The draft Act amending the Act of 21 August 1997 on Real Estate Management (Draft No. UD424), prepared by the Ministry of Finance and Economy, is intended to comprehensively strengthen the protection afforded to clients using real estate agency services. The information available indicates that the authors of the draft legislation have identified a problem within the current regulatory framework, namely the considerable degree of freedom in determining the relationship between real estate agents and their clients. In the authors’ view, this facilitates practices that undermine market transparency.

The essence of the proposed amendments is to formally regulate the activities of real estate agents and to establish, by statute, a minimum standard for the services they provide. At the same time, the draft legislation provides for stronger supervisory and enforcement mechanisms.

The former market standard is no longer in force, as the professional standards applicable to real estate agents, published in the Minister for Infrastructure’s Communication of 18 March 2009, ceased to apply on 1 January 2014. Draft UD424 should therefore be regarded as an attempt to re-establish, by statute, minimum rules governing the conduct of real estate agency activities.

Statutory catalogue of an agent’s duties

The scope of real estate agency activities is currently set out in Article 179b of the Real Estate Management Act. It encompasses activities performed for remuneration with a view to enabling other persons to enter into agreements concerning the acquisition or disposal of rights in real estate; the acquisition or disposal of a cooperative ownership right to residential premises; the letting or lease of real estate or any part thereof; and other agreements concerning rights in real estate or any part thereof. Article 180(3) of the Real Estate Management Act imposes a formal requirement in respect of real estate agency agreements: such agreements must be concluded in writing or electronic form, failing which they are null and void. At present, however, the Act regulates the agency relationship only to a limited extent.

One of the most significant proposals set out in Draft UD424 is the introduction of a statutory catalogue of activities that an agent will be required to perform irrespective of the terms of the agreement concluded with the client. This is intended to enable clients to determine the minimum standard of professional service they may expect from an agent.

This amendment may have significant implications for contractual practice. To date, the scope of an agent’s activities could be — and, in practice, has been — defined in relatively general terms in the agreement. The authors of the draft legislation now seek to establish a statutory standard for the provision of services. This may not only restrict the ability to draft agreements setting out an agent’s duties in very general terms, but also introduce minimum standards of due care.

From the perspective of contractual liability, it will therefore be particularly important to determine the relationship between the statutory minimum and any additional activities agreed between the parties. In practice, this may increase the importance of documenting the activities undertaken by the agent and defining the subject matter of the agreement with precision.

Prohibition on charging fees to both parties to a transaction

The draft legislation proposes a rule under which an agent will be prohibited from charging fees to both parties to the same transaction. The authors justify this amendment primarily by reference to the need to mitigate the risk of conflicts of interest and strengthen the agent’s duty of loyalty towards the client.

There is currently no such prohibition under Polish law. Consequently, charging commission to both parties to a transaction has become a somewhat disreputable market practice. The draft legislation is therefore intended to close a significant regulatory gap, affecting not only the manner in which real estate agency agreements are drafted, but also the business models operating within the property market.

The end of publishing property listings without the owner’s consent?

Another significant element of the draft legislation concerns the rules governing the publication of property listings by agents. It proposes prohibiting the publication of a property listing unless an agency agreement has first been concluded with the property owner. In addition, the listing will be required to state unequivocally that it has been published by an agent.

The proposed measure seeks to address the practice of reproducing owners’ listings without their consent and altering their content, including by adding the agent’s fee to the asking price. In practical terms, this means that an agent will need to have an appropriate contractual basis in place before publishing a property listing.

A greater role for the Trade Inspection Authority

The draft legislation also provides for a significant extension of the Trade Inspection Authority’s supervisory powers in relation to real estate agents. The Authority operates under the supervision of the President of the Office of Competition and Consumer Protection (UOKiK). Inspections are expected to cover, inter alia, the manner in which clients are provided with information, the content of agreements, compliance with the statutory minimum scope of services, the charging of fees, the publication of property listings and making property viewings conditional upon the conclusion of an agency agreement.

According to the assumptions underlying the draft legislation, enforcement measures may include both financial penalties and orders requiring agents to cease practices that infringe the applicable provisions. In the most serious cases, an agent may be prohibited from conducting real estate agency activities. The current legislation regulates this area only partially. By way of example, Article 198d of the Real Estate Management Act provides for the imposition of an administrative financial penalty on an agent conducting real estate agency activities without complying with the obligation to enter into a professional indemnity insurance contract.

The most far-reaching proposed sanctions, including restrictions on the ability to conduct real estate agency activities, therefore go considerably beyond the existing range of penalties. A detailed analysis of these measures and an assessment of their potential implications will not, however, be possible until the text of Draft UD424 is made publicly available.

What does the draft legislation mean for the market?

Draft UD424 — and its stated aims and underlying assumptions — should be regarded as an attempt to establish a model under which the legislature defines a minimum standard of professional conduct for real estate agents operating in the property market.

For agents, this will entail the need to take more extensive compliance measures, the principal effect of which should, it appears, be greater client confidence. It will undoubtedly be necessary to review standard-form agreements, remuneration arrangements, procedures for publishing property listings and methods of documenting the activities performed. Preparing for potential inspections by the Trade Inspection Authority will also become particularly important. Even at this stage of the legislative process, agents should therefore review their existing contractual models and market practices, particularly in relation to fees charged to the parties to a transaction, the publication of property listings and the actual scope of services provided.

From the client’s perspective, the draft legislation should be regarded as an attempt to strengthen consumer protection and improve market transparency. At the same time, the effectiveness of the proposed measures will depend on the final wording of the provisions, particularly the precision with which the catalogue of agents’ duties is defined, the structure of the prohibition on charging fees to both parties and the rules governing the imposition of sanctions.

*At the time of preparing this alert, the draft legislation had not yet been made publicly available. Its principal aims and assumptions are, however, known and can be accessed at: Draft Act amending the Real Estate Management Act.