28 Jan 2022

Property Practitioners Act to commence on 1 February 2022

by David Warmback, Partner, Durban, Suhail Ebrahim, Associate, Durban,

Following a proclamation notice on 14 January 2022, President Cyril Ramaphosa has declared 1 February 2022 as the date that the Property Practitioners Act 22 of 2019 (Practitioners Act) will come into operation. Such commencement will repeal the Estate Agency Affairs Act 112 of 1976 (Estate Agency Act) which presently governs the regulatory framework dealing with estate agency affairs.

The final Property Practitioners Regulations (the Regulations) which replace the draft regulations published for comment on 6 March 2020, were also published in the notice on 14 January 2022.

Like the Estate Agency Act which governs “agents”, the Practitioners Act also provides for the registration of property practitioners, prescribed training and qualifications, the obligation to obtain a fidelity fund certificate, and the compulsory use of trust accounts. It also provides, amongst other matters, for the protection of consumer interests, a dispute resolution mechanism, a legal framework for the managing and letting of property, and the transformation of the property sector.

 

Definition of Property Practitioner

The definition of “property practitioner’ under the Practitioners Act is wider than that of an agent under the Estate Agency Act, and includes, inter alia, a person who directly or indirectly sells or leases properties including sales and rental agents, auctioneers, business brokers that deal with the sale and letting of immovable property, managing agents who receive remuneration for managing property on behalf of another, and trusts that do the work of a property practitioner. Being identified as a “property practitioner” necessitates compliance with various provisions of the Practitioners Act.

 

Payment of remuneration or commission

The aspect of remuneration is significant when considering certain sections of the Practitioners Act which provides that where a property practitioner has received remuneration without having a valid fidelity fund certificate, it is compulsory for such remuneration to be returned to the Property Practitioners Fidelity Fund (Fidelity Fund) and an affected seller, purchaser, lessor or lessee may within three years of that money having being paid to the Fidelity Fund, submit a written claim in respect thereof to the Fidelity Fund. In addition, conveyancers may not pay remuneration to a property practitioner unless the property practitioner has given the conveyancer a certified copy of a valid fidelity fund certificate, effectively providing that conveyancers will be required to partly police this important provision.

 

Trust account and fidelity fund certificate

Every property practitioner must open and keep a trust account  and such practitioner is prohibited from rendering services without a fidelity fund certificate. If a property practitioner is a company, every director (excluding non-executive directors who are not directly concerned with the management and oversight of individual property practitioners who may be exempted),  and certain employees (if carrying out the work of a property practitioner) must have also been issued with a fidelity find certificate. Fidelity fund certificates must be prominently displayed in every place of business and any agreement in connection with a property transaction to which the property practitioner is a party must contain a clause in the following terms: "[Insert name of property practitioner as defined in the agreement] hereby warrants the validity of his / her / its Fidelity Fund certificate as at the date of signature of this Agreement”.

 

Property Practitioners Regulatory Authority

The Practitioners Act will establish the Property Practitioners Regulatory Authority (the Authority) which will replace the existing Estate Agency Affairs Board. The Authority is tasked with ensuring compliance with the Practitioners Act, regulating the conduct of property practitioners in so far as managing, letting, renting and hiring of property is concerned, implementing measures to transform the property sector, and to conduct campaigns to educate property practitioners and consumers.

 

Protection of consumer interests

One of the ways to achieve its object of being a consumer-focused piece of legislation, property practitioners are obliged to ensure a disclosure form is signed by all the parties to a sale or lease transaction (Mandatory Disclosure) which must be attached to the relevant agreement. If there is noncompliance, the agreement must be interpreted as if no defects or deficiencies in the property were disclosed. Furthermore, a property practitioner will not be entitled to accept a sale or lease mandate unless the owner of the property has furnished the signed Mandatory Disclosure. Consumers may hold a property practitioner liable if he or she fails to comply with these provisions.

While the Mandatory Disclosure does not constitute a warranty or guarantee of any kind, its rationale and rightly so, is that a prospective purchaser or lessee of a property may rely on such information when deciding whether and on what terms to purchase or lease the property.

Essentially the owner is requested to confirm whether he is aware of any defects relating to the roof, plumbing, electrics, sewer system, heating and air-conditioning, foundations and dampness, structural defects, encroachments, and whether renovations have been effected to the property, and if so, whether done with all relevant consents, permissions and permits.

 

Limitation on relationships with other service providers

A property practitioner is prohibited from entering into any arrangement, whether formally or informally, whereby a consumer is obliged or encouraged to use a particular service provider, including an attorney or conveyancer to render any service or ancillary services in respect of any transaction of which that property practitioner was the effective cause.

This clearly prohibits any arrangement where a consumer is incentivized for making use of a particular service provider and a contravention of this provision disentitles the relevant service provider to remuneration, and if remuneration was paid, then the remuneration must, on request, be refunded to the affected party, together with interest. A failure to comply with such request within one month of being requested to do so constitutes an offence.

 

Complaints

The Regulations also prescribe how an aggrieved person may lodge a complaint with the Authority against a property practitioner, how the complaints are dealt with by mediation or adjudication, how the outcomes are communicated to the parties, as well as details on the process of appealing decisions.

The procedure, including specific forms to be used relating to how a person lodges a claim against the Fidelity Fund is also covered by the Regulations. Claims must be lodged within 3 years of the incident giving rise thereto and there is a maximum limit of R2 million that the Fidelity Fund may pay a claimant in respect of each cause of action.

 

Code of conduct for property practitioners

The Regulations provide for standards of duty and care to act in the public’s best interest, matters relating to mandates, duty to disclose, duty not to make misrepresentations or false statements or to use harmful marketing techniques, duties in respect of offers and contracts, conditions relating to, and restrictions on receipt of remuneration, trust money and interest, as well as confidentiality obligations are all dealt with in some detail and contained in a code of conduct applicable to property practitioners.

 

Undesirable business practices

The Practitioners Act provides that the Minister of Human Settlements may, after consultation with the Board of the Authority, by notice in the Gazette, declare a particular business practice in the property market to be undesirable and consequently prohibited. The Regulations identify certain of these practices.

 

 Exemption from certain provisions of the Practitioners Act

The ‘Exemption from Trust Accounts’ section in the Regulations makes specific reference to the Practitioners Act which includes a special provision where a property practitioner’s turnover is below R2,5 million.  Accounting records in these circumstances can be subjected to an independent review by a registered accountant rather than being audited by an auditor.

The Regulations also provide that a property practitioner may apply for exemption from having a trust account in specified circumstances, including where that property practitioner has never had any trust monies or no longer receives trust money.

A property practitioner will further be exempted from operating a trust account if he has mandated one or more other property practitioners that specialise in collecting and distributing trust payments (“the payment processing agents”) to process such trust payments on his behalf in respect of all trust funds received by that property practitioner.

Importantly the Regulations also provide that where a property practitioner is a partnership, company, trust, close corporation or similar organisational entity (Business Property Practitioner), has non-executive directors, finance, marketing, information technology, human resource or any other directors who are not directly concerned with the management and oversight of the individual property practitioners, exemption should ordinarily be granted from the obligation to have a fidelity fund certificate. This provision in the Regulations relaxes the onerous requirement of the Practitioners Act that provides for every director of a Business Property Practitioner to have a fidelity fund certificate and who would otherwise have to then comply with the educational requirements specified in the Regulations.

 

Transformation

The Practitioners Act provides that the Property Sector Transformation Charter will apply to all property practitioners and when procuring property related goods and services, all organs of state will be obliged to utilise the services of property practitioners who comply with the broad - based black economic empowerment and employment equity legislation and policies. The Practitioners Act provides for the establishment of a Property Sector Transformation Fund which will include as its purpose, the promotion of black-owned firms and principals, participation of the historically disadvantaged and promotion of consumer awareness, and consumer education and training. To this effect, the Regulations indicate that no more than 75% of the income of the Transformation Fund must be used for various empowerment purposes referred to in chapter 2 of the Regulations