This is the final installment in the series on the proposed legislation.
PROPERTY PRACTITIONERS AND CONSUMER PROTECTION
LIMITATION ON RELATIONSHIPS WITH OTHER SERVICE PROVIDERS
Property Practitioners are not entitled to enter into any arrangements, whether formal or informal, in terms of which a consumer is obliged or encouraged to use a particular service provider, including an attorney, to render any service in respect of any transaction of which that Property Practitioner was the effective cause. Contracts of this nature are now illegal and the Minister is also entitled, by way of regulation, to prohibit other relationships which might harm the consumer.
Once again, the sanction for breaching this rule is that the Property Practitioner is not entitled to be paid their commission, and the other party, possibly the conveyancing attorney, will not be entitled to charge their fee. Once again, even if the commission/fees have been paid, the consumer would be entitled to claim repayment, and if the Property Practitioner or other party did not pay within 30 days, they would be guilty of an offence in terms of the Act.
INSOLVENCY/LIQUIDATION OF PROPERTY PRACTITIONER
If a Property Practitioner commits an act of insolvency, or is insolvent, or is placed under liquidation, whether provisional or final, they are immediately disqualified from holding a FFC. It seems that this disqualification arises before a final order of sequestration/liquidation has been granted. It could also arise before an application for sequestration/liquidation has been initiated. This is poor drafting as the circumstances under which this disqualification will arise are not set out clearly enough. There will be substantial grey areas.
This might also mean that Property Practitioners who are sequestrated/liquidated will be deprived of their claims for unpaid commission, as they will not hold a Fidelity Fund Certificate at the time that the commission is paid. This is not fair.
CODE OF CONDUCT AND SANCTIONABLE CONDUCT
The new Act provides for a Code of Conduct which I assume will be similar to the current Code. A breach of the Code is now an offence in terms of the Act.
Certain offences that were contained in the current Code have now been elevated to form part of the Act. You are not entitled to receive payment from two persons who are involved in the same transaction, whose interests are not in all material respects identical, unless these parties agree to this in writing. What this means is that if you want to be paid commission from both the seller and the buyer, they must both agree to this in writing.
The Act also makes it an offence if you fail to give a full and proper explanation, in writing, of any act performed as a Property Practitioner, within 30 days of being requested to do so by the PPRA. Likewise, if the PPRA ask for information which they need to exercise their powers under the Act, you must provide this information within the period that the PPRA stipulate, or you will be guilty of an offence.
It is also an offence if you fail to inform the PPRA within 14 days of a change in your contact details; or if you discriminate against anybody.
If you are found guilty of an offence, the PPRA can withdraw your FFC, you can be fined, or you can be reprimanded, and your transgressions noted on their website.
The fact that you are being prosecuted on a criminal charge is not a bar to the PPRA acting against you in terms of the Act. It would seem therefore that the defence of “double jeopardy” will not apply. I doubt that this is constitutionally sound.
A person convicted of an offence in terms of this Act will be liable to a fine or to imprisonment for a period not exceeding 10 years. The sentences could therefore be harsh.
CANDIDATE PROPERTY PRACTITIONERS
Candidate Property Practitioners are not entitled to draft or complete any document or to draft any clause in a mandate, a deed of sale or a lease. A Property Practitioner who allows this to happen will not be entitled to be paid for their services. This is regardless of whether or not the Property Practitioner was aware of the contravention at the time.
CERTIFICATES OF COMPLIANCE
The Act attempts to makes it clear that a Property Practitioner is not entitled to interfere with the contractor who will be issuing the electrical, beetle or water certificate, or receive or offer any incentives related to this process. Once again, this section is very poorly drafted, and the evil which the act is intending to prevent is already dealt with in the section which prohibits unhealthy relationships with other service providers.
The defects disclosure form is now going to become law. A Property Practitioner will not be entitled to accept a mandate for sale or lease, unless the owner of the property has furnished the signed mandatory disclosure form. As yet, the mandatory disclosure form has not been published, but I am assuming it will be something along the lines of the form published by EAAB.
This form will also have to be signed by the purchaser/tenant and attached to the contract. In the event that this is not done, it will be deemed that the owner of the property has not disclosed any defects or deficiencies in the property to the purchaser/tenant.
A Property Practitioner who does not comply with this requirement will be guilty of an offence and may be held liable by an affected consumer.
The Act also stipulates that agreements of sale, agreements of lease and the mandatory disclosure form must be drafted at the cost of the developer or the seller. The days when you are entitled to charge a tenant for a lease therefore seem to be coming to an end. But once again the drafting is confusing. Why is a developer included in this section, and why is a landlord not included? The PPRA are however obliged to publish updated versions of guideline agreements on their website and these should be available for free.
The PPRA is obliged to conduct campaigns to educate and inform the general public of their rights in respect of property transactions; and Property Practitioners of their duties and obligations.
This section ends with a short sentence stating that a Property Practitioner owes a buyer and a seller “a duty of care”. The duty of care is a concept taken from our law of delict. Accordingly, if a Property Practitioner fails to look after the interests of both the buyer and the seller, and the buyer or the seller suffer damages as a result of this, the Property Practitioner can be sued. If this was the intention of the Act, I cannot understand why this duty of care was not expanded to include a duty of care to landlords and tenants also. It is also not clear if negligence will be a requirement to create liability on the part of the Property Practitioner for breaching this duty. The section also does not recognize that an agent owes a primary duty to his or her client, and a subsidiary duty to others involved in the transaction (as stated in the current Code of Conduct). Once again, I think this is poor drafting.
We must remember that the Estate Agency Affairs Act was passed in 1976 and is now 42 years old. It was therefore in need of an update. The law we are going to be given is however badly drafted and will give rise to many disputes that will end up in the courts. From my point of view, the most important aspects of this new Act are the following:
The expanded definition of Property Practitioner, which will now bring a lot of other people under the umbrella of the PPRA. Regrettably, the Act seems to have been drafted without regard for these additional players. The Act is therefore going to be difficult to apply to these new Property Practitioners and it will create uncertainty.
The sections dealing with the transformation of the industry. In 2013 black estate agents, made up a mere 8% of the industry and the average age of an estate agent was estimated at about 57. The industry was not transforming on its own. Now the PPRA can use money from the Fidelity Fund to drive this process. Only time will tell whether the new Act will have the desired effects.
The additional powers that the PPRA will now have to enforce compliance with the law. This might well result in some Property Practitioners having sleepless nights if there is a real threat that their premises will be raided and their non-compliance exposed.
The additional sections relating to the Fidelity Fund. The money in the fund can now be used for additional purposes, and the Minister will have the final say over managing the fund. There’s a lot of money in the fund and the risk that the money might be misappropriated is now greater.
The new law relating to FFC’s. It appears that FFC’s will now be issued for three years and if the PPRA drags its feet in issuing the FFC, it will be deemed to have been issued. This is a plus. On the minus side, however, agencies who did not hold FFC’s at the time of the conclusion of the sale will now be liable to repay commissions which they had already received.
The maximum sentence for breaching the Act has been increased to a 10 year term of imprisonment.
The defects disclosure form must now be completed at time of mandate for both sales and leases.
The cost of drafting an agreement of sale or an agreement of lease must be for the developer/seller’s account.
The Act makes it clear that Property Practitioners owe a duty of care to both a buyer and a seller.
The Act still has to pass through the National Council of Provinces before it can be signed into law by the President. I think the form of the
Act is now settled and that we will soon have to get used to operating under its provisions. As soon as this happens, we will let you know.