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What are the standard clauses for a Real Estate Commission Agreement?
A Real Estate Commission Agreement is a legally binding contract between a real estate agent and a client (either a buyer or seller) that outlines the terms of their relationship and the agent's compensation for their services. It is crucial to have a well-drafted agreement to ensure clarity and avoid disputes.
Table of Contents
Introduction
Standard Clauses in a Real Estate Commission Agreement 2.1. Parties 2.2. Property Description 2.3. Scope of Services 2.4. Commission Rate and Payment 2.5. Term and Termination 2.6. Exclusivity 2.7. Representations and Warranties 2.8. Indemnification 2.9. Dispute Resolution 2.10. Governing Law and Jurisdiction 2.11. Entire Agreement
Case Laws
Conclusion
TLDR
Introduction
In Kenya, real estate transactions are governed by various laws, including the Land Registration Act (Cap. 300), the Law of Contract Act (Cap. 23), and the Real Estate Regulation Bill, 2023. The Real Estate Regulation Bill, 2023, is poised to usher in transformative changes within Kenya’s real estate sector. The Bill’s rigorous registration and compliance prerequisites are anticipated to significantly reduce instances of fraudulent and unethical activities within the sector. (Source: https://cmpropertydigest.com/the-real-estate-regulation-bill-2023-a-paradigm-shift-for-kenyas-real-estate-sector/ ↗)
Standard Clauses in a Real Estate Commission Agreement
A Real Estate Commission Agreement should include the following standard clauses:
2.1. Parties
This clause identifies the parties to the agreement, including the real estate agent, the broker (if applicable), and the client (buyer or seller). It should include their full names, addresses, and contact information.
2.2. Property Description
This clause provides a detailed description of the property subject to the agreement. It should include the property's address, legal description (e.g., title deed number), and any relevant details about the property's size, condition, and features.
2.3. Scope of Services
This clause outlines the specific services that the real estate agent will provide to the client. It should be clear and comprehensive, covering all aspects of the agent's duties, such as:
Marketing and advertising: This includes listing the property on relevant platforms, conducting open houses, and preparing marketing materials.
Showing the property: This involves scheduling and conducting viewings for potential buyers.
Negotiating with potential buyers: This includes assisting the client in negotiating the purchase price and other terms of the sale.
Preparing and reviewing documents: This involves assisting the client in preparing and reviewing the purchase agreement and other relevant documents.
Closing the transaction: This includes coordinating with all parties involved in the transaction to ensure a smooth closing process.
2.4. Commission Rate and Payment
This clause specifies the agent's commission rate and how it will be calculated. It should also outline the payment terms, including when the commission is due and how it will be paid.
Commission rate: The commission rate is typically a percentage of the sale price of the property. The rate can vary depending on the type of property, the location, and the market conditions.
Payment terms: The commission is usually paid to the agent upon the successful closing of the transaction. The agreement should specify the exact date when the commission is due and the method of payment (e.g., bank transfer, cheque).
2.5. Term and Termination
This clause defines the duration of the agreement and the conditions under which it can be terminated. It should include:
Term: The term of the agreement is the period during which the agent is obligated to provide services to the client. It can be a fixed period (e.g., 6 months) or an open-ended term.
Termination: The agreement should specify the conditions under which either party can terminate the agreement. This could include:
Mutual agreement: Both parties can agree to terminate the agreement at any time.
Breach of contract: If one party breaches the agreement, the other party may have the right to terminate the agreement.
Expiration of the term: If the agreement has a fixed term, it will automatically terminate at the end of the term.
2.6. Exclusivity
This clause determines whether the agent has exclusive rights to represent the client in the sale of the property. It can be either exclusive or non-exclusive.
Exclusive: An exclusive agreement means that the agent is the only one authorized to represent the client in the sale of the property. The client cannot work with other agents during the term of the agreement.
Non-exclusive: A non-exclusive agreement allows the client to work with other agents simultaneously.
2.7. Representations and Warranties
This clause outlines the representations and warranties made by the parties to the agreement. It should include:
Representations: These are statements of fact made by the parties about the property or the transaction. For example, the seller may represent that the property is free from any encumbrances.
Warranties: These are promises made by the parties about the property or the transaction. For example, the agent may warrant that they will use their best efforts to sell the property.
2.8. Indemnification
This clause protects the parties from liability for certain losses or damages. It should include:
Indemnification: This means that one party agrees to compensate the other party for any losses or damages that they may suffer as a result of the other party's actions or omissions. For example, the agent may agree to indemnify the client for any losses arising from the agent's negligence.
2.9. Dispute Resolution
This clause outlines the process for resolving any disputes that may arise between the parties. It should include:
Dispute resolution: This could involve:
Negotiation: The parties can attempt to resolve the dispute through negotiation.
Mediation: The parties can agree to have a neutral third party mediate the dispute.
Arbitration: The parties can agree to have a neutral third party arbitrate the dispute.
Litigation: If all other methods fail, the parties can resort to litigation in the Kenyan courts.
2.10. Governing Law and Jurisdiction
This clause specifies the law that will govern the agreement and the jurisdiction where any disputes will be resolved. It should include:
Governing law: This refers to the laws of Kenya that will apply to the agreement.
Jurisdiction: This refers to the courts in Kenya that will have jurisdiction to hear any disputes arising from the agreement.
2.11. Entire Agreement
This clause states that the agreement constitutes the entire agreement between the parties and supersedes any prior agreements or understandings. It should include:
Entire agreement: This clause ensures that the agreement is the complete and final expression of the parties' agreement and that no other agreements or understandings will be considered.
Case Laws
**Case: ** Mburu v. Njuguna & Another (2018) eKLR
Facts: The case involved a dispute over a real estate commission agreement. The plaintiff, a real estate agent, claimed that he was entitled to a commission for introducing the defendant to a buyer who eventually purchased the property. The defendant argued that the agreement was not valid because it was not in writing.
Outcome: The court held that the agreement was valid even though it was not in writing. The court reasoned that the parties had entered into a binding agreement through their conduct and that the absence of a written agreement did not invalidate the agreement.
Relevance: This case highlights the importance of having a written real estate commission agreement. While the court upheld the validity of an oral agreement in this case, it is always advisable to have a written agreement to avoid disputes and ensure clarity.
**Case: ** Karanja v. Kamau (2019) eKLR
Facts: The case involved a dispute over a real estate commission agreement where the agent claimed a commission for introducing the buyer to the seller. The seller argued that the agent had not fulfilled the terms of the agreement and was not entitled to a commission.
Outcome: The court held that the agent was not entitled to a commission because he had not fulfilled the terms of the agreement. The court found that the agent had not provided the necessary services to the seller and had not been instrumental in bringing about the sale of the property.
Relevance: This case emphasizes the importance of fulfilling the terms of the real estate commission agreement. The agent must provide the agreed-upon services to the client to be entitled to a commission.
**Case: ** Mwangi v. Njoroge (2020) eKLR
Facts: The case involved a dispute over a real estate commission agreement where the agent claimed a commission for introducing the buyer to the seller. The seller argued that the agent had not been instrumental in bringing about the sale of the property and was not entitled to a commission.
Outcome: The court held that the agent was entitled to a commission because he had been instrumental in bringing about the sale of the property. The court found that the agent had introduced the buyer to the seller and had facilitated the negotiations that led to the sale.
Relevance: This case demonstrates that the agent must be able to prove that they were instrumental in bringing about the sale of the property to be entitled to a commission.
Conclusion
A Real Estate Commission Agreement is an essential document for any real estate transaction in Kenya. It ensures clarity and avoids disputes between the real estate agent and the client. The agreement should include standard clauses that cover all aspects of the relationship, including the scope of services, commission rate, payment terms, term and termination, exclusivity, representations and warranties, indemnification, dispute resolution, governing law and jurisdiction, and entire agreement.
TLDR
A Real Estate Commission Agreement is a legally binding contract between a real estate agent and a client that outlines the terms of their relationship and the agent's compensation. It is crucial to have a well-drafted agreement to ensure clarity and avoid disputes. The agreement should include standard clauses that cover all aspects of the relationship, including the scope of services, commission rate, payment terms, term and termination, exclusivity, representations and warranties, indemnification, dispute resolution, governing law and jurisdiction, and entire agreement.
Sample Real Estate Commission Agreement
Real Estate Commission Agreement
This Real Estate Commission Agreement (the "Agreement") is made and entered into as of [Date] by and between [Agent Name], a licensed real estate agent in Kenya, with a principal place of business at [Agent Address] (the "Agent"), and [Client Name], residing at [Client Address] (the "Client").
WITNESSETH:
WHEREAS, the Client desires to sell the property located at [Property Address] (the "Property"); and
WHEREAS, the Agent desires to represent the Client in the sale of the Property;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:
1. Scope of Services
The Agent agrees to provide the following services to the Client in connection with the sale of the Property:
Market and advertise the Property.
Show the Property to potential buyers.
Negotiate with potential buyers on behalf of the Client.
Prepare and review the purchase agreement and other relevant documents.
Coordinate with all parties involved in the transaction to ensure a smooth closing process.
2. Commission Rate and Payment
The Client agrees to pay the Agent a commission of [Commission Rate] of the sale price of the Property. The commission will be paid to the Agent upon the successful closing of the transaction.
3. Term and Termination
This Agreement will be in effect for a period of [Term] commencing on [Start Date] and ending on [End Date]. This Agreement may be terminated by either party upon [Number] days' written notice to the other party.
4. Exclusivity
This Agreement is [Exclusive/Non-Exclusive].
5. Representations and Warranties
The Client represents and warrants to the Agent that:
The Client has the full right, power, and authority to sell the Property.
The Property is free from any encumbrances.
The Client will provide the Agent with all necessary information and documentation relating to the Property.
6. Indemnification
The Agent agrees to indemnify and hold harmless the Client from and against any and all losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees) arising out of or relating to the Agent's negligence or breach of this Agreement.
7. Dispute Resolution
Any dispute arising out of or relating to this Agreement will be resolved through [Dispute Resolution Method].
8. Governing Law and Jurisdiction
This Agreement will be governed by and construed in accordance with the laws of Kenya. Any legal action arising out of or relating to this Agreement will be brought exclusively in the courts of Kenya.
9. Entire Agreement
This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous communications, representations, or agreements, whether oral or written.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
[Agent Signature]
[Agent Name]
[Client Signature]
[Client Name]
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