Brokerage agreement, contract of mandate and mandate agreement: How do they differ?

An agency contract, sometimes also called an agency contract, is regulated by Act No. 89/2012 Coll., the Civil Code, just like a contract of instructions. The agency contract replaced the former mandate contract. The general principles of contract law, such as autonomy of the will, fairness and protection of the good faith of the parties, apply to all these types of contracts.

The different sections of this law define the basic rights and principles governing these types of contracts. Nevertheless, we recommend that in practice attention is paid to case law, as these contracts often contain specific requirements and individual arrangements. Therefore, if you need to prepare a mediation or assignment contract, please contact our law firm. We will take care of all the details for you.

Mediation agreement

The definition says that an agency agreement is an obligation of one party (the agent) to procure for the other party (the prospect) an opportunity to enter into a contract with a third party. The purpose of a brokerage agreement is therefore to connect the prospective buyer with a potential business partner and broker the deal.

In practice, brokerage is used across industries. The most common cases include:

• Real estate – a broker negotiates the sale, purchase or lease of a property between an owner and a tenant/buyer.
• Employment – employment agencies commonly help companies find suitable employees.
• Business contracts – sales agents typically negotiate contracts between manufacturers and buyers.
• Financial products – insurance and financial advisors negotiate contracts with banks and insurance companies on your behalf.
• Leases and loans – firms help clients obtain financing for cars, machinery, etc.
• Arts and sports – agents arrange contracts for the actors, musicians or athletes they represent.
• Investments – financial advisers find suitable investment opportunities for their clients.

What the mediation contract must contain

• Subject matter of the contract – the contract must clearly define what services the intermediary provides, to what extent and how it will arrange the deal.
• Commissions – brokerage services are usually remunerated. The contract should therefore specify whether the entitlement to commission arises at the conclusion of the contract between the interested party and the third party or only after certain conditions have been met.
• Form of the contract – although the law allows for an oral form, we strongly recommend that you always use a written contract where you can clearly set out the rights and obligations of both parties. In case you need to prove something, the written form is also clearly more provable.
• Obligations of the intermediary – in this section you can indicate that you require, for example, ongoing progress reporting, you want to document contacts to potential partners, that the intermediary must comply with business ethics and any other conditions.

What can it fail on?

It’s not easy to draw up a good brokerage agreement. Failure to clearly define the services of the intermediary can lead to disputes over whether or not the service was actually provided. “Perception” is not the way to play the game in this case. At the same time, beware of disputes over entitlement to commission. If you do not clearly state in the contract when and under what conditions this entitlement arises, you can easily get into conflict with the other party.

Often the intermediary also fails to fulfil its obligation. For example, by not providing contacts or by giving incorrect information. In such cases, the intermediary is liable for damages and we represent clients in court negotiations, for example, on the amount of compensation.

In practice, we also often deal with the issue of so-called double brokerage, where multiple brokers claim that they were the one who secured a particular business opportunity. These frictions also give rise to legal disputes.

If you do want to prepare the brokerage agreement yourself, we recommend using the simple model brokerage agreement at the end of this article.

Mandate contract

In the past, a mandate contract was one of the common types of contracts between business entities. By this contract, the principal authorized the mandator to represent him in a certain matter. This relatively simple contractual relationship was often used, for example, in foreign trade. The Commercial Code defined a mandate contract. However, along with its abolition in 2014, the mandate contract was abolished and replaced by a general mandate contract.

A mandate contract could include both factual business-related activities (such as obtaining information or business preparations) and legal actions, such as representation in court proceedings or in concluding contracts. Thus, the typical mandator in these cases were attorneys at law.

The mandataire was entitled to remuneration for the activity performed, so the remuneration was not linked to the result of the activity. This meant that he was entitled to the money even if the mediated transaction was not successful. In addition to the agreed remuneration, the principal was also entitled to reimbursement of the costs associated with the performance of the activity, unless the contract stipulated that they were already included in his remuneration.

The mandate agreement

The mandate agreement (mandatum) replaced the earlier mandate agreement. A mandate contract imposes an obligation on the principal (the person who executes the order) to perform a certain activity for the principal (the person who gives the order). This activity must be performed by the principal, usually without having to achieve a specific result. A contract of command is used in both personal and business relationships.

Unlike a contract of work, a contract of command commits to an activity but does not guarantee a specific result, whereas a contract of work commits to a specific result (e.g. repairing a car, building a house, etc.).

Thus, an agency contract focuses on arranging a transaction between the parties and is usually conditional on securing contact. A contract of agency, on the other hand, focuses on the performance of an activity that does not necessarily lead to a specific result.

What must be included in the contract of command

• Execution of the order – the principal undertakes to perform the action according to the instructions of the principal, but these instructions must not be contrary to law or good morals.
• Remuneration – a contract of command does not always have to be for consideration, so it is up to both parties to agree on some remuneration and to include it in the contract.
• Duty to inform – the principal must, however, keep the contractor informed of the performance of the order and must also allow the contractor to inspect the order. The principal also has a duty to act with due care and diligence and to protect the interests of the principal.

The mandate agreement may be terminated by unilateral termination or shall end when the task is completed. In this case, the principal shall be liable for any damages if he has caused such damages through a breach of his obligations.

We will be happy to prepare a bespoke contract of assignment and an agency agreement for you at our law firm.

Summary

Agency, commission and mandate agreements differ in their purpose and legal requirements. An agency agreement is used to procure a business opportunity between an interested party and a third party, often in the real estate, employment or financial sector. A contract of agency imposes an obligation on the principal to perform an action, but not to guarantee the outcome, and applies to both personal and business relationships. The former mandate contract, which was abolished in 2014, operated similarly to the mandate contract but was primarily used between business people. Clear delineation of duties and remuneration is key to avoid legal disputes.