Government rejects move for change in law on broker commission

In the long-running battle in Germany to determine who should pay brokers’ commission when a property is leased or sold, the arguments have reached the upper levels of German politics, where they look like they could be stuck for a while. A draft bill presented to the Upper House of Germany’s Parliament (Bundesrat) has been rejected by the current coalition government, who believe the bill represents an “attack on the parties to freely enter into contractual arrangements with each other”.

As we’ve often reported on in these pages, in general in Germany the commission is paid by the tenant or the buyer, although the broker is normally engaged to look after the landlord or the vendor’s interests.

The Upper House, which represents the interests of Germany’s federal states, or Länder, wants to amend the law to establish in principle that the commission is paid by the first party to a transaction to engage a broker, known as the “Bestellerprinzip”, or “he who orders, pays”. The argument goes that, particularly in larger cities, it’s almost impossible to find a property to rent or buy without going through a broker. After all, critics argue, why wouldn’t a landlord or a seller engage a broker, since it is not they who will have to pay the broker’s fee? Along with a three-month deposit, the broker’s commission of (normally) at least two months rent plus VAT can prove a crippling burden particularly for lower earners and families.

The government is resisting a change in the law on the grounds that the parties are free to enter into a contractual relationship with one another or not. Additionally, it claims, the rule is not universally applied – in cities where supply exceeds demand, the landlord often pays the full commission. Not all properties involve brokers, it says – and even where they do, the law as proposed by the Upper House would simply see landlords increasing the rent to compensate for the extra costs the new law would try to impose on them.

To create a clear distinction between who, essentially, has engaged the broker, and to prevent any situation where the landlord can claw any commission paid back via a higher rent to his tenants, the Upper House favours new draft legislation. The government’s concession, so far, is to agree that broker commission should not exceed two months ‘cold’ rent, i.e. without utility charges, as a maximum. It points out how, particularly in smaller towns and rural areas, the landlord already in most case waives any broker commission to prevent any lengthy vacancy – or, where demand and supply is more evenly matched, landlord and tenant often do manage to agree to split any payable commission where both are satisfied with the outcome. The dispute looks set to run for some time yet.