The Consumer Protection Act (CPA) became effective on the 1st of April 2011 and made provisions for the requirements that should be met in an estate agent mandate agreement.
Overall, the CPA serves to promote fair, transparent and ethical business practice so as to protect the consumer from unlawful conduct.
With regards to estate agents, the CPA has set up many guidelines which regulate direct marketing and the sale of immovable property by estate agents.
Furthermore, the relevant sections within the act apply to the relationship between an estate agent and the agent’s seller either as a single person, a group of individuals or a juristic person.
Provided the necessary requirements are met to provide grounds for a sale agreement, a written or verbal mandate as well as the agents conduct when dealing with the consumer would need to comply with the directive as stipulated within the CPA.
The Act regulates the relationship between the supplier of goods and services as it should be during the usual course of business and his or her interaction with the consumer.
Within the property market, these suppliers would include: property developers, investors who let their properties on a continuous basis, property investors who renovate existing homes for resale at a profit, estate agents and conveyancers.
Section 14 of the CPA dictates that mandates may only run for a fixed and specified term, of not more than 24 months.
A seller may cancel their mandate with the agent at any time by means of a written notice issued with a minimum of 20 days’ notice.
Should the seller fail to give the agent written notice on the expiry of mandate, it will continue to run on a month to month basis until written cancellation is given.
Section 14(2)(d) directs the agent to notify the seller within 40 to 80 days of their mandate’s expiry, in order to allow time for the seller to either provide written cancelation or to consent to extending their mandate with the agent for an additional fixed term.
Section 48 of the CPA requires that consumer agreements have fair, reasonable and just terms. Therefore, if the mandate agreement is correctly drafted, it would contain a clause which specifically governs the terms of the mandate to ensure there is no ambiguity regarding cancellation or renewal thereof.
Section 48(1)(a)(i) requires that the cost for goods or services are fair, reasonable and just. Therefore, the agents’ commissions are set at an agreed percentage of the sales price of the property sold.
If a written offer is accepted from a willing and able purchaser, it can be argued that where a sale is cancelled through no fault of the seller, it would be unfair, unreasonable or unjust for an agent to claim payment of the commission from the sale.
According to section 51(3), unjust or unethical clauses within the mandate agreement are not permitted.
If the sales agreement does not comply with the terms as stipulated in the CPA, an agent or agency could be at risk of being reported to the National Consumer Commission, who could fine them up to 10% of their annual turnover for the previous financial year.
In terms of section 49 of the CPA, any provision of an agreement that limits the risk or liability of an agent or supplier or imposes a risk or liability on the seller, the agent is required to draw the attention of the seller and buyer to those risky terms.
This will ensure that the consumer is aware of, agrees to and initials those clauses when signing the sales agreement.
In terms of section 22, in conjunction with section 50, of the CPA, a written mandate must be worded in such a manner that is easily understood by the consumer without undue effort.
Furthermore, the mandate must be carefully drafted and must contain strict processes which the agent follows before the consumer signs it.
Section 26 of the CPA states that if a sale is concluded within the term of the estate agents mandate, the agent must issue a written sales invoice to the seller, in compliance with the quality requirements as defined within section 54 of the CPA.
The seller has the rights according to the CPA, for prompt and professional service delivery by the mandated agent and quality of service as expected by the consumer.
If the seller is not satisfied that the agent met the criteria for prompt and quality service delivery, they are urged to lodge a complaint with the National Consumer Commission.
The CPA impacts on the consumer under section 113, where it states that should either the seller, agent or both deliberately withheld any information regarding latent defects or any other matters which may have impacted on the sale of the property, they may be liable either individually or jointly for contravention of the CPA.
Should the purchaser decide to refer the matter to the National Consumer Commission, the agent is at risk of receiving a penalty or fine of up to 10% of the seller’s or agents annual turnover due to the estate agent’s behaviour.
In addition, the seller could lose the sale if the direct marketing methods adopted by the agent to sell their property did not comply with the CPA.
A cooling off period granted to the purchaser by section 16 of the CPA to ensure they are satisfied with the property before taking full ownership thereof.
The cooling off period is for up to 5 days from taking transfer of the property.
Property sellers should note that before accepting and signing a mandate agreement with an agent, they should ensure that the agent follows the rules as defined by the CPA.
The seller and agent should both accept that the purchaser has the right to cancel the purchase of the property should they not comply with any clause relating to Direct marketing as well as ethical, professional conduct and processes when closing a property sale with a willing buyer.
The agent should assure the seller that they have sufficient insurance cover should they not comply with the CPA, and the sale falls through, which indemnifies the seller from unfair or costly liability.
Before accepting a fixed term mandate with an estate agent, the seller should confirm that the agent has noted within the mandate that they are fully insured for any liability which could arise from non-compliance by the agent.
For legal assistance with understanding an estate agent mandate agreement, or if you have any questions related to property law in South Africa, do not hesitate to contact our attorneys today.
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