Consumer Protection Act causes headaches for estate agents

A tidal wave of comment on the implications of the new Consumer Protection Act has hit the media in recent months – and among those most concerned about it are South Africa’s estate agents and their principals.

For this reason Gunston Attorneys’ commercial director, Trudie Broekmann, has investigated the impact of the act on estate agents’ mandates.

In terms of the act, says Broekmann, mandated estate agents supply services and possibly, goods, to the principals, as well as to potential sellers, tenants or even buyers, where agents were mandated to find properties for purchasers to buy. Agents are consequently ‘suppliers’ as defined in the act, and in that role, need to ensure that they comply with the many relevant provisions of the act when interacting with buyers, sellers and tenants.

“Mandates deal with the relationships between agents and principals, and may not contravene the act. In addition they can and should also be used to protect agents against some of the most onerous legal risks in the act.”

She says the new act is designed primarily to protect individuals and vulnerable consumers. For this reason it will only apply fully to a transaction where the buyer is an individual or individuals or a juristic person (defined to include a company, close corporation, trust, association, partnership or body corporate) which has assets and annual turnover of less than R2 million. The financial position of the buyer entity at the time of concluding the agreement is relevant, as well as the position on the date of transfer.

A big question now, says Broekmann, is what estate agents can do to protect themselves under the new legal conditions. This is necessary because the act contains several ‘radical’ provisions to protect consumers which did not previously form part of South Africa’s body of legislation.

“The first of these provisions is that, unless seller and agent are both juristic persons, the seller now has the right to cancel the mandate he has signed at any time (even one day after signing) provided he gives 20 business days’ written notice to the agent. This right overrides any period signed for in the mandate document. The agent can provide for a cancellation penalty in the mandate, but it must comply with the principles in the regulations to the Consumer Protection Act.

“As it now stands, the act also appears to have the effect that a mandate is automatically renewed on its expiry, so that it runs on a month-to-month basis. Redrafting of mandate agreements will, therefore be necessary to resolve the uncertainties here and ensure that mandates can effectively come to an end at the time agreed between the agent and the principal.

“Equally radical is section 48 of the act which stipulates that all prices and terms affecting the consumer have to be fair, reasonable and just. This wording is obviously hard to interpret in a particular factual situation, and it is still too early to know how the National Consumer Tribunal will interpret it.”

Giving an example, Broekmann says that until now estate agents have sometimes been able to claim commission on signed sales agreements negotiated by them where, through no fault of theirs, the sale did not materialise, for instance if the buyer absconded. This practice will now in all probability be deemed unfair to the consumer (the seller). An unfair, unreasonable or unjust clause is void, and in certain cases, can mean the entire contract becomes void.

Similarly, she says, when an agent even in these difficult times is able to sell a very expensive property in a very short space of time the tribunal (if appealed to) might judge that the agreed commission was not fair, reasonable or just, as it was too easily earned and could authorise a reduction. It has to be understood, says Broekmann, that the act will supersede written agreements.

“Yet another radical section in the act imposes a duty on the supplier (the agent) to draw to the attention of the consumer (usually the seller) ‘in a conspicuous manner’ and before the agreement is signed any condition which limits the liability of the supplier or imposes a risk or liability on the consumer. Furthermore, the consumer has to sign or initial the condition to show his or her assent.

“Section 22 of the act stipulates that estate agents’ mandates (as well as all other relevant documents) must be written in ‘plain’ language so that a consumer with ‘average literacy skills’ and minimal experience in selling property can be expected to understand it ‘without undue effort’.

“These provisions of the act necessitate careful redrafting and layout of agreements and the setting up of a watertight procedure to be followed by the agent before a consumer is asked to sign.”

Broekmann says that any statement, whether made verbally or in the course of direct marketing or in any marketing literature, has to be totally free of statements that could be deemed to be misleading. If it can be shown later that the buyer was misled in any way, or even that the agent made a statement without reasonable grounds for believing it to be true, then not only can the agent be held responsible, but also possibly the seller, and the penalties for breach of the act are severe. Broekmann recommends that principals insist that an indemnity in their favour is included in the mandate, in case the agent contravenes the act.

The act stipulates that agents have to provide written sales records (which complies with section 26 of the act) to every consumer to whom they have provided services or goods. This record would include such details as the agent’s full name, VAT registration number, if any, their address, the dates on which the agreement was concluded and the services were rendered or goods supplied, a description of the goods or services and the price.

The agent’s services will now also have to comply with certain ‘warranties of quality’. Here the act calls for the ‘timely performance and completion of services’ as well as ‘timely notice of any unavoidable delay in the performance of these services’. It also stipulates that the manner and the quality of these services should be what the consumer is ‘entitled to expect’.

“An interesting aspect of this section,” says Broekmann, “is that a demanding seller might read it as giving him the right to complain to the National Consumer Commission if a sale does not materialise or if the sale takes too long. This would be a difficult proposition to defend – but it is a possibility.”

Just how serious non-compliance with the act might be is shown by the penalties that the tribunal is entitled to impose. These can amount to 10 percent of the agency’s annual turnover in its previous financial year or R1 million, whichever is greater.

Furthermore, section 113 of the act provides that the principal is ‘jointly and severally’ liable for the misdemeanours of his estate agents. This is yet another reason why Broekmann recommends that principals insist on an indemnity before signing a mandate.

“Estate agents, for their part must familiarise themselves with the act, have their documents redrafted by consumer law experts and take professional advice if they want to avoid landing themselves in serious difficulties,” says Broekmann.

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