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The Consumer Protection Act and Real Estate

The Consumer Protection Act Has a Sting in its Tail for Real Estate Agents

The Consumer Protection Act aims to promote fair, open and ethical business practice. It addresses all aspects necessary to protect the consumer from business transactions that take place. It applies to all industries and business to consumer trades, including real estate.

The Consumer Protection Act and Real Estate

The Act regulates the relationship between the supplier of goods and services in the ordinary course of business as well as the way the suppliers are to conduct themselves.

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

The Act does not apply to sale or lease agreements between people who sell or let their homes privately, but should be adhered to by parties who undertake the sale of property as part of their usual course of business.

Any violation of the Act will be taken seriously and there are provisions in place for stringent penalties related to non-compliance.

Therefore, it’s essential that estate agencies consider their ethics and agreements in light of the CPA and ensure they remain compliant to ensure the ongoing success of their business.

The CPA will only apply to a property transaction when the seller or lessee is acting in the ordinary course of business.

However, in terms of Section 5, this does not apply to legal entities with an annual turnover and nett value of under R3 million at the time of the transaction, but it does apply to all-natural persons.

Property Purchase with Latent Defects

Persons who purchase property from a seller in their private capacity and proceed to lodge a claim due to latent defects or any other rights under the Act, do not need to go to court.

However, they may have the option to refer the matter to the National Consumer Tribunal, the relevant consumer court, or with the National Consumer Commission.

Section 7 of the Consumer Protection Act - Franchise Agreements or Agent Mandates

Agent mandates are to be in writing and signed with the agent on behalf of the franchisee or property seller. It must include any requirements specified by the seller and agent in simple, easy to understand language.

A seller may cancel the mandate agreement without cost or penalty within 10 business days after signing such an agreement, by giving written notice to the agent.

Direct Marketing and Real Estate – What is Direct Marketing?

“Direct marketing is an advertising strategy that relies on the individual distribution of a sales pitch to potential customers. Mail, email, and texting are among the delivery systems used. It is called direct marketing because it generally eliminates the middleman such as advertising media.”

In terms of the Regulations pertaining to the Act, direct marketing may only be conducted on the following days:

  • Weekdays between 08h00 and 19h00
  • Saturdays between 09h00 and 12h00

Using direct marketing techniques is prohibited on Sundays and public holidays.

Direct Marketing Resulting in Sale – Cancelling a Sale Agreement and Cooling off Period

If the property buyer has bought property as a result of direct marketing from a real estate agent, he may exercise his right to the 5 business-day cooling-off period.

The buyer may cancel this agreement without penalty within 5 business days of registration and official transfer of the property, or if occupation takes place before transfer, on date of occupation.

The cancellation can only be done by sending a written notice to the seller.

If an agent approaches potential home sellers for mandates, he is in effect, direct marketing to those sellers and the Consumer Protection Act, will apply.

Estate agents may not use unethical marketing techniques. Misleading or catchy phrases or hard sales tactics, exaggeration or deliberate vagueness to cover a potential latent defect on a property they are attempting to sell.

They are to remain impartial and not use physical force, manipulation, harassment or clandestine tactics to finalise the deal. Failure to adhere to the rules as set out in the CPA could be deemed a violation of the Act.

Property Advertising Guidelines According to the Consumer Protection Act

A property for sale needs to be displayed with the advertised asking price either on the property for sale board, on the agent’s pamphlets, brochure, website or advertisement.

Additionally, it must be listed in a publication where the association between the price and property can be made

Furthermore, all marketing of that property should be dated

If a property is sold by a developer to the buyer, the property should be a replica in all material aspects to any description, artist’s impression or plan that was provided to buyers before the sale took place.

If the buyer bought his property off plan after viewing a show house to purchase said property within the development, the home he is delivered should comply with all material aspects as contained in the show-house.

The buyer who purchases his property off plan from a developer, may at any time cancel the transaction. This may not apply to a customised dwelling to the client’s specifications.

In such cases, the buyer usually pays a deposit to the property developer in order to secure the plot.

If the transaction is cancelled, the developer is entitled to deduct a cancellation fee before refunding the remaining deposit.

The Consumer Protection Act Code of Ethics and Agent Mandates

An agent or property broker may not sell or let property on any terms that are unfair, unreasonable or unjust or at an unreasonable price.

An example of unfair terms would be an agreement which includes a clause stating that the buyer would lose their deposit if the sale is cancelled for any reason that is beyond the buyer’s control.

The same rules apply to agents’ mandates as they are official and legally binding contracts between the agent and the seller.

In other words, an agent may not render services in terms of a mandate on terms that are unreasonable, or charge an unrealistic commission for their service.

The court will decide if the terms are unfair, based on a number of factors including:

  • The fair value of property and service delivered
  • The agent and seller’s engagement with the buyer in relation the agents experience and effectiveness in causing the sale to proceed successfully

If the court finds that the seller was not duly serviced by the agent in securing the sale of the property and did not meet the necessary expectations, the court will find in favour of the seller, resulting in less or no commission paid to the agent.

Fixed Term Consumer Agreement

Except for contracts between two legal entities, fixed term consumer agreements include leases and sole mandates.

These contracts specify that these agreements may not run for longer than 24 months. The consumer should give 20 business days’ notice in writing when cancelling such contracts to avoid a cancellation fee.

The agent is required to give the lessee or mandated seller notification in writing, not more than 80, nor less than 40 business days before the expiry date of a fixed term consumer agreement, including any contractual changes on renewal.

Expiry of Fixed Term Consumer Agreements

Section 14(2)(d) states that on expiry of the agreement: “it will automatically continue on a month-to-month basis, subject to any material changes of which the supplier has given notice, unless the consumer expressly directs the supplier to terminate the agreement on the expiry date, or agrees to a renewal of the agreement for a further fixed term.”

Buyers are afforded protection in terms of the Consumer Protection Act with regard to the time, place and cost of delivery and how risk is allocated. This will be the default position, unless the contract between the seller and buyer provide differently.

Some attorneys recommend that the deed of sale specify that the buyer is liable for the costs of transfer, and that transfer takes place at the buyer’s risk.

If that is not done, the transfer is at the seller’s liability. The buyer has the right to cancel the agreement without penalty if the seller’s conveyancers tender transfer either earlier or later than specified in the deed of sale.

Financial institutions that provide finance to developers and base their risk evaluation on pre-sales of units, will have to relook this strategy with regard to individual buyers or legal entities under the R3 million threshold, as they have the right to cancel the sale agreement or return the property to the seller.

Sale of Property and Voetstoots Clause

Property brokering businesses must insert a detailed clause specifying the condition of the property, dealing with both patent and latent defects. If this clause has been agreed on by the buyer in writing and the buyer accepted the property in the agreed-on condition, the seller will not be held liable to the buyer for latent defects.

Attorneys recommend that sellers and their agents obtain detailed reports on all patent defects from home inspectors and attach these to deeds of sale. The age of the property, current defects known to the owner and an indemnity clause stating that the seller is not aware of any defects other than those disclosed should all be included.

Van Deventer & Van Deventer Incorporated – Attorneys in Cape Town and Johannesburg

According to the Consumer Protection Act, the consumer is entitled to timeous, quality service delivery as promised by the supplier.

The consumer must be satisfied with the goods delivered without defect. If the consumer’s expectations are not met as promised by the real estate agent, the consumer has the right to cancel the transaction for a full refund and return the property to the supplier according to the returns policy as defined by the CPA.

For more information, contact our attorneys in Johannesburg and Cape Town today.

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