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Why is a contract with an agent mandatory? Answers of a lawyer

  • From 1 August 2020, only natural or legal persons who are included in the Register of Real Estate Agents maintained by the Ministry of Economics (bit.ly/starpnieku_registrs) may provide intermediation services of real estate transactions. With the entry into force of the Law on the Activity of Real Estate Agents, the regulatory enactment requires that any intermediation contract be concluded in writing. Agnese Broliša, a lawyer at ARCO REAL ESTATE, explains what an intermediation contract is and what the legal consequences are.

- What is an intermediation contract?

- An intermediation contract is an agreement whereby the client instructs the agent to find a buyer or tenant for the property and undertakes to pay the agent a fee if there is a transaction with the buyer or tenant found by the agent. Basing on the intermediation contract, the client can also ask the agent to find property to buy or rent.


- Is the conclusion of a cooperation contract mandatory? Is an oral agreement not enough?

- Pursuant to Section 8 of the Law on the Activity of Real Estate Agents, intermediation services contracts shall be concluded in writing. Thus, in order for an agent to provide an intermediation service to a client, an intermediation contract must be in writing.


- Are there any exceptions where intermediation services can be provided without an intermediation contract with the client?

- No, the said law does not allow for exceptions.


- For what purpose was such regulation adopted if intermediation services could previously be provided without "paperwork"?

- In the annotation of the law it is stated that the new requirement is necessary to monitor and control the real estate sector. As you know, so far there were no such requirements, so the intermediation services could be provided by anyone - both a qualified specialist and a beginner. The adoption of this law is a step towards eradicating unscrupulous brokers and increasing the prestige of the profession.


- What does the condition relating to the written form entail?

- The form of a written contract means that it is information recorded in any form using various technical solutions, such as a print or e-document. It is important to reiterate that it is the written form of the contract that helps to monitor the scope of activity of real estate agents. The written form of the transaction also provides an opportunity to identify possible tax evasion, deliberate reductions or increases in the amount of the transaction, thus facilitating the detection of suspicious transactions and reducing the shadow economy in the real estate sector.


- What is the payment procedure between the parties to an intermediation contract?

- In the contract, the parties agree on the fee to be paid in the event of a transaction: for example, if the contract is for finding property to buy, the fee for the agent is payable only if the customer buys the property found by the agent.


- Should the intermediation contract be kept after the transaction?

- According to the standards of the Financial Transactions Working Group, transaction documentation must be kept. And in accordance with their respective powers, national competent authorities should have access to the information obtained during the investigation of the client and the transaction records. This documentation must be sufficiently comprehensive to enable individual transactions to be reconstructed, thus providing, where necessary, evidence of a criminal offense.


- What is the penalty under the law for the provision of intermediation services without a written contract?

- Pursuant to Section 16 of the Law on the Activity of Real Estate Agents, the Ministry of Economics may exclude an agent from the Register by preventing him/her from continuing to provide intermediation services.


- How is ARCO REAL ESTATE storing customer data that appears in the intermediation contract?

- Personal data is processed and stored in accordance with the applicable data protection laws, including the General Data Protection Regulation of the European Union and other regulatory enactments, thus personal data is secure in the company.


- What are the benefits for the parties of concluding a cooperation contract?

- The conclusion of a written contract ensures that the agent complies with the law, is a qualified specialist in the field (the law requires mandatory training in this field), has insured his/her civil liability (to protect the client from unprofessional acts and damages caused by the agent) and enforces anti-money laundering legal requirements. Any written agreement shall ensure that the parties have expressly agreed on something, fixing the amount of the remuneration, the payment procedures and the terms. A cooperation agreement is beneficial to both parties: the agent is guaranteed that he/she is entitled to receive remuneration for the work performed, while the client's benefit is a safe and legal transaction.


- What is the attitude of customers when the agent informs about the need for a contract?

- People are different, so the attitude to such a requirement depends on their knowledge. Customers who avoid entering into a written contract are most often unaware of such a mandatory, state-determined requirement, so ARCO REAL ESTATE agents explain this need on a daily basis to their first-time real estate customers.


- What are the biggest challenges for agents in this context?

- The agent's task is to explain to the customer and be able to convincingly convince him/her that the conclusion of the contract is part of the transaction, which allows both parties to agree in writing on the terms of cooperation and to avoid the risk that the terms agreed have not been clear to either party.

ARCO REAL ESTATE is an international company with more than 20 years of experience in the Latvian real estate market. Since the establishment of the company in 1997, ARCO REAL ESTATE has been constantly developing and promoting the professional growth of its employees, thus increasing the quality of the services provided and becoming the leading service provider in the industry. Currently, the company, which employs more than 50 qualified specialists, provides services in Riga, Jūrmala, Saulkrasti, Daugavpils, Jelgava, as well as in Limbaži and elsewhere in Latvia, offering real estate brokerage, appraisal and consulting services to clients.


Prepared by:

Dainis Guks
Marketing and Public Relations Manager


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