regulated by any specific law. The draft law on brokerage services in real estate transactions, which has already been submitted to the Bulgarian National Assembly, should implement some mandatory requirements to ensure the safety of the different market actors, but this is still more of a utopian dream. And with Resolution No. 454 of April 25, 2024, the Bulgarian Antimonopoly Office issued a legal opinion on the law, expressing the viewpoint that the law contains numerous restrictions on competition, and thus the priority of its adoption has been pushed even further back for the legislator. In the meantime, the need for regulation and the requirement for standards led to the adoption of Regulation No. 1 of February 16, 2024 on the acquisition of the professional qualification "Broker", in force from March 1, 2024, thus introducing the State Educational Standard for the acquisition of the professional qualification "Broker".
Unlike in Bulgaria, for example, brokers in Germany have to comply with a whole series of statutory obligations, which makes their activities far more transparent and professional than those of their Bulgarian counterparts.
All this requires a careful study of the relationship that the potential customer - seller or buyer - can enter into and this article will therefore focus on the purchases and sales.
I. Brokerage agreement. The role of the broker
In general, there are different opinions on how the legal relationship between the broker and the customer can come about in different forms. According to the prevailing case law of the Bulgarian Supreme Court of Cassation, however, the legal relationship is an agency agreement in accordance with Articles 49 - 51 of the Commerce Act, which has a different scope and content of rights and obligations than the contract within the meaning of Article 280 of the Act on Obligations and Contracts (SVG) - Decision No. 37 of 27.04.2012 in Commercial Case No. 1143 of 2010,1st Department of the Commercial Chamber of the Bulgarian Supreme Court of Cassation. This view is also shared because such a contract always aims at a specific result, which consists not only in the meeting of the business parties, but in the actual conclusion of the purchase conctract after the meeting of the parties. It is assumed that the agent, by taking the obligation to mediate, is also obliged to cooperate for the conclusion of a specific contract between two partners, by supporting this basic process in accordance with the instructions of the contracting parties.
The real estate agent himself is always a merchant, which is evident from Article 1, Paragraph 1, No. 4 of the Commerce Act, which regulates the brokerage activity as a commercial activity. The brokerage contract is an absolute commercial transaction within the meaning of Article 1, Paragraph 1, No. 4, 2nd sentence of the Commerce Act. It is an activity that is carried out commercially by a specialist by carrying out certain transactions or transactions with certain private law objects. The broker can act independently without hindrance through any of the forms of carrying out commercial activities, namely as a registered sole trader, as a limited liability company (OOD), joint stock company (AD), general partnership (SD) or as a limited partnership (KD), including its variant with shares (KDA). It should be clarified that the person who carries out the main part of the negotiations, inspections and communication between the parties can also be employed by the company through a civil or labor contract and this circumstance would be relevant in some hypotheses of asserting claims for damages resulting from bad faith actions of the broker, but also with regard to the legality of signing a brokerage contract, especially if it is assumed that only the merchant or his legal representative (managing director or authorized representative) can act as a signatory and not an employee - broker.
III. Types of contracts concluded between broker and customer. Special features and differences.
The type of contract we conclude with the real estate agent may be decisive in individual cases. For example, the seller of a specific property would be interested in concluding a contract from the category of so-called exclusive contracts with a specific broker of his choice who he trusts and who he knows will sell his property in the best possible way. In the same case, however, it would not be appropriate for a seller who intends to sell in the shortest possible time to limit his property offer to just one specific broker - he can conclude brokerage contracts with several contractors, but he only has to pay a commission to the one who was the first to find the right approach to conducting negotiations and who, through his actions, contributed to the conclusion of a deal between the parties for whom he acted as an intermediary. Unfortunately, unfair business practices often occur, which mean that a buyer or seller who is looking for a specific property through the mass media and communication services inevitably involves an "appointed" broker. In such cases, the broker, who has been commissioned by the other party to search for or market the property, requires the prospective buyer who is interested in the ad to conclude a brokerage agreement, which obliges him to pay a commission to him, to his colleague from the same agency or to a colleague from another agency, who is in fact a person connected to the first. Article 51 of the Commerce Act actually regulates the remuneration of the commercial broker, giving him the right to receive this from both parties, but only if the parties have agreed to this and there is an express consent. It should be noted here that no party is obliged to use brokerage services and they should not be pressured to pay a commission on the condition that they will otherwise be denied information about the specific property and contact with the other party. This has a restrictive effect on the market and harms the interests of the client, who also wants to conclude the deal quickly and with the utmost security in the transaction. Furthermore, if the interests of both parties are in conflict, with one party wanting to conclude a deal at the lowest possible price and the other wanting to achieve the highest possible purchase price compared to the market price, it is questionable whether the broker is not in a conflict of interest.
However, the brokerage contract is often preceded by several categories of documents, the negligence of which when signed can lead to some inconveniences later on. Most often, during the first viewing, the client or prospective buyer is offered to sign a viewing report under the pretext of the broker's responsibility to the other party and for information purposes regarding the interest in the property. Signing this report is a prerequisite for viewing the selected property. Jurisprudence has identified a number of cases in which the client's ignorance is exploited and the client is forced to pay a commission, which is essentially a disguised brokerage contract. According to the decision of the Supreme Administrative Court No. 15567 of 13.12.2018 in the administrative case No. 9458 of 2017, the binding of the customer or the potential buyer through a viewing protocol with obligations that should in themselves be the subject of a brokerage contract represents unfair and misleading commercial conduct. In such a case, the customer has, among other things, the status of a consumer and can therefore rely on protection under the Bulgarian Consumer Protection Act.
The contract for a "reservation fee" as it is commonly called, or the so-called deposit agreement, requires increased caution. It is intended to express serious interest in the specific property offered on the market, in that the payment of a certain amount of money at the time of conclusion (reservation fee) is intended to protect the seller in some way if the buyer unreasonably refuses to finish the purchase. This is logical because the seller undertakes not to offer the property for sale during the agreed period while the transaction is being prepared with the potential customer, i.e. to refrain from using another business partner if he has been misled by the first one. Unfortunately, this contract can cause some inconvenience for buyers, who in most cases cover possible damages by paying deposits before the status of the property is clarified. For example, when viewing the property, it is often not possible to determine that the property is actually intended for use as an office, which would be decisive for the potential customer if he was relying on a home loan from a bank to make the purchase, since the use of the property for commercial purposes does not correspond to the legal definition of "home" within the meaning of the Territorial Organization Act and does not require such a loan.
The deposit should usually be given to the seller, i.e. the parties to the reservation agreement should also be the contracting parties to the future purchase. In most cases, however, the broker concludes this contract in the name and on behalf of his client, of course subject to a corresponding power of attorney or an explicit assignment in accordance with the brokerage agreement. The essential content of the contract is the agreement that the deposit paid is to be deducted from the purchase price and the manner in which it is to be paid.
In this case, special attention should be paid to the so-called exclusive contract. When concluding such a contract, the client should be aware that if the exclusivity clause is violated, he will be subject to contractual liability, which is usually agreed as a contractual penalty in the amount of a certain commission fee.
It is important to understand the difference between a brokerage agreement and a preliminary contract. Not only their subject matter, but also the contracting parties are different here. Unfortunately, there are still cases where the terms are confused and when they sign the brokerage contract, which contains a description of the specific property, some customers believe that they have signed a preliminary contract.
The contract with a loan broker is similar in name, but is an agreement that differs from the brokerage contract discussed above. It is usually concluded with a prospective buyer who intends to finance the purchase with a loan. Using the services of a loan broker is then advisable, but represents a separate legal relationship for a different service and should be discussed separately.
III. Rights and obligations of the broker. Liability.
Undoubtedly, the real task of the broker is to bring the parties together, but this is far from his only duty. The question of what the broker must do in mediation, given that he carries out complex operations, is extremely delicate and in this sense some texts of Regulation No. 1, which impose on the broker the obligation to draw up a preliminary contract between the immediate contracting parties and to advise clients on the legal requirements for the content of the contract, which in itself constitutes a legal activity, raise some questions. The legal assessment should normally be carried out by a lawyer in the light of the legal evaluation that he can derive from the relevant documentation. The confusion arises from the fact that the broker must carry out an assessment under his liability towards the client and must provide full communication from the initiation to the conclusion of the transaction. The broker should inform the client of the risks associated with real estate transactions, and he may also be instructed to obtain certain documents from the relevant state and local administrative authorities, and to prepare and compile the documents required for notarization of the transaction. However, he is an expert in a completely different field and one should not rely on him or expect him to be able to foresee all possible legal pitfalls and to be familiar with the case law to the extent that he can prevent them.
The draft law on brokerage services in real estate purchases provides for compulsory professional liability insurance for brokers such as lawyers, notaries and private bailiffs. A similar legal solution is to be viewed positively, as it ensures a higher level of security in business transactions, since brokers often come into contact with their clients' money, e.g. when concluding reservation agreements.
The broker's duties include organizing viewings, communicating with other colleagues, lawyers, notaries, appraisers, credit brokers and other institutions. He can help the client to determine the market price of the property based on his experience in the market. The principle of a prudent businessman requires the buyer/seller to be informed in advance of all possible costs related to the transaction - notary fees, taxes, repayment of overdue property costs, translation and certification costs if one of the parties is a foreigner, administration and maintenance fees for the building, tax liability in relation to VAT, etc. Part of his obligations within the framework of the real estate purchase is the storage and archiving of personal data. The parties can regulate all this in the brokerage contract and it can be decisive for determining the remuneration within the framework of the brokerage contract. As a rule, the remuneration represents a percentage of the purchase price.
It is therefore advisable to formulate the broker's obligations well in the contract. In the event of a brokerage contract and damage due to a failure to deliver the due result, the broker can be held liable. To the extent that tort liability is excluded, the general principle of non-damage applies as the basis for tort liability if a contractual relationship does not exist.
The rights of the real estate agent should also be protected. Unfairness would be present if the brokerage contract was based exclusively on the right to remuneration, but not on its corresponding obligations. In order to protect the interests of the agent in the event of the customer acting in bad faith, various contractual penalties, guarantees and also advance payments on the remuneration can be agreed. A proven practice in this regard is to agree to pay 50% of the commission fee when concluding the preliminary contract and the remainder when concluding the main contract. The service is deemed to have been provided and the reals estate agent's commission is due if the customer backs out but purchases the property through an associated person. If there is no written contract but only an oral agreement, the customer acting in bad faith can be held liable for the unjustified termination of the pre-contractual relationship (bad faith negotiations) and is then also liable for damages.