The effect the Consumer Protection Act has on Property Sales

The advent of the Consumer Protection Act in 2011 (the Act) caused alarm amongst practitioners in the Property Industry, as it was originally feared that all property sales would fall within the ambit of the Act. It was feared that the onerous compliance conditions contained in the Act would have brought about an entirely new environment within which property sales occurred.

Property practitioners now have a reasonably good understanding of the scope of the Acts applicability. In terms of the Act, the goods and services supplied must be supplied in the ordinary course of the suppliers business, in order for the specific supply to be subject to the Act.

Put into Property sale terms, the Seller of the Property must sell property in the normal course of his business, for the transaction to be subject to the Act. Very simply put, property sales by property developers and property speculators/investors would be subject to the Act, whereas one off sales by a homeowner whether he intends to replace the home sold or not, would be exempt from the provisions of the Act.

Those transactions involving the disposal of property in the normal course of the suppliers business would thus be subject to the Act. A very brief summary of a few of the better known consequences, should the Act apply to the transaction are:-

 

  1. The Act requires that the terms of the contract be fair and reasonable to all parties. If a developer, for example, attempted to impose an unfair term in the contract, the Purchaser might apply to the High Court in order to have the unfair term struck down and replaced with a more equitable term.

 

  1. Contracts must be clear and understandable, with no small print used to conceal the less savoury provisions. The supplier must be satisfied that the consumer understands the contract.

 

  1. The ‘’take is as you find it’’ type of Voetstoots clause is not permitted, the supplier is not permitted to contractually opt out of his common law liability for defects in the Property sold, whether latent or patent, irrespective of whether he knew of them or not.

When it was realised that these consequences did not follow on the incidental, one off type of sale effected by a person not in the course of his ordinary business, a collective sigh was heard from all property practitioners. The validity of the Voetstoots clause in such transactions was not challenged, courts would not interfere with the contractual terms openly and freely agreed between the parties, irrespective of whether some of these clauses, objectively viewed, might be deemed unfair, and so all was well again.

Not Quite! The Act applies to goods and services supplied in the normal course of a suppliers business. An estate agent supplies real estate and brokerage services in the normal course of his business.

Accordingly, the Estate Agent’s service in brokering a Property Sale is subject to the Act, even though the transaction itself, and thereby the Seller and the Purchaser, are not.

What does this mean for an Estate Agent engaged in brokering a normal residential sale, which sale not subject by the Act?

The Agent may not make false, misleading or deceptive representations to the Purchaser. To suggest, for example, that a dilapidated and run down property is in need of a touch of tender, loving care (TLC), as occurred in advertisements of years gone by, would no longer be permitted.

The Agent must ensure that his contracts are written in clear, unambiguous language, with no legal jargon designed to confuse the layman, and he must be satisfied that the parties to the contract fully understand the meaning.

The Agent may not indulge in unfair or undesirable marketing techniques. In the past, the timeshare industry was guilty of extravagant advertisements, promising those who attended a presentation a variety of gifts, purportedly drawn out of a hat, and ranging from an overseas trip to a cheap camera worth in the region of about R 35.00. As luck would have it, every person attending the presentation drew the camera.  This inducement is no longer available to estate agents.

Estate Agents, being Property Professionals, are assumed to have a better insight into the condition of a property, its likely defects, and the overall environment within which the property is situate than the man in the street. The Agent, if he is aware of a negative aspect to a property and fails to disclose it, could himself be accountable to the Purchaser for not fulfilling his obligations under the Act.

It is for this reason that Estate Agents now habitually request Sellers to complete and sign exhaustive declarations which cover most possible negative aspects of the property. The theory is that no-one knows the property as intimately as the Seller, and the Sellers declaration that all is well with the Property exonerates the Agent. This would not be true however if the Agent is aware of a defect not disclosed in the Sellers declaration, and fails to disclose it to the buyer.

This very short overview of the effect of the Act on residential property sales, is intended to point out that whilst the Act might not apply to the transaction itself, nor to the Seller or Buyer, it does apply to the services supplied by the Estate Agent.

By: Randles Attorneys

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