The Berlin Higher Regional Court (Kammergericht) has struck down a contractual mechanism that has long been widely used in notarised real estate transactions. Where a tenant exercises a statutory right of first refusal, a so-called constitutive brokerage clause cannot be used to impose the full brokerage commission on the tenant if the broker has agreed to act without remuneration vis-à-vis the seller. According to the Court, the conflict between the consumer-protection principle requiring the equal sharing of brokerage fees and the statutory rules governing rights of first refusal must be resolved in favour of consumer protection. For practitioners, the implications are clear: maintaining the previously common contractual structure may result in the complete forfeiture of the broker’s commission entitlement.
What was the case about?
A company had acquired a property developed with a multi-unit residential building, which was to be subdivided into condominium and partial ownership units. The tenants of the apartments held a statutory right of first refusal.
To safeguard the broker’s commission claim in the event that a tenant exercised such a right, the parties included in the notarised purchase agreement a genuine contract for the benefit of a third party pursuant to Section 328 of the German Civil Code (BGB) – a structure commonly used in these circumstances. The rationale was straightforward: if a tenant exercised the right of first refusal, that tenant would assume the obligation to pay the brokerage commission in place of the original purchaser.
The broker had agreed to act for the seller without remuneration. The entire commission of 6% plus VAT was therefore to be borne by the purchaser. In the case of an initial commercial purchaser, such an arrangement is generally permissible, as the consumer-protection principle requiring the equal sharing of brokerage fees does not apply.
One of the tenants subsequently exercised the statutory right of first refusal but refused to pay the brokerage commission.
What Is the Equal-Sharing Principle for Brokerage Fees?
Since December 2020, real estate brokers have been required to comply with the so-called equal-sharing principle when structuring their remuneration arrangements. Under Sections 656c and 656d of the German Civil Code (BGB), a consumer purchasing a condominium unit or a single-family home may not be required to bear a brokerage commission exceeding that payable by the seller. Furthermore, where the broker has agreed to act without remuneration for one party, no commission may be claimed from the other party.
It was precisely this mechanism that ultimately proved fatal to the broker’s claim in the present case—albeit indirectly through the position of the tenant exercising the statutory right of first refusal.
What Did the Berlin Higher Regional Court Decide?
The Berlin Higher Regional Court (Kammergericht) ruled in favour of the tenant and dismissed the broker’s claim for commission.
The Court acknowledged that, in principle, a tenant exercising a statutory right of first refusal may be obliged to pay a brokerage commission through a constitutive brokerage clause. However, the decisive factor is whether such a clause is intrinsically connected to the purchase agreement or whether it constitutes a “foreign element” that falls outside the scope of what a pre-emption holder is required to accept. Provisions governing the allocation of brokerage costs that depart from customary market practice do not bind the holder of a right of first refusal.
In the present case, the Court found that this threshold had been exceeded. Unlike the original commercial purchaser, the tenant was a consumer. Under German consumer protection rules, the broker could not have validly imposed the entire commission burden on a consumer purchaser. From the outset, all parties were aware that tenants with statutory rights of first refusal existed and that they would qualify as consumers. The broker had therefore knowingly agreed to act without remuneration for the seller, despite the foreseeable possibility that a consumer would ultimately be expected to bear the full commission.
According to the Court, this arrangement sought to impose an excessive commission burden on a consumer in a manner contrary to the legislative intent underlying the equal-sharing principle, while simultaneously granting the seller an unjustified financial advantage. The Court regarded this circumvention of the statutory framework as an unusually high commission arrangement that could not bind the tenant. As a result, the brokerage clause was deemed a foreign element of the purchase agreement and therefore ineffective against the holder of the right of first refusal.
The outcome is particularly severe for the broker. No commission claim exists against the seller because the parties had agreed that the broker would act without remuneration. The claim against the original purchaser ceased to exist once the original purchase agreement was displaced by the exercise of the right of first refusal. Nor did any claim arise against the tenant, as there was no valid contractual basis for such a claim. The Court nevertheless emphasised that the broker could have avoided this outcome through a different contractual structure with its principals, whereas the tenant exercising the right of first refusal had no opportunity to influence the arrangement.
The Court granted leave to appeal, noting that the legal issue has not yet been conclusively resolved by Germany’s highest civil court. The final word is therefore likely to rest with the Federal Court of Justice (Bundesgerichtshof).
What Are the Implications for Contract Drafting?
Where a tenant’s statutory right of first refusal may be exercised, the previously common structure—shifting the entire brokerage commission to the purchaser while the broker acts for the seller without remuneration—should be reconsidered. Otherwise, there is a significant risk that the broker’s commission claim may be lost entirely. Two alternative approaches merit consideration:
Equal Allocation of the Commission in the Event of Pre-Emption. The purchase agreement may provide that, if the right of first refusal is exercised, the brokerage commission is shared equally between the tenant and the seller. This ensures compliance with the statutory equal-sharing principle.
Seller-Borne Commission with a Purchase Price Adjustment. Alternatively, the seller may be made responsible for the brokerage commission throughout the transaction, while the purchase price is increased by an equivalent amount. From an economic perspective, the purchaser continues to bear the cost of the commission, but the broker’s entitlement remains secure regardless of whether the right of first refusal is exercised, as the seller remains the party liable for payment. The disadvantage of this structure is the increase in transaction-related costs, as the higher purchase price may also increase the basis for real estate transfer tax and other ancillary acquisition costs. With careful drafting, however, the economic impact of this effect can often be mitigated.
The most appropriate approach will depend on the specific circumstances of the transaction, the consumer status of the parties involved, and the applicable tax considerations. Particularly in the case of subdivided multi-unit residential properties with existing tenants, it is advisable to address the brokerage clause at an early stage of the transaction and contract drafting process.
