Focus on specialist brokers: real estate, insurance and banking

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In our previous article, we explored the general rules governing brokerage contracts in France. While these basic principles apply to many intermediaries, certain sectors of activity are subject to much more specific and often more protective regulations for consumers or business customers. Buying a house, taking out essential insurance, obtaining credit: these important stages in a person's personal or business life often involve the services of a broker.

The estate agent who helps you find the property of your dreams, the insurance broker who finds the best cover for your business, or the banking intermediary (often called a credit broker) who negotiates your loan... these professionals are subject to precise legal and regulatory obligations. Knowing these specific rules is essential to understanding their duties and your rights. This article looks at the particularities of these three key figures in regulated brokerage. It should be noted that there are also other forms of brokerage, with different specific features, such ascommercial agent or transport broker.

The estate agent: a highly regulated broker

The property sector is undoubtedly one of the areas where the involvement of an intermediary is the most visible and the most regulated. Law no. 70-9 of 2 January 1970, known as the "Hoguet Law", and its implementing decree strictly govern this profession.

Who is affected by the Hoguet Act?

The law applies to natural or legal persons who, on a regular or incidental basis, carry out transactions involving the property of others. This, of course, includes the classic brokerage activity: finding, negotiating and putting people in touch with each other to buy, sell or rent property (whether built-up or not) and business assets.

However, the Hoguet Act also covers other activities that do not fall directly under the heading of brokerage, such as property management (rental management) or acting as a co-ownership trustee. It is therefore important to note that while many estate agents act as brokers (mandat d'entremise), not all of them are. A rental manager or syndic, for example, carries out a different mission. Our focus here is on the agent acting as an intermediary in a transaction.

Strict operating conditions

No one can improvise themselves as an intermediary estate agent. Access to the profession is subject to strict conditions designed to guarantee the seriousness and competence of professionals:

1. Business card Licence: issued by the Chamber of Commerce and Industry (CCI), this is essential and specifies the types of transactions authorised (e.g. "real estate and business transactions").
2. Professional skills : You need to have a specific diploma or sufficient professional experience in the property sector.
3. Financial guarantee A bank guarantee or insurance is required to guarantee any funds held on behalf of customers (security deposits, escrow, etc.). The amount of this guarantee is proportional to the funds held.
4. Professional indemnity insurance (RC Pro) This covers any professional misconduct on the part of the agent that may cause prejudice to clients.
5. Honorability The law prohibits people who have been convicted of certain criminal offences (fraud, breach of trust, money laundering, etc.) or commercial sanctions (personal bankruptcy) from practising the profession.

These requirements are designed to protect customers from unscrupulous or incompetent intermediaries.

The estate agent's mandate: an imperative formal requirement

Unlike common law brokerage, which may be verbal, the mandate given to an estate agent for a transaction (sale, purchase, rental) must be in writing. This is a condition of the validity of his right to remuneration. This written mandate must contain a number of compulsory details, failing which it will be null and void:

• The identity of the parties.
• The precise description of the property concerned.
• The exact purpose of the assignment (sell, buy, rent, etc.).
• The term of office (which is always limited in time).
• The amount or method of calculation of the agent's remuneration and the name of the party responsible for paying it (vendor, purchaser, tenant, etc.).
• The conditions under which the agent may receive funds.
• An entry number in a register of mandates kept by the agent. This number must be shown on the copy of the mandate given to the customer.

For a long time, the Court of Cassation held that failure to comply with these formalities resulted in absolute nullity, depriving the agent of all remuneration even if he had completed his assignment. Since a major reversal in 2017 (Cass. Ch. Mixte, 24 February 2017), this nullity is considered to be "relative": only the client (the party that the law intends to protect) can rely on it. This offers a little more flexibility but does not exempt the agent from scrupulously complying with these rules.

Particular attention must be paid to exclusive mandates (which prohibit the customer from selling by himself or through another agency). To be valid, the exclusivity clause must be clearly marked, and a copy of the mandate must be given to the customer at the time of signing. In addition, after an initial period of three months, an exclusive mandate may be terminated at any time by either party, subject to fifteen days' notice.

Remuneration: a conditional commission

The principle is clear and strict: estate agents are only entitled to their commission (or fees) if if the transaction for which he has been authorised has actually been concluded and recorded in a written document signed by the parties (compromis de vente, acte authentique, bail, etc.). Simply introducing a potential buyer or signing an offer to purchase is generally not enough.

In addition, if the deed contains a condition precedent (for example, that the buyer obtains a loan), the commission is only payable if this condition is fulfilled. As long as the condition is pending, the transaction is not considered to be "effectively concluded".

However, there are exceptions:

• If the mandate contains a penalty clause or a exclusivity clause stipulating that a sum will be due even if the deal is done without the agent or if the client refuses an offer at the price of the mandate, this clause may apply (provided that it is valid and drafted in accordance with the requirements set out above).
• If the customer commits a fault who causes the agent to lose his commission (for example, by dealing directly with a buyer introduced by the agency to avoid paying the fee), he may be ordered to pay damages of an equivalent amount.

The insurance broker: advisor and intermediary

Insurance is another area where the use of an intermediary is very common. Insurance brokers typically act as agents for the insured (their customer), seeking out the best cover for them from various insurance companies, with whom they have no exclusive relationship.

A regulated and supervised profession

Like estate agents, insurance brokers are regulated professionals.

• Registration Insurance intermediaries: They must be registered in the single register of intermediaries kept by ORIAS (Organisme pour le registre unique des intermédiaires en assurance, banque et finance - Organisation for the single register of insurance, banking and finance intermediaries). This registration certifies that the intermediary meets the required conditions.  
• Access conditions Professional liability insurance: You must provide proof of good repute (no criminal record for certain offences), professional competence (diplomas or experience) and professional liability insurance. A financial guarantee is also required if they collect premiums or compensation on behalf of customers or insurers.
• Compulsory membership (Reform 2021) A major change has resulted from the law of 8 April 2021. From now on, insurance brokers (and their agents) must join a professional association approved by the Autorité de Contrôle Prudentiel et de Résolution (ACPR). The role of these associations is to check that their members comply with legal and regulatory requirements (good repute, capacity, ongoing training, insurance, etc.) and can impose penalties. This strengthens supervision of the profession.

More stringent information and advice requirements

The insurance broker's advisory role is particularly emphasised by the law and case law. He must be a "reliable guide and experienced adviser". His obligations are set out in articles L. 521-1 et seq. of the Insurance Code:

1. Transparency Before taking out an insurance policy, the insurer must inform the customer of its identity, registration, recourse procedures and, above all, any links (financial or capital) with insurance companies.
2. Market analysis If he claims to provide advice based on an "objective" or "sufficient" analysis of the market, he must analyse a large number of contracts in order to recommend the one best suited to the customer's needs. If he can only base his analysis on a limited number of contracts (privileged partnerships), he must inform the customer of this and provide him, on request, with the list of insurers with which he works.
3. Personal advice The duty to advise requires brokers to find out exactly what their customers' needs and requirements are, and what their personal or professional situation is, in order to offer them suitable cover. They must clearly explain not only the cover provided, but also the exclusions, excesses, limits and obligations arising from the contract. This duty applies not only before the policy is taken out, but also during the term of the contract (for example, alerting the policyholder to the risk of non-insurance following a change in circumstances, or a premium due date).
4. Proof of advice The onus is on the broker to prove that he has properly fulfilled his obligation to provide information and advice. It is therefore essential that they put their recommendations in writing.

Remuneration

Insurance brokers are generally remunerated by a commission paid by the insurance company, which is included in the premium paid by the policyholder. Brokers must inform their customers of the nature of their remuneration (commission, fees paid by the customer, or other benefits).

The intermediary in banking and payment services (IOBSP)

This category, often referred to as "credit brokers" or "mortgage brokers", includes professionals who put customers in touch with credit or payment institutions with a view to carrying out banking transactions (credit, credit repurchase, payment services, etc.). Their status is defined in articles L. 519-1 et seq. of the Monetary and Financial Code.

Who are IOBSPs?

The definition is broad: an IOBSP is any person who, on a regular basis and in return for remuneration or an economic benefit, "presents, offers or assists in the conclusion of banking transactions or payment services or carries out any work or advice preparatory to their execution". This includes brokers of mortgages, consumer credit and credit repurchases, as well as certain intermediaries offering payment services.

A status that is also regulated

Like insurance brokers, IOBSPs are subject to strict regulations:

• Registration They must be registered on the single ORIAS register.
• Access conditions Conditions of good repute and professional capacity (diploma, experience or specific training) are required.
• Professional Liability or Mandate Insurance They must either take out professional liability insurance or act under the total responsibility of a principal (credit institution, other IOBSP, etc.).
• Financial guarantee A guarantee is required if they handle funds on behalf of clients (which is rare for a pure broker).
• Compulsory membership (Reform 2021) As with insurance brokers, the law of 8 April 2021 requires IOBSPs (brokers and their agents) to join a professional association approved by the ACPR, which is responsible for checking their compliance with regulatory requirements.

The mandate and key prohibitions

The IOBSP generally acts under a mandate issued by one or more credit or payment institutions. This mandate must specify the nature of the transactions he is authorised to carry out.

He is subject to two major bans:

1. Prohibition on del credere It cannot guarantee the successful completion of the credit transaction or the repayment of the loan. If it were to do so, it would be carrying on a banking business itself.
2. Prohibition on charging fees before funds are paid out Article L. 519-6 of the French Monetary and Financial Code formally prohibits IOBSPs from collecting any sums (commission, application fees, search fees, etc.) from customers before the bank has actually paid out the loan. This rule is designed to protect borrowers against undue charges if the loan is not ultimately obtained.

Important obligations towards the customer

The regulations focus on protecting borrowers:

• Written agreement on costs The IOBSP must agree any fees and remuneration with the customer in writing before taking any action.
• Appropriate information and advice They must be fully informed about their customer's knowledge, experience, financial situation (resources, expenses, outstanding loans) and needs in order to propose a suitable financing solution.
• Explanation and warnings The borrower must clearly explain the characteristics of the proposed credit and draw the customer's attention to the consequences of this commitment (impact on the budget, risks associated with guarantees, etc.).
• Transparency on links He must inform the customer of any links (capital holdings) he may have with financial institutions.

The use of a broker in the property, insurance or banking sectors can provide invaluable assistance. However, the complexity of the products and the specific regulations impose greater obligations on these professionals, particularly in terms of advice and transparency. Knowing these rules will enable you to have a better dialogue with your intermediary and ensure that your interests are well protected. These rules become even more complex when the brokerage business takes on a new dimension. international dimension.

Do you have a dispute with an estate agent, insurance or credit broker? Our firm can analyse your situation and advise you on the steps you need to take to assert your rights.

Sources

• Law no. 70-9 of 2 January 1970 regulating the conditions governing the exercise of activities relating to certain transactions involving real estate and business assets (Hoguet Law) and Decree no. 72-678 of 20 July 1972.  
• Insurance Code: articles L. 511-1 et seq (Insurance intermediaries), L. 512-1 et seq (ORIAS registration), L. 521-1 et seq (Obligations to provide information and advice).
• Monetary and Financial Code: articles L. 519-1 et seq. (Intermediaries in banking transactions and payment services), R. 519-1 et seq.
• Law no. 2021-402 of 8 April 2021 on the reform of insurance brokerage and banking and payment services brokerage.  
• Commercial Code, Civil Code (for general principles of contract and mandate).
• ORIAS (Organisme pour le registre unique des intermédiaires en assurance, banque et finance).

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