At the beginning of this year, the government approved its legislative proposal of the Act on Real Estate Intermediaries. Thus, the times when a trade licence for real estate agency was easy to get will likely be soon over. Proof of legal age and a clean criminal record have been sufficient up to now for obtaining a trade licence for real estate agency activities under Act no. 455/1991 Sb., on Trade Licensing (“Trade Licensing Act”), i.e. fulfilment of general conditions for carrying out a trade, but it has not been necessary to prove any professional qualifications for carrying out the trade. The new law is expected to come into effect in the second half of 2017.
According to its proponent – the Ministry of Regional Development – the new legal regulation should in particular define the basic legal framework for real estate agency work, boosting protection of consumer rights and deepening consumer trust in real estate services. According to the Ministry, the main reasons for adopting the missing regulation of real estate agency include low professional qualifications of some real estate agents, insufficient supervision over the execution of real estate agency activities, missing legal regulation of intermediation, and the essential elements of agreements on real estate agency.
Alternative no. 3 which was approved by the government1 assumes that the Trade Licensing Act will be amended to make the conditions for obtaining a trade license for real estate agency more stringent, and also that a special law on real estate agency will be adopted, which will set out rules for the actual execution of activities of real estate agents.
The amended Trade Licensing Act will put real estate agency in the category of regulated trade. Thus, moving forward, trade licence applicants would not only be obliged to prove the fulfilment of the above general conditions for carrying out a trade, but also professional qualifications for carrying out the activities of a real estate agent.
Proof of professional qualifications will be submitted to the Ministry of Regional Development, which will issue a certificate to the agent provided that the prescribed conditions are met. It will be possible to acquire professional qualifications primarily upon obtaining a certificate of successful acquisition of professional qualifications as a real estate agent, under the Act on Verification and Recognition of Results Further Education (Act no. 179/2006 Sb.). Furthermore, the option of proving professional qualifications on the basis of a master’s degree in real estate agency, law, property valuation or a university degree plus one year of experience as a real estate agent or the completion of a high school with a high school diploma plus three years of experience as a real estate agent.
The Ministry of Regional Development prefers this solution to the option where the professional qualifications are set out by the Trade Licensing Act. In accordance with the conditions of the Trade Licensing Act, it is sufficient for an entrepreneur if an individual meets the requirements for carrying out the respective trade, rather than all employees or independent contractors. However, the Ministry would like to achieve a situation where every real estate agent is obliged to prove their professional qualifications. The certificate will be added to Annex no. 2 of the Trade Licensing Act as proof of professional qualifications. Persons who have proven their professional qualifications and hold a certificate will be recorded in a publicly accessible List of Qualified Persons. With the use of this list, consumers will be able to verify whether a particular real estate agent is indeed professionally qualified for carrying out the respective activities.
Mandatory professional liability insurance for real estate agency, and the protection of clients’ funds deposited at a real estate agent in the case of execution or insolvency, should provide further protection to consumers.
In addition, it is necessary to moderate the more stringent requirements for an agreement on real estate agency. This agreement will be defined as a special type of brokerage contract which is regulated by the provisions of Section 2445 et seq. of Act no. 89/2012 Sb., the Civil Code. According to the government’s legislative proposal, the Real Estate Agency Act should define other mandatory particulars of the agreement on real estate agency, such as a written form of the agreement. The regulation of the agreement on the escrow of funds at a real estate agent will be also more stringent, as moving forward, escrow at real estate agents will be subject to similar requirements escrow at attorneys or notaries. Thus clients’ funds will have to be deposited in an account separate from the account in which operational finance of the real estate agent are kept.
According to the Ministry of Regional Development, the new legislation, if adopted in the form approved by the government, will bring such benefits as improved quality of provided real estate agency services and a higher level of professionalism in real estate agency, a substantially higher level of consumer protection based on rules governing the execution of activities in this field such as requirements for qualifications and mandatory insurance, a duty to inform etc. This will likely reduce the number of judicial disputes, as there will be a lower risk of failures due to the application of unprofessional practices. The List of Qualified Persons will enable more efficient supervision over the execution of the relevant activities.
Negative factors will include an increased regulatory burden for entrepreneurs in connection with the notification of trades and the submission of the required documents, as well as for the state administration bodies in connection with the issuance of certificates, and the creation and maintenance of the List of Professionally Qualified Persons. Entrepreneurs will also carry a heavier financial burden due not only to their insurance, but also the costs associated with professional qualifications tests or preparatory courses for these tests.
Despite of these burdens placed on entrepreneurs, we tend to believe that the intent of the new legislation should be embraced, provided that it brings the desired effect, i.e. a higher degree of legal certainty on the market for real estate agents and a higher general standard of real estate agency services.