Eligibility for Brokerage Commission; A Written Brokerage Agreement; The Broker as a Vital Component in Real-estate Transactions
Eligibility for Brokerage Commission; A Written Brokerage Agreement; The Broker as a Vital Component in Real-estate Transactions
Section 14 of the Israeli Realtors Law stipulates three conjoined conditions prior to a broker’s eligibility to commission in a real estate transaction in Israel:
(1) The broker has a valid brokerage license in Israel.
(2) Compliance with the provisions of section 9 of the Israeli Realtors Law – a written brokerage agreement between the real estate broker and the client.
(3) The broker being the vital component in the transaction.
The law stipulates the conclusive presumption that once a broker performs any of the specified marketing activities (by law) during the exclusivity period, said broker is considered the vital component to the closing of that real-estate transaction. The period of exclusivity, if granted to a broker, with respect to a real estate property on the market, shall not exceed six months from the date of the signing of the written brokerage agreement, if it is a residential property.
Section 9 of Israel’s Realtors Law: A Written Brokerage Agreement
Section 9 conditions a broker’s commission on a signed and written brokerage agreement. The regulations stipulate that the written agreement must be signed by the client and include at least all of the following details:
(A) Names, addresses and identification numbers of the broker and the client.
(B) Specification of the type of transaction: for example, “rent” or “sale”.
(C) A description of the property to which the brokerage transaction applies.
(D) The approximate requested consideration (or asking price) of the transaction.
(E) The agreed brokerage fee or the rate of the broker’s commission.
The description of the property in the brokerage agreement is often not sufficiently detailed enough, and a very broad description is used. For example, “Project X” or “a commercial property in Industrial Area Y” etc.
Even in cases such as the above where the brokerage agreement does not explicitly specify the property at hand with the relevant block and plot numbers, but rather mentions the complex in which the property is located in general, is not enough to negate the validity of the agreement and/or the broker’s commission (Request to Appeal no. 209/01 Ziva and Ze’ev Meir v. Tali Shoshan / 43164-03-11 Tzafrir Leibo v. Hani Ilan).
The prevalent approach today, in Israeli court rulings, is to examine each dispute in the brokerage agreement with the implied covenant of good faith and fair dealing as a guide and general presumption. That is, the parties entering into the brokerage agreement are obligated to deal with each other honestly and fairly. This guiding principle is used by courts to examine disputes on a case by case basis.
The Vital Component
The circumstances and facts of each case are also used to determine whether the actions of a broker are enough to be considered the “vital component” in the transaction. The courts previously ruled that the fact that a broker presented the property to the client alone, does not necessarily signify that any and all transactions regarding said property will entitle the broker to a commission.
There are general guidelines that indicate the degree of efficacy of the broker and whether he is to be considered the vital factor in a transaction, for example:
A) The degree of similarity between the original offer in which the broker was involved and the final contract.
B) The similarity between the terms of payment and the consideration of the transaction in the original offer, juxtaposed with the final outline, as set out in the contract between the parties.
C) The amount of time that elapsed between the original offer and the closing of the transaction.
D) The degree involvement of the broker- the scope of his/her actions, including meetings and conversations with the parties.
E) Is there another factor involved that helped facilitate the agreement between the parties and to what extent was said factor influential.
F) Payment of brokerage commission by the other party (seller or buyer) and rate of brokerage fees.
G) The identity of the negotiating parties.
H) Parties’ reliance on prior knowledge of the course of
