Brokerage Agreement, Agency Agreement, and Mandate Agreement: How Do They Differ?

Quick Overview

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Both the brokerage contract—sometimes referred to as an agency contract—and the mandate contract are governed by the Civil Code. As of January 1, 2014, the current Civil Code no longer regulates the separate contract type known as the “mandate agreement”; for new relationships, the agency agreement has generally taken over its function. However, for mandate contracts concluded before 2014, the earlier legal framework may still apply. The general principles of contract law, such as freedom of contract, good faith, and the protection of the parties’ good faith, apply to all these types of contracts.

The individual sections of this law define the fundamental rights and principles governing these types of contracts. Nevertheless, we recommend paying attention to case law in practice, as these contracts often contain specific requirements and individual provisions. Therefore, if you need to draft a brokerage agreement or a mandate agreement, please contact our law firm. We will ensure that all legal requirements are met for you.

Brokerage Agreement

By definition, a brokerage agreement is a commitment by one party (the broker) to secure for the other party (the client) an opportunity to enter into a contract with a third party. The purpose of a brokerage agreement is therefore to connect the client with a potential business partner and facilitate an agreement.

In practice, brokerage is used across various fields. Among the most common examples are:

• Real estate market —a real estate agent facilitates the sale, purchase, or rental of a property between the owner and the tenant or buyer.
• Employment – employment agencies commonly help companies find suitable employees.
• Commercial contracts – sales representatives typically negotiate contracts between manufacturers and customers.
• Financial products – insurance and financial advisors negotiate agreements with banks and insurance companies on your behalf.
• Leases and loans – companies help clients secure financing for cars, machinery, and other items.
• Arts and Sports – Agents negotiate contracts for the actors, musicians, or athletes they represent.
• Investments – Financial advisors seek out suitable investment opportunities for their clients.

What a Brokerage Agreement Must Include

• Subject Matter of the Agreement – The agreement must clearly define what services the broker provides, to what extent, and how the broker will facilitate the transaction.
• Commission – A brokerage agreement is a contract for consideration, and the client agrees to pay the broker a commission. It is advisable to specify in the agreement the exact amount of the commission or the method of calculation, and, if applicable, the point in time at which the right to payment arises. Unless the parties agree otherwise, the law sets forth its own rules regarding the due date for the commission.
• Form of the Agreement – While the law permits an oral agreement, it is safer to always use a written agreement, where you can clearly define the rights and obligations of both parties. In the event that you need to prove something, a written agreement is also unambiguously more verifiable. Note: According to the Real Estate Brokerage Act, a real estate brokerage contract must be concluded exclusively in writing, and the law also specifies additional mandatory information that must be included.
• Agent’s Obligations – In this section, you can specify, for example, that you require regular updates on progress, that you want documentation of contacts with potential partners, that the agent must adhere to business ethics, and any other conditions.

What could go wrong?

Drafting a high-quality brokerage agreement is no easy task. If you do not clearly define the broker’s services, it can lead to disputes over whether a particular service was actually provided or not. In this case, there’s no room for “he said, she said.” At the same time, be wary of disputes over when the right to a commission arises. If you don’t clearly specify in the contract when and under what conditions this right arises, you can easily end up in a conflict with the other party.

It also often happens that an intermediary fails to fulfill their obligations. For example, they may fail to provide contacts or provide incorrect information. In such cases, the intermediary is liable for damages, and we represent clients in court proceedings regarding, for example, the amount of compensation.

In practice, the issue of so-called “double brokerage”—where multiple brokers claim to be the ones who secured a specific business opportunity—is also frequently addressed. These disputes often lead to legal conflicts as well.

Disputes also frequently arise because it is not clearly specified for what specific result the broker is to receive a commission. A typical situation is when a prospective client ultimately closes a deal with a person whom the broker had previously connected them with, but only after some time has passed. In such cases, the exact wording of the contract—as well as the specific activities the broker actually performed—can be decisive.

If you still wish to draft a brokerage agreement yourself, we recommend using the simple brokerage agreement template provided at the end of this article.

Agency Agreement: Requirements and When You Might Still Encounter One

In the past, the mandate agreement was a common type of contract between business entities. Through this agreement, the principal authorized the agent to represent them in a specific matter. This relatively simple contractual relationship was often used , for example, in foreign trade. The agency agreement was defined by the Commercial Code. However, with the repeal of the Commercial Code in 2014, the agency agreement was also abolished and replaced by the general mandate agreement.

Therefore, if you are looking for a mandate agreement and its requirements for a new contractual relationship today, you will generally need an agency agreement instead. The original mandate agreement was a paid arrangement, and its essence was that the agent handled a specific business matter for the principal and on the principal’s behalf. However, for older contracts entered into before 2014, the original legal regime may still be relevant.

A mandate agreement could include both factual activities related to business (such as gathering information or business preparations) and legal acts, such as representation in court proceedings or when concluding contracts. In these cases, attorneys were typically the agents.

Agents were entitled to compensation for the work performed; thus, the compensation was not tied to the outcome of the activity. This meant that they were entitled to payment even if the transaction they facilitated was not successful. In addition to the agreed-upon remuneration, the agent was also entitled to reimbursement of expenses incurred in the performance of their activities, unless the contract specified that these were already included in their remuneration.

The difference between a brokerage agreement and an agency agreement lay primarily in the subject matter of the obligation. A broker arranges an opportunity to enter into a contract with a third party, whereas, under the previous legal framework, an agent handled a specific business matter on behalf of the principal. Today, a contract of mandate is primarily used for similar arrangements.

When to Use a Mandate Agreement and When to Use a Contract of Mandate?

For a new contractual relationship, you will generally use a mandate contract today. The mandate contract was a separate type of contract under the former Commercial Code, and since 2013, new relationships of this type are no longer commonly entered into. However, you may still encounter mandate contracts in long-term agreements entered into before 2014, which, under certain conditions, continue to be governed by the previous legal framework.

Agency Agreement

The contract of mandate (mandatum) replaced the former mandate contract. A contract of mandate imposes on the agent (the person performing the mandate) the obligation to perform a specific activity for the principal (the person issuing the mandate). The agent must generally perform this activity without being required to achieve a specific result. Mandate contracts are used in both personal and business relationships.

When comparing the differences between types of agency agreements, it is important to distinguish between the mere handling of a matter and legal representation. A mandate agreement alone does not authorize the agent to act legally on behalf of the principal—for example, if the agent is to enter into a contract with a third party on the principal’s behalf, the agent also needs a power of attorney to do so. An intermediary, on the other hand, typically only creates an opportunity to enter into a contract and does not represent the interested party.

Unlike a contract for services, an agency agreement commits the agent to perform an activity but does not guarantee a specific result, whereas a contract for services commits the contractor to achieve a specific result (such as repairing a car, building a house, etc.).

An intermediary agreement, therefore, focuses on facilitating a transaction between the parties and is usually contingent upon establishing contact. A mandate agreement , on the other hand , focuses on the performance of an activity that does not necessarily lead to a specific result.

What a Contract for Services Must Include

• Performance of the Assignment – The agent undertakes to perform the activity in accordance with the principal’s instructions; however, these instructions must not conflict with the law or public policy.
• Remuneration – An agency agreement may be either gratuitous or for consideration. The agent is entitled to remuneration if it was agreed upon or if it is customary for the activity in question, particularly with regard to the principal’s business. Therefore, we recommend explicitly addressing the issue of remuneration in the contract.
• Duty to Report – At the principal’s request, the agent must provide reports on the progress of the assignment and, upon its completion, submit a statement of account. The agent must perform the mandate faithfully and diligently to the best of their ability, act in accordance with the principal’s wishes, and use the means required by the nature of the matter being handled.

The mandate may terminate upon its fulfillment, but it mayalso be terminatedunilaterally. The principal may revoke the mandate at will, in which case the principal must reimburse the agent for costs prescribed by law, any damages, and an appropriate portion of the remuneration. The agent may terminate the mandate under the conditions set forth in the Civil Code. In this case, the agent is liable for any damages if such damages were caused by a breach of the agent’s duties.

From a lawyer’s perspective: A common mistake in agency agreements is defining the task too broadly—for example, merely stating that the agent “handles business matters.” If a dispute later arises regarding compensation or whether the agent fulfilled their obligations, it is difficult to prove exactly what specific activities they were actually supposed to perform. Therefore, we recommend describing the scope of the mandate as specifically as possible.

Do you need to properly define the compensation, scope of work, or liability of the other party? We’ll draft a customized agency or brokerage agreement for you and ensure that its terms align with how the collaboration is actually intended to work.

Summary

Abrokerage agreement serves to secure an opportunity to enter into a specific contract with a third party and is associated with a commission for the broker. An agency agreement, on the other hand, obligates the agent to handle a matter on behalf of the principal, and achieving a specific result is generally not a requirement. If the agent is also to act on behalf of the principal in legal matters, they need a power of attorney to do so. The former mandate contract has not been used as a separate type of contract for new relationships since 2014; however, it may still be relevant for contracts entered into under the previous Commercial Code. In all such relationships, it is important to clearly define the scope of activities, compensation, liability, and the manner of terminating the contract. Furthermore, for real estate brokerage, the law requires a written form and specifies particular contractual requirements.