THE PROPERTY PRACTITIONERS FIDELITY FUND
In just the same way as the Property Practitioners Regulatory Authority will take over from the Estate Agency Affairs Board, the Estate Agents Fidelity Fund will now become the Property Practitioners Fidelity Fund.
All of the income of the PPRA will be paid into the Fidelity Fund. This will include all fees, investment income, any claims, any insurance payouts and all interest.
THE PURPOSE OF THE FUND
The main purpose of the Fund is to reimburse people who suffer the loss as a result of theft of trust money by a Property Practitioner who was holding a Fidelity Fund Certificate at the time of the theft, and those people who suffer loss as a result of a Property Practitioner not keeping a trust account or not depositing trust money into the trust account.
If a person has a claim against the Fidelity Fund, they must give notice of the claim within three years and they must have responded to any written request that the Fidelity Fund might make for any such proof, within this three-year period. If these requirements are not met, the claim against the Fidelity Fund will just lapse. If the Fidelity Fund repudiates the claim, the claim will prescribe (become extinguished as a result of the passing of time) unless the claimant issues a court summons within a period of 3 years from the date of the repudiation.
CONTROL AND MANAGEMENT OF THE FUND
The PPRA will now have control over the management and administration of the Fidelity Fund. The PPRA will also have the power, with the approval of the Minister, to outsource the management and administration of the Fund to any portfolio management company or financial institution. This is where the control of the Fidelity Fund is taken from the industry and where the Minister is given the ultimate say over who looks after the money. Previously this discretion rested solely with the EAAB. Now it rests with their political master. I doubt whether this additional political control will be good for the Fund.
To give you an idea of the amount of money in the Fidelity Fund, it currently has assets of just over R610 000 000, R550 000 000 of which is in the form of investments. In the 2017 tax year it spent R6 700 000 on “Transformation Activities” and R7 250 000 on “Consumer Education and Awareness”. Its’ administration fees ran to more than R52 000 000. These amounts are sure to grow. The contract to administer these funds will obviously be very lucrative.
The income from contributions for FFC’s was only R1 475 000. Now that so many more players will require FFC’s to operate, this income will increase.
CLAIMS AGAINST THE FUND
Before anybody can lodge a claim against the Fidelity Fund they must have laid criminal charges against the Property Practitioner who was guilty of the offence. Previously, the person making the claim had to have exhausted all legal rights and remedies to recover the money from the estate agent. I prefer this new approach as often claimants were unable to afford the cost of legal proceedings which would generally not have resulted in the recovery of anything from the fraudulent estate agent in any event. Now all a claimant must do is lay criminal charges.
This should substantially speed up the recovery of losses suffered by the public from the Fidelity Fund. This will however not be the case if the Fund decide to wait until the criminal prosecution has been finalised before conducting their own inquiry into the claim.
PAYMENTS FROM THE FUND
The Fidelity Fund is mandated to pay for the following:
- All claims established against the Fund. The Minister does however have the power to cap the amount payable in respect of any category of claims, to protect the Fidelity Fund against insolvency.
- Contributions to the costs incurred by a claimant (in the discretion of the PPRA);
- All the Fidelity Fund’s legal, accounting and other expenses;
- All insurance premiums for indemnity insurance – in this regard, the PPRA has the authority to arrange a group insurance scheme to cover Property Practitioners against claims made by the public on the grounds of malpractice, up to an amount determined by the PPRA. In this way the Fidelity Fund will be able to provide wider insurance cover for Property Practitioners for their benefit and for the benefit of consumers. This is to be welcomed;
- All costs for the management, control and administration of the Fidelity Fund;
The Fidelity Fund may also pay out grants for these purposes:
- Research into fields of activity relevant to Property Practitioners;
- To maintain and promote standards of conduct and education and training;
- Transformation of the property sector.
- To ensure the continued operation of organisations similar to the Institute of Estate Agents, or REBOSA;
- For the purposes of advertising and promoting public awareness in the industry and in consumer rights relating to immovable property.
FEES PAYABLE TO THE FUND
As expected, all Property Practitioners will need to pay fees to the Fidelity Fund for their Fidelity Fund Certificates (FFC’s). The Fidelity Fund is now also entitled to collect money from Property Practitioners under another Section of the Act. This is any amount that the Minister may decide, in consultation with the Minister of Finance and the board of the PPRA. This looks a little ominous.
COOPERATION BY CLAIMANTS
Anybody who lodges a claim against the Fidelity Fund has to co-operate to enable the claim to be properly investigated. This cooperation extends to giving assistance to SAPS and the prosecuting authority and to the PPRA to recover payments made from the guilty party. If you fail to cooperate, the Fidelity Fund can withhold payment of your compensation.
If the Fidelity Fund deny your claim, and you feel that you are entitled to be compensated by the Fund, you have a period of three years to issue summons against the Fund to enforce payment.
No loss of support claims may be made against the Fund.
A person can also not claim against the Fidelity Fund in respect of damages suffered as a result of the criminal conduct of a person’s business partner, co-director of a company, co-member of a close corporation, co-trustee, life partner or employee. Compensation payable from the fund is therefore limited to reimburse members of the public who have suffered loss as a result of the actions of a Property Practitioner.
This ends the commentary on the sections dealing with the Fidelity Fund. In the next part of this series, which will be published later this week, I will deal with Property Practitioners and Fidelity Fund Certificates, a subject that will be far more interesting and relevant to the day to day operations of Property Practioners.
Miltons Matsemela Inc
18 January 2019