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Increased Liability for Real Estate Agents in Austria

June 2017 - Real Estate & Property. Legal Developments by Dorda.

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Pursuant to the Austrian Broker Act (Maklergesetz), a broker has to fairly and diligently protect their principal's interest. Until a very recent judgment of the Austrian Supreme Court (Oberster Gerichtshof), courts have taken a very lenient stance on the liability of real estate agents. The judgment of the Supreme Court of 24 Jan 2017, however, might permanently divert existing case law.

Under Austrian Law, real estate agents represent both sides in the deal and therefore need to respond to the seller's and the purchaser's needs. Due to this double function, real estate agents cannot fully take sides but, in line with the existing case law, only need to provide for a balancing of interests. A negligible risk of liability claims against real estate agents is the consequence of this stance.

In January, the Supreme Court was presented with a case in which the real estate agent had failed to provide the purchasers with information that the property was situated in an area with a high risk of flooding. The purchasers asserted that they had to bear higher costs in relation to the construction of their home which they wanted to reclaim from the real estate agent. It was undisputed that the purchasers would not have bought the property, had they known that the property was in such high risk area.

The Supreme Court followed its previous case law and held that real estate agents were liable for wrong representations of fact and that they were obliged to reimburse costs which accrued in reliance on such wrong representation (Vertrauensschaden).

For the first time, however, the Supreme Court compared the liability of real estate agents to the liability of investment advisors where the Court had already confirmed the restitution in kind, ie advisors who make wrong representations may be forced to take back the financial product (eg shares) and pay the full purchase price to their customer; with far-reaching consequences for advisors.

While the Supreme Court has only made this comparison obiter dicta, there is a high risk that the Court extends this ruling to future cases and that it confirms the restitution in kind for real estate agents.

Agents are well-advised to prepare for this moment.

Author: 

Klaus Pfeiffer

Attorney at Law, DORDA Attorneys at Law, Expert on Real Estate and Construction Law