“In short, it [a Fidelity Fund Certificate] is a licence to practice without which you cannot practice.” (Extract from judgment below)
A valid Fidelity Fund Certificate (FFC) is a necessity for any estate agency. Without it, no agent can claim commission, and now a new High Court decision suggests that the agency’s contracts generally could be at risk of invalidity.
The case involved an intern agent employed by an agency with a restraint of trade clause. When the intern left and joined a rival agency, her erstwhile employer tried to enforce the restraint of trade clause against her.
It was in for a very rude shock indeed. For 5 years after its conversion from a CC to a company, its FFC was still issued in the name of the CC. Big mistake…
As an estate agent you will know that without a valid Fidelity Fund Certificate (FFC) you are not entitled to any commission for the successful sales or leases you put together. All your hard work in fulfilling your mandate will come to naught. Your client need pay you nothing.
As a recent High Court case warns, you will also be unable to enforce any restraints of trade you enter into with your employees. And that’s a major risk if your trade secrets are as valuable to you as they are to most agencies.
The company that converted from a CC without changing its FFC
- A close corporation (CC) trading as an estate agency held an FFC.
- It converted to a company, retaining the same name so that the only change was the “CC” at the end of its name becoming “(Pty) Ltd”.
- The agency’s fatal mistake was that for 5 years after the conversion it continued to hold FFCs in the CC’s name. During that period it employed an intern agent in terms of an Intern Agency Agreement which included a restraint of trade clause prohibiting the employee “from engaging or participating in the property industry for a period of six (6) months after the termination of the agreement”.
- When the intern agent resigned and joined another agency, the company approached the High Court for an order interdicting and restraining her “from utilising and/or communicating confidential information relating to its business affairs, property listings, pricing, valuations etc” and “from operating in any capacity in the residential property market” in a list of named suburbs for 6 months.
- In the 18 months she had been with them, said the agency, she had “gained knowledge of valuable importance pertaining to the business of the [agency]. To that extent this matter was of cardinal importance to the [agency].”
- The agency argued that the FFC issued to the CC should be deemed to have been issued to the company “because it is the ‘same’ entity”. Rejecting this, the Court said the FFC had been issued for 5 years to a different, non-existing entity. Moreover an agency must if operating in a corporate entity have separate FFCs for all its directors (if a company) or members (if a CC) in addition to its own.
- Accordingly, said the Court, the company could not act as an estate agent and its internship agreement incorporating the restraint of trade was “null and void thus unenforceable”.
A final thought for agencies
Check and double check that all your FFCs are in order and in the correct names. Change nothing in your holding structure without having a plan in place to update all your FFCs immediately.
Take into account possible administrative delays, the Court here specifically warning that “It is not enough that the application is being processed or some other hiccup is in the process of being solved. The provisions are clear and peremptory.” Either you have a valid FFC in place at the critical time or you don’t.