Research On The Validity Of Bypassing Prohibition Clause In Real Estate Intermediary Contract

The past decade has witnessed the rapid development of China’s real estate industry,where real estate agents and brokerage contract system are increasingly involved and utilized for the rapid circulation of information and effective utilization of resources.Current Chinese rules are relatively vague and emphasize more on protecting principal.Therefore,principal may tend to bypass the agent during the trading in order to save agent fees,which is called “bypassing”.For example,after the conclusion of the agreement with the help of broker,principal may directly trade with the owner or through a third party.Therefore,the bypassing prohibition clause is widely used by brokers in the agreement to punish principal’s dishonest behaviors.The legal validity of the bypassing prohibition clause directly affects determination and consequences of bypassing behaviors,which is crucial to judicial practice.However,its validity still remains an open problem and thus becomes a necessity.We start from typical cases and demonstrate the key controversy of the validity of bypassing prohibition clause is that whether bypassing prohibition clause is invalid based on article 40 in Chinese Contract Law “A standard term is invalid if it increases the liabilities of the other party,or deprives the other party of any of its material rights.” China presents a rigid attitude towards standard terms’ validity but a ambiguous boundary on the scope of liabilities and material rights,and thus many inconsistent arguments emerge on whether bypassing clause increases principal’s liability and deprives principal’s rights such as freedom of contracting and rights to terminate at any time.Meanwhile,the social and economic background has been changed and the parties are not always in weak economic or experiential power,so the absolute invalid regulating model ignores the actual application situation and the objective meanings of the parties,and thus fails to meet the requirement of substantial justice.A few countries and regions adopt such rigid attitude but take the test of reasonableness into consideration when determining standard term’s validity: within a reasonable threshold,standard term which increases the responsibility will be valid.Sometimes,principals may voluntarily accept the aggravated responsibility according to their own manifestation of intention,and thus these standard clauses should not be identified as invalid stiffly.The right of contracting freedom is not absolute and it should be conducted under principle of good faith.Brokerage contract is a unique type of appointment contracts,because broker also benefits from the agreement.Therefore,we should put some restrictions on the principal’s right to terminate at any time.Although standard term increases responsibility or deprives material rights,it should not be absolutely null and void without considering the test of reasonableness.In most scenarios,bypassing prohibition clauses are set up in the purpose of minimizing the risk of principal’s default in an economic way.Therefore,a reasonable bypassing prohibition clause should be valid.We point out several factors for deciding the clause’s fairness and reasonableness,including the restrictions on parties,time,and liquidated damages,as well as the existence of exclusive delegation.