What is the Property Practitioner Act?
It is a new piece of legislation which will replace the Estate Agency Affairs Act of 1976. Its main purpose is to establish the Property Practitioner Regulatory Authority, which will replace the Estate Agency Affairs Board; to regulate the affairs of all property practitioners; to allow for transformation in the property sector and to provide for consumer protection.
Although the Act has been signed into law, it has not commenced yet. The Act will commence on a date yet to be decided upon. I do not see this happening any time this year and if we are lucky, maybe middle to end of 2020. Regulations must still be published, the current Estate Agency Affairs Board needs to gear up; the Minister has to first make rules on what training requirements all the property practitioners who will now be joining the fray, need to undergo and the Minister must also publish a code of conduct. So much work still lies ahead before the Act can commence.
Who is all a Property Practitioner?
Any person (natural or legal) who in the ordinary course of business, for gain (i.e. against payment), holds out (i.e. this is his/her business), on behalf of another person:
- auctions; rents; sells or exhibits for sale or purchase, property or a business;
- manages property;
- negotiates such an agreement;
- canvasses for landlords/tenants/buyers or sellers of properties/businesses; or
- collects or receives rental on behalf of another person;
- acts as intermediary or facilitator in any of the above (neither are defined in the act but a google definition provides the following):
- intermediary – a person who acts as a link between people in order to try and bring about an agreement;
- facilitator: any activity that makes a social process easy or easier.
- It also includes a home owners association which does any of the above, for gain; and
- anyone employed by a property practitioner to do any of these things on his / her behalf; and
- includes anyone who sells, or markets time share or fractional ownership (basically a fancy expression for time share!); and includes
- anyone who is employed to manage / supervise the day-to-day business operations of a property practitioner (office manager); and also
- anyone who arranges:
- financing for a sale or lease;
- bridging finance (i.e. where a seller wants to take an advance against the proceeds of his sale) or;
- acts as a bond broker, (someone who helps a buyer apply for a loan with the banks)
- except if either of these, fall within the definition of a “financial institution” under the Financial Services Board Act.
- It includes directors of companies; members of CC’s and trustees of trusts, if the entity does any of the above; and also,
- any attorney or person employed by an attorney who renders these services except if that person must hold an FFC with the Attorneys’ Fidelity Fund, and if this work forms part of the attorney’s normal practice.
- Anyone may apply to the Minister for exemption (partially or entirely from the Act) for up to 3 years at a time.
- I have read on social media that this definition can be interpreted to include developers. I respectfully disagree. The introductory part of the definition clearly requires that you do these things on behalf of another person, i.e. as agent/intermediary/facilitator/go-between – call it what you wish. If you are a developer selling off your own stock, whether as a company or private individual, it differs not one bit from any other private seller selling his/her own home. (Except for the fact that a developer is bound to provide certain warranties of workmanship but that is completely irrelevant for the sake of this legislation).
- The Act also focuses on transformation. A Transformation Fund is to be created within 6 months of when the PPRA is established. It will be funded by the Fidelity Fund; government grant; fees and fines paid by PPs; Investments; and monies donated or bequeathed to the PPRA. The funds are to be used to promote the interests of the historically disadvantaged, including providing for training and development and education of the general public.
How great is the need for transformation?
- As at the end of the 2018 financial year, around 12% of all estate agencies; principal estate agents and full status agents, who were issued with FFCs, were people of colour. Around 88%, were white.
- However, of all the intern estate agents, nearly 30% are people of colour. This indicates that transformation is well underway in the estate agency realm.
- The Act also provides that once it commences, the Property Sector Transformation Charter which will apply to all PPs. Here is a link to see the actual document. https://bbbeecommission.co.za/wp-content/uploads/2017/12/Amended-Property-Sector-Codes-of-Good-Practice_1-1.pdf
- In order to qualify for a fidelity fund certificate – without which a PP may trade (more of what that document means, later) – every property practitioner (meaning the firm), must be in possession of a BEE certificate. All this means is that the PP has undergone a verification process with a BEE auditing company, which will then rate you as being a level 1-8 (1 being the highest) contributor – or for that matter, a non-contributor. As long as you are certified, you can get an FFC.
- In terms of the Act (as it reads presently – and this may of course change in due course) the only time that a PP will have to have a certain level of BEE certification, is if the PP wishes to do business with an organ of state. The Act only requires that a firm is BEE compliant in such an instance.
- As such, business owners which are white owned, can all relax, unless they wish to tender for state contracts.
Fidelity Fund Certificates (FFC)
What is an FFC?
- An FFC is a certificate which is issued to every PP. Without an FFC, a PP may not trade or be paid for any work done.
- Currently, FFC’s are valid until 31 December each year which means agents have to renew them every year. Once the PPA commences they will be valid for 3 years, until 31 December of the year in which the FFC was approved.
- If the firm is a company then all of its directors must also have one; if it is a CC, then all its members; if a partnership, its partners; and if a Trust, all the Trustees.
What is the point of an FFC?
- The point of an FFC is to provide the consumer with protection against theft of money that has been entrusted to a PP, such as money meant to buy a house; rental income or rental deposits.
- In terms of the new Act, once an FFC certificate is issued to a PP and should that PP then steal money which the PP held in trust then the consumer can claim this money back from the fidelity fund. All the consumer needs to do is lay a criminal charge and be sure that the PP had an FFC at the time of the theft.
- This is a huge change to the current legislation because under the current Estate Agent Affairs Act, the consumer must first try to recover the funds from the PP him/herself, and can then only, claim from the fund. The consumer must first exhaust all available remedies (i.e. sue the PP; get a sheriff to try and attach and sell assets and even possibly sequestrate the PP) before one can claim money from the fund!
- As such, this new process will make it much easier for the consumer to claim back stolen money. But you can only claim if the PP had an FFC!
- As such seller; buyer; landlord or tenant, must always insist on seeing the PP’s FFC, which must be valid at the time of the transaction, before paying over one red cent!
Consequences of not having an FFC
- If an entity has just one PP in its employ who does not have an FFC then the entity may not trade. Which means no other PP in its employ may work legally then either!
- If a PP was involved in a transaction and did not have a valid FFC at the time of the transaction, then he/she may not claim commission.
- If the consumer finds out that the PP did not have an FFC at the time of the transaction, then the consumer has 3 years within which to claim it back and if the PP does not pay it back immediately, he/she will be guilty of a criminal offence.
- This is also a massive change from the current legal position. Currently, agents are also not entitled to be paid if they don’t have an FFC – but, if an agent does get paid, the seller cannot claim it back. That will become a thing of the past.
- The Act also states that if a PP does receive payment when he/she did not have an FFC, then the PP is required to pay the commission to the fidelity fund.
- However, (and this may be impossible to believe), but this is what the Act states, if the consumer then claims it back from the Fund, the Fund may pay whatever amount (if any) to the consumer which is “equitable in the circumstances”!
- Once again, a reminder to all consumers – make sure your PP has a valid FFC!
The new position of the conveyancing attorney
- A conveyancer (attorney who attends to the transfer of properties) may not pay remuneration to a PP unless the property practitioner has provided the conveyancer with a certified copy of an FFC, which was valid:
- during the period, or on the date of the transaction to which such payment relates;
- on the date of such payment.
- This is once again, a massive change to the current position. At present, there is no legal duty on a conveyancer to check this. Once this Act commences, conveyancers will be compelled to check. If they don’t, and if a seller finds out afterwards, the seller can then claim this back from the conveyancer on the basis of professional negligence.
Updating records – PPs beware!
- If your contact details change during the period of validity of your FFC, you must notify the PPRA within 14 days. i.e if you change from one agency to another you must alert the PPRA.
- Not doing so does not invalidate your FFC, but it will be a criminal offence.
Mandatory time periods to issue FFCs
- A very welcome change, which PPs will appreciate, is that the PPRA will have to consider any complete application for an FFC, within 30 working days, once the Act commences. The PPRA may “buy” itself an additional 20 working days if good grounds exist. But if, after the first 30 (or 50) working days, the PP has still not received his/her FFC, he/she may then make a written demand, for it to be issued within 10 working days.
- Furthermore, if the Authority has failed to consider the application within 30 (or 50) working days, the application is deemed to have been approved.
The Act also states that if a PP suffers damages due to the PPRA’s negligence, the PPRA can be held liable.
Disqualifications from having FFCs
The Act also tells us on what basis a PP may be disqualified from receiving or renewing an FFC. Here we have seen some interesting changes – some of which will no doubt be challenged in the Constitutional Court at some stage!
- If you are not a South African citizen and if you do not lawfully reside in SA
- Anyone who has at any time in the preceding five years:
- been found guilty of contravening this Act, the EAAA, or any similar legislation anywhere in the world;
- if, by reason of improper conduct, you have been dismissed from a position of trust (anywhere in the world it seems);
- in the case of a company; CC or Trust, or Partnership, if any one of its directors / managers / members / Trustees or Partners has been found guilty of contravention of this Act or the EAAA, then the entity cannot get an FFC for as long as that person remains a director etc.
- Anyone who has EVER, in any court in the world, been found
- to have acted fraudulently, dishonestly, unprofessionally, dishonourably or in breach of a fiduciary duty, or
- guilty of any offence, for which such person has been sentenced to imprisonment without the option of a fine (regardless of the nature of the offence or the duration of the imprisonment), or
- (in any tribunal, let alone court) guilty of unfairly discriminating against someone on the basis of race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth.
- In these 3 instances, it is a life-long ban – which is outrageous! You could become a brain surgeon; lawyer or parliamentarian – but you cannot help people sell houses or obtain loans! Makes no sense…
- Anyone of unsound mind
- An unrehabilitated insolvent
- Anyone who is not in possession of a valid tax clearance certificate
- Anyone who is not in possession of a valid BEE certificate (please note, you need only have a certificate – you need not have a certain level of BEE compliance, unless you wish to tender for a contract with an organ of state)
- Anyone that does not comply with the prescribed standard of training.
- FFCs must be displayed at every place of business – this could include at a show house.
- All letterheads and marketing material must confirm that the PP has an FFC
- All agreements relating to property transactions must guarantee the validity of an FFC
Here again we see some odd developments!
- Records to be kept for 5 years (hard copies or digital) of:
- all documents exchanged with the PPRA;
- any agreements incidental to the carrying on the business of a property practitioner;
- any document relating to the financing, sale, purchase or lease of a property;
- all financial records;
(and here are the odd ones)
- all correspondence with his, her or its employer or franchisor;
- any advertising or marketing material;
- all the PP’s assets and liabilities;
Candidate Property Practitioners
(i.e. PPs who have not yet met the required qualifications and do not have a full status FFC)
- Are not entitled to draft or complete any document or 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.
Limitation on relationships with other service providers
(An exceptionally welcome change, if ever there was one in South African legislative history!)
- A PP may not enter into any arrangement whereby a consumer is obliged or encouraged to use a particular service provider – including the services of an attorney. Although there is no definition of the word “arrangement”, it most probably means a “financial incentive”. This means that the PP may not receive commission from mortgage bond originators; bridging companies; compliance companies, or attorneys, in return for which, the PP recommends that person’s services to a seller for example.
- It is unfortunately rife in the estate agency world, for some estate agents to literally demand “kick-backs” from attorneys, before they are willing to recommend that attorney to a seller (where the seller has no relationship with an attorney of his own), or, for some attorneys to offer incentives (bribes) to estate agents, in return for their support.
- Attorneys are forbidden from “buying work”; soliciting for business, or “touting”. Their profession requires that they obtain business through word of mouth and conservative marketing efforts – not through the sharing of professional fees or paying for support. This Act now mirrors this prohibition.
- In other words, if a PP who sells a house recommends a conveyancer because the conveyancer pays the agent’s office rent; or “desk fees”, or petrol money; or pays the PP a percentage of the transfer fee, or anything similar, it will be a criminal offence.
- And furthermore, if a consumer finds out that the PP was involved in such an arrangement, the PP must repay any such remuneration, together with interest within 30 days if requested to, else that is also a criminal offence.
- A PP may not in any way offer or receive financial or other incentive to influence a compliance certificate service provider. A property practitioner who does so, or a compliance person who accepts any such incentive is guilty of an offence.
Mandatory Disclosure forms
- The Act provides that a PP must not accept a mandate unless the seller or lessor has provided a fully completed and signed mandatory disclosure in the prescribed form. (The form must still be published.)
- This form must then be presented to any potential buyer or tenant as part of the agreement.
- If no such disclosure accompanies the sale or lease, it must be interpreted as if no defects or deficiencies of the property were disclosed to the purchaser.
- A PP who fails to comply with this may be held liable by an affected consumer.
What exactly does this mean?
- Unlike some reports in the media, it does not mean, that a buyer can now hold you as the PP liable for any and all defects that are discovered after transfer! All it means is that if you wish to argue that you DID disclose a defect, but this was not contained in a Condition Report, the law will presume that you did not disclose it.
- This clause merely issues a stern warning to PPs that if you sell or rent out a property without such a form there will be a statutory presumption that the buyer/tenant was not advised of any defects.
- If a PP wants to however allege disclosures, he will have to prove it beyond a reasonable doubt – not an easy thing if the law presumes against you!
- The main purpose of this document is therefore to protect PPs.
- If you want to market a property without such a form, say because the seller refuses to complete it as he hasn’t set foot on the house for a long time, then you must insist that the seller provides you with an indemnity and, you must provide the buyer/tenant with a blank disclosure, with a line drawn through it, marked “SELLER/LANDLORD refuses to complete”!
- And above all, whatever you do tell a buyer or tenant, make sure you record this in writing before an offer is made!
In terms of the Act, a PP will owe a buyer and a seller (probably also intended to include a landlord and tenant) a “duty of care”. What exactly does this mean?
- In layman’s terms: A PP has a legal duty to act with reasonable care, skill and diligence. This means that he/ she must at all times take reasonable steps to ensure that a consumer does not suffer damages due to an oversight on the PP’s behalf, under circumstances, when it was not only reasonably foreseeable that such conduct could result in damages, but where it was also reasonably avoidable. A duty of care thus means that a PP must for example:
- explain all the material terms of a contract to ensure that his client understand each and every term;
- ensure that the buyer or seller’s true intention is reflected in the contract and that the words use are clear, accurate and easy to understand;
- tell the buyer/tenant everything that he/she either actually knows about a property and which could be of importance to the buyer/tenant, or, which he/she could reasonably be expected to know about the property. This will depend entirely on the circumstances – i.e.
- have you at least attempted to ask the seller/landlord whether there are any hidden defects that he/she knows about?
- what does your client intend to do with the property – have you determined whether the property is zoned for its intended use?
- have you enquired about the existence of approved building plans?
- have you made the conduct rules available if you are selling in a sectional title scheme, or of the constitution, if selling in a home owner’s association?
- have you determined whether the seller actually has exclusive use or just ordinary use over a parking bay in a sectional scheme?
- It also means that you should restrict your opinions to what you actually know, and not what you might presume, and never express an opinion if you are not qualified to give one. For example, do not attempt to interpret title deed conditions or value a unique property, unless you have the experience to back it.