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Thread: Estate agents are liable under the CPA?

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    Estate agents are liable under the CPA?

    Many estate agents are in some denial and are clinging to the opinion of some lawyers that the CPA does not apply to private sellers (correct), or to their agents (incorrect) – because the agents are regulated by the Estate Agents Affairs Board - and are therefore exempt from the provisions of the CPA. This opinion appears to arise from a misinterpretation of the scope of the disclosure obligations of intermediaries regulated by other national legislation (Section 27 of the Act).

    However, most attorneys believe that estate agents do indeed have obligations and liability under the CPA.

    These lawyers point out that estate agents are professional purveyors of a “product” – the product being information on the properties on the agent’s books. With regard to information on properties which agents communicate, both buyers and sellers enjoy protection under the CPA, because they are “consumers” of the product supplier (the agent).

    It is clear that estate agents, do bear accountability in terms of the CPA for the material information about a property which they communicate to both buyers and sellers. It will probably take a test court case or two to convince some estate agents on the reach of (and the teeth of) the CPA.

    Meanwhile, the question remains: How should professional estate agents be responding to the CPA and to the wave of consumerism generated by the enactment of this new law? In particular, how should agents react to the increasing practice of buyers demanding a home inspection report as a condition of the offer to purchase?

    Also how can estate agents protect their business if they perceive a home inspection report to be unnecessarily harsh and a potential deal killer?
    Last edited by Dave A; 25-Aug-11 at 05:09 PM.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by mikeh View Post
    In particular, how should agents react to the increasing practice of buyers demanding a home inspection report as a condition of the offer to purchase?
    Inform the buyer that they are welcome to obtain one at their own expense?
    The trouble with opportunity is it normally comes dressed up as work.

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    Gold Member Sparks's Avatar
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    Estate agents are not all registered at the EAAB.
    A valid COC is a legal requirement even before a property is advertised.
    How liable is the Estate agent who advertises a property without meeting this law(Section12)?

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    Full Member BuyNoEvil's Avatar
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    The Act's requirements are simple with regards to any sale.....plain, simple understandable language.......full, honest and total disclosure upfront....in other words, do business with integrity and you cannot go wrong.

    I tend to agree with the observation that "inspection reports" will become BIG business in SA into the future.

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    Hi there,

    The CPA applies to every person and entity notwithstanding if they are regulated by other bodies. Remember estate agents have always had a fiduciary duty to disclose faults with a property, all that changed was that the statute is just enforcing it.

    Please, do correct me if I am wrong.

    Regards,
    Mr Smit

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    Full Member BuyNoEvil's Avatar
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    Below an article by Snyman De Jager Attorneys on this topic:

    DOES THE ACT APPLY TO TRANSACTIONS INVOLVING IMMOVABLE PROPERTY?

    The question that arises from a property law and conveyancing point of view is whether the Act applies to the day-to-day agreements relating to the sale of immovable property by a Seller to a Purchaser, with or without the intervention of an estate agent.

    In order to arrive at an answer, it is necessary to consider the relevant definitions more closely: -

    Does the CPA cover immovable property transactions ?

    The definition of goods in the Act is defined to conclude :-
    “...
    (d) a legal interest in land or any other immovable property, other than an interest that falls within the definition of “service” in this section;...”

    The definition is self explanatory.

    When are you a “consumer”?

    A consumer is defined to include (amongst other things):-
    “(a)a person to whom goods or services are marketed in the ordinary course of supplier’s business;

    (b)a person who has entered into a transaction with a supplier in the ordinary course of the supplier’s business, unless the transaction is exempt from the application of this Act by section 5(2) or in terms of section 5(3);

    (c)if the context so requires or permits, a user of those particular goods or a recipient or beneficiary of those particular services, irrespective of whether that user, recipient or beneficiary was a party to a transaction concerning the supply of those particular goods or services.”
    Note that “person” is defined in the Act to include a juristic person and the definitions should be read with this in mind.

    This would include any person entering into an agreement as a Purchaser or immoveable property.

    Is a “Sale Agreement” covered by the Act?

    Transaction is defined to mean : -

    “(a) in respect of a person acting in the ordinary course of business –

    (i) an agreement between or among that person and one or more other persons for the supply or potential supply of any goods or services in exchange for consideration; or

    (ii) the supply by that a person of any goods to or at the direction of a consumer for consideration;

    (iii) the performance by or at the direction of that person of any services for or at the direction of a consumer for consideration; or

    (b) an interaction contemplated in section 5(6), irrespective of whether it falls within paragraph (a).”

    The definition clearly includes any transaction by which property is sold from a supplier to a consumer, but excludes once-off transactions since they are not entered into “in the ordinary course of business.”

    Who can be a “supplier”?

    Supplier is defined as “a person who markets any goods or services.”

    Supply is defined as :-

    “(a) in relation to goods, includes sell, rent, exchange and hire in the ordinary course of business for consideration; or

    (b) in relation to services, means to sell the services, or to perform or cause them to be performed or provided, or to grant access to any premises, event, activity or facility in the ordinary course of business.”

    The transactions involved here are those that are at arm’s length and of a regular nature and excludes once-off transactions. If therefore appears to exclude the typical scenario where A sells his residential home to B because he wants to purchase a new home or liquidate the asset.

    It seems clear from a reading of the above definitions that transactions in the ordinary course of business and for reward which involves immovable property are covered by the Act. Examples would be where a developer (as supplier) offers units in a development for sale to a member of the public (as consumer), or where a property speculator sells a house a consumer, or where an estate agency as part of its trading stock, sells a property to a consumer.

    Such transaction would be covered by the provisions of the CPA. This means, amongst other things, that the purchaser’s fundamental consumer rights are protected and the developer will have to make sure that it complies with the provisions of the Act. Without furnishing an extensive list of CPA provisions that would apply, it would include the following rights : -

    The agreement must be in plain and understandable language

    The agreement must contain fair, reasonable and just terms. A supplier may for example not offer to supply or supply goods at a price that is unfair, unreasonable, or unjust or on terms that are unfair unreasonable or unjust. This includes the consequence that should a consumer apply to Court with the allegation that certain terms of his agreement with the supplier are unfair or unjust, the Court may restore the property to the consumer or order compensation to the consumer for losses and expenses relating to the agreement and so forth;


    The consumer has the right to receive express notice of any term in an agreement which limits the risk or liability of the provider, or of any term which constitutes and assumption of risk or liability by the consumer.


    The consumer has a cooling-off right which allows him to cancel the agreement within five days after contracting;


    The consumer has the right to return defective goods, which right (it will be argued) does away with the working of the voetstoots clause.


    However it does not cover the typical situations where A sells a home to B, not in the ordinary course of business. Let’s look at the following scenarios :


    1. A sells to B without the intervention of an estate agent

    The developer in our previous example clearly “sells, rents or exchanges” the immovable property “in the ordinary course of business” and “for consideration.”

    However, when Mr A sells his residential home or seaside accommodation to B the transaction would constitute a once off transaction and not “in the ordinary course of business:” and would therefore not be covered by the provisions of the CPA.

    The conclusion is in line with the intention of the legislature which was to protect consumers where they are in unequal bargaining positions in the consumer market vis-a-vis the supplier and generally applies to “business to consumer” type transactions.

    2. A sells to B with the intervention of an estate agent

    (i) Relationship between seller (that instructed the agent) and estate agent

    Where, in the above scenario, A employed the services of an estate agency, the situation is different. If an agent is involved in marketing the property and negotiating the sale, this service that the agent provides is clearly covered by the provisions of the CPA, in other words, for the purposes of the relationship between A (who gave the agent the mandate) and the estate agent (as supplier), the CPA is applicable. The agent must therefore ensure, amongst other things, that the mandate agreement signed by A

    Is in plain understandable language
    Contains fair, reasonable and just terms
    That any right to receive express notice of any term in an agreement which limits the risk or liability of the provider, or of any terms which constitutes an assumption of risk or liability by the consumer
    That the consumer has a cooling off right which allows him to cancel the agreement within 5 days after contracting, and so forth.

    (Note that the same would apply mutatis mutandis if it was the purchaser who appointed an agent with request to find a suitable property for him.)

    (ii) Relationship between purchaser and the estate agent (who was appointed by the seller)

    In as much as the agent markets the house to the public (on instruction of A, the seller,) the agent is a “supplier” vis-a-vis B and any other purchaser and his marketing practices will have to comply with the provisions of the CPA. This will require compliance with the various chapters in the Act in which the fundamental consumer rights are embodied, such as the right to equality and privacy, the right to choose and disclosure of information, the right to fair and responsible marketing, the right to honest dealings and so forth.

    (iii) The written deed of sale

    However, the question that now arises is whether it can be said that the sale agreement itself that results from the estate agent’s marketing efforts (and which in 99% of the instances in practice, is embodied in a pre-printed form furnished by the estate agency) falls under the scope of the CPA.

    The answer appears to be “no” since the contractual relationship that is ultimately formed remains essentially a private once-off transaction between A and B. The content of the contract is the result of negotiation between A and B, notwithstanding the fact that a pre-printed from may have been used as basis for formulating the agreement. However it remains to be seen how our Courts will interpret these provisions and the first jurisprudence on this issue will bring welcome insights.

    CONCLUSION

    This article investigated the application of the Consumer Protection Act (“CPA”) in the area of property transactions. It was determined that although the Act has a very wide application, is generally aimed at “business and individual” type relationships. An agreement of sale between two private individuals will therefore not fall under the scrutiny of the CPA. However, where either a seller or purchaser employs the services of an estate agent, the position differs. The agent will then fall in the definition of a supplier for purposes of the Act insofar as the

    (i) markets the property; and
    (ii) in executing his duties as agreed to with the client in the mandate.

    It is an open question whether the Courts will hold that the sale agreement itself (when concluded as a result of an estate agent’s intervention) also falls under the provisions of the CPA.

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    Full Member BuyNoEvil's Avatar
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    Quote Originally Posted by mbsmit View Post
    Hi there,

    The CPA applies to every person and entity notwithstanding if they are regulated by other bodies. Remember estate agents have always had a fiduciary duty to disclose faults with a property, all that changed was that the statute is just enforcing it.

    Please, do correct me if I am wrong.

    Regards,
    Mr Smit
    The Act does NOT apply to any transaction:
    • Where goods or services are promoted or supplied TO the State. The State can therefore not be a consumer, but in most cases you are the consumer of the State.
    • Where the consumer is a juristic person whose asset value (gross value less depreciation) or annual turnover, at the time of the transaction, is equal to or greater than the threshold value determined by the Minister of Trade and Industry from time to time. The threshold is currently set at R3M. [A juristic person is defined as a body corporate (company, close corporation, etc.), a partnership or association or a trust as defined in the Trust Property Act, 57 of 1988. Please note that a sole proprietorship is NOT a juristic person.]
    That falls within an exemption granted by the Minister to a Regulatory Authority.
    • That constitutes a credit agreement under the National Credit Act, 34 of 2005, but the goods or services that are the subject of the credit agreement are not excluded from the ambit of the Consumer Protection Act.

    The insurance industry was granted reprieve from the provisions of the Act until 30 September 2012 subject to the Short Term Insurance Act, 53 of 1998, and the Long Term Insurance Act, 52 of 1998, being aligned with the consumer protection measures provided for in the Act, failing which, the provisions of the Act will apply.

    Advice given and intermediary services provided in terms of the above two acts or the Financial Advisory and Intermediary Services Act, 37 of 2002, are specifically excluded from the definition of service in terms of the Act.

    The application of the Act to all municipalities, other than those defined as high capacity municipalities in terms of the Municipal Finance Management Act, 56 of 2003, has been deferred until further notice (basically means an indefinite deferral). A classification of all municipalities can be found in National Treasury Notice 773 contained in the Government Gazette of 1 July 2004 (Volume 469, No 26511).

    A regulatory authority may apply to the Minister for an industry-wide exemption from one or more provisions of the Act on the grounds that those provisions overlap or duplicate a regulatory scheme administered by that regulatory authority in terms of any other national legislation; or any treaty, international law, convention or protocol. This will be granted only to the extent that the relevant regulatory scheme ensures the achievement of the purposes of the Act.

    To date exemption from Section 14 (Expiry and renewal of fixed-term agreements) has been granted to banks. The pension fund industry, the collective investment schemes industry and the security services industry all have also been exempted from most of the provisions of the Act for a period of 18 months from 1 April 2011.

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    Gold Member Sparks's Avatar
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    Quote Originally Posted by BuyNoEvil View Post
    Below an article by Snyman De Jager Attorneys on this topic:

    (ii) Relationship between purchaser and the estate agent (who was appointed by the seller)

    In as much as the agent markets the house to the public (on instruction of A, the seller,) the agent is a “supplier” vis-a-vis B and any other purchaser and his marketing practices will have to comply with the provisions of the CPA. This will require compliance with the various chapters in the Act in which the fundamental consumer rights are embodied, such as the right to equality and privacy, the right to choose and disclosure of information, the right to fair and responsible marketing, the right to honest dealings and so forth.

    .
    Please enlighten me if I misinterpret this paragraph.

    Does it mean that the Agent, appointed by the seller, is appointed thus for the purpose of ensuring all legal requirements are met, to facillitate the legal sale of the propery?

    Is the agent responsible for ensuring that municipal accounts are settled, valid plumbing certificates are provided, Electrical COC's are provided?

    Before the responsibillity is palmed off by an Agent's comment, I refer to Article 12 which states that a valid Certificate of Compliance must be in place before any item, for which a safety standard exists, before it is advertised for sale, barter or tender and to the full extent of the law even given away for free.
    How liable is an unregistered Agent using a shady contractor for own financial gain at the expense of the consumer?

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Sparks View Post
    Before the responsibillity is palmed off by an Agent's comment, I refer to Article 12 which states that a valid Certificate of Compliance must be in place before any item, for which a safety standard exists, before it is advertised for sale, barter or tender and to the full extent of the law even given away for free.
    How is the purchaser predjudiced if this COC is obtained only after an offer to purchase has been signed and accepted, but before the purchaser receives the goods?
    The trouble with opportunity is it normally comes dressed up as work.

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    Gold Member Sparks's Avatar
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    Exactly the situation I am dealing with now. The seller has left the country with his money and the buyer now sits with an invalid COC. He must get a new one issued so that he can get the municipal accounts registered in his name. The agent has his commission. If he had complied with article 12 and got a "valid" COC there would have been no problem. In all likelihood the agent got a kickback from the contractor and knew full well that the COC was illegal. It is obvious just from looking at the COC that it is invalid.

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