Are you Liable to Pay Commission to an Unregistered Estate Agent?

THE LEGAL POSITION OF THE PAYMENT OF COMMISSION TO AN UNREGISTERED ESTATE AGENT OR AN ESTATE AGENT WITHOUT FIEDLITY FUND CERTIFICATE:

The Property Practitioners Act 22 of 2019 (“the Act”) was signed into law on 19 September 2019, however the date of commencement is still to be proclaimed. The Act sets out the position of the payment of commission to estate agents who are not registered and the legal consequences of same. It also highlights the position of those practitioners who are practicing without a Fidelity Fund certificate.

Section 48 of the Act prohibits rendering services without a Fidelity Fund Certificate. According to section 48(4), a person who contravenes or fails to comply with the aforesaid must immediately upon a receipt of a request from any relevant party in writing, repay any amount received in respect of or as a result of any property transaction during such contravention. Should such person fail to comply with the aforementioned, they would be guilty of an offence in terms of section 48(5) of the Act.

Section 56(1) of the Act states that “a property practitioner is under no circumstances entitled to remuneration or other payment in respect of or arising from the performance of any act referred to in subparagraph (i), (ii) or (iv) of paragraph (a) of the definition of ‘property practitioner”’ in section 1, unless at the time of performance of that act the property practitioner is in possession of a fidelity fund”. These provisions in the definition refers to persons who directly or indirectly act on instructions on behalf of any person to inter alia sell, purchase property, hiring and letting of businesses and collecting rental. The definition refers to an estate agent.

Section 56(2) further states that in terms of the definition of “property practitioner” in section 1, a person referred to in the definition is not entitled to any remuneration or other payment in respect of or arising from the performance by that person, unless at the time of performance such person is in possession of a registration certificate. This section makes it clear that estate agents are statutorily required to be registered in order to receive any payments which includes commission from clients.

According to section 56(3), any property practitioner who does not have a fidelity fund or is not duly registered and has received remuneration or other payment as aforesaid, must immediately pay that amount to the Property Practitioners Fidelity Fund (“the Fund”). This Fund replaces claims that would previously be made to the Estate Agency Affairs Board. Any affected seller, purchaser or lessor or lessee may within three years of that money having been paid to the Fund submit a written claim together with proof. The Fund will then pay an amount it deems equitable to the affected parties.

Section 56(5) states that a conveyancer may not pay any remuneration or other monies to a property practitioner unless such practitioner has provided them with a certified copy of their Fidelity Fund certificate which must be valid during the period or on the date of the transaction to which the payment relates. The conveyancer will pay the remuneration and other monies on the date of such payment, provided that all the relevant conditions have been met. The conveyancer therefore bears the burden of ensuring that the estate agent has a valid Fidelity Fund certificate and should verify that the estate agent is duly registered before paying the commission.

Section 56(6) further states that nothing in the aforementioned sections prevents the Fund from conducting and concluding any criminal proceedings in respect of any act contemplated in the section. This includes the provision relating to conveyancers.

The latter section seems to impose a personal obligation on conveyancers to ensure that the estate agents being paid are registered and have a valid Fidelity Fund certificate. The provision specifically states that nothing would prevent the Fund from instituting criminal proceedings in respect of any act in the section – this would then include subsection 5. Conveyancers are expected to handle their matters with utmost care as professional negligence can lead to serious claims against them. Conveyancers must therefore do proper due diligence as provided in the Act before paying unregistered estate agents to avoid being held personally liable.

The court in Taljaard v Botha Properties[1]highlighted that the appellant could claim remuneration paid to an estate agent, who was the respondent, as the appellant contended that the respondent did not have a valid Fidelity Fund certificate at the time that the mandate was given. A conveyancer would have a duty to ensure that any monies erroneously paid to an unregistered estate agent are recovered to avoid the legal consequences of section 56(6).

The consequences of breaching these aforesaid provisions are clear. Those practicing without being duly registered or without a Fidelity Fund certificate may find themselves guilty of an offence for contravening the Act. Furthermore, conveyancers may find themselves personally liable for paying commission to those estates agents that are unregistered.

[1] (2008) 3 ALL SA 453 (SCA).

 

Written by Sinenhlanhla Nene- Candidate Attorney

Overseen by Sifiso Msomi- Partner