An estate agent supplies goods and services in the ordinary course of his or her business to the sellers and purchasers of immovable property. In this role, the estate agent falls squarely within the definition of a supplier as defined by the Consumer Protection Act (“the CPA”).
The CPA applies to many transactions in which the estate agents are involved as a supplier directly, but also where the seller, who is the agent’s principal, falls within the definition of supplier as defined by the CPA. As the CPA has not yet been sufficiently tested before any court of law, this article is a considered and academic interpretation of the provisions of the CPA.
There is much uncertainty in the practical application of the CPA, particularly how it affects the sale of immovable property.
When does the CPA apply to Estate agents:
The CPA applies to estate agents in mainly the following 4 situations:
- Mandate Agreement
- Where an owner of a property mandates the estate agent to market and sell immovable property on his or her behalf, the written mandate agreement is subject to the CPA.
- In this situation the estate agent is the supplier and the owner of the property is the consumer.
- Each provision of the mandate agreement must comply with the CPA.
- Essentially, as with all agreements, the mandate agreement has two main criteria:
- it must be understandable (plain language requirement) in that the ordinary person with average literacy skills and minimal experience can understand it; and
- it must not contain any unfair terms or be unfair to the consumer in any way (no unfair, unjust or unreasonable contract terms)
- In addition, the mandate agreement also falls into the definition of a fixed term agreement as it has a definite and finite period that it is valid for and an expiry date. The CPA states that all fixed term agreements may be cancelled by the consumer giving 20 business days notice without the need to prove a breach of the agreement by the supplier.
- This means that the mandate agreement can be cancelled by the owner of the property, but the estate agent would have recourse in that they would be entitled to claim certain amounts that had been expended in the marketing of the property.
- Also, very importantly, when the agreement expires it will automatically continue on a month to month basis until the consumer expressly terminates the agreement or extends it for further fixed period.
- Deed of sale where the estate agents acts as an agent for a principal who is a property developer or property speculator
- The property developer or property speculator acts in his ordinary course of his business when he sells immovable property, a typical business/consumer relationship is formed and the developer/speculator is a supplier in relation to the consumer-purchaser and the CPA applies to the sale transaction.
- In all agreements where the CPA applies, the written contract of sale must conform to the usual requirements – plain language requirement and no unfair, unreasonable or unjust contract terms.
- In addition, the consumer is given a wide range of rights in terms of the CPA, and there are severe consequences for the supplier should these rights be infringed.
- The following rights are important
Consumer’s right to choose/examine goods; rights with regard to delivery and the right to return the goods after delivery
- If the goods are of not the type and quality reasonably expected by the consumer (in our case the purchaser of immovable property), he or she is entitled to reject delivery and return the goods.
- This section may find application in the situation whereby a purchaser buys immovable property off-plan. If the property is not of the type and quality that the consumer reasonably expected, in theory he or she may be able to reject the delivery and return the property to the developer.
- Practically this presents be a huge problem for the developer, and it is uncertain as to how the courts/tribunals will deal with such a complaint. We believe it is extremely unlikely that the solution could be to re-transfer the property, as property transactions are extremely complex with a large number of role-players requiring the certainty of transfer.
- Consumer’s right to demand safe, good quality goods
Every consumer has the right to receive goods that:
- are reasonably suitable for the purposes for which they are generally intended;
- are of a good quality, in good working order and free from any defects;
- will be useable and durable for a reasonable period of time
- In addition, if the consumer has specifically informed the supplier of the particular purpose/ use for which he or she wishes to acquire the goods, the consumer has the right to expect that the goods are reasonably suitable for the specific purpose that he or she has indicated.
- The section does not apply if:
- the consumer has been expressly informed that particular goods were offered in a specific condition; and
- has expressly agreed to accept the goods in that condition, or knowingly acted in a manner consistent with accepting the goods in that condition.
- The implied warranty of quality
- In any CPA transaction where goods are supplied to a consumer there is an implied provision that the producer or importer, distributor and the retailer each warrant that the goods comply with certain requirements and standards.
- Within 6 months after the delivery of goods to the consumer, he or she may return the goods without penalty and at the supplier’s risk and expense, if the goods fail to satisfy those requirements and standards.
The supplier must, at the direction of the consumer, either –
- Repair or replace the failed, unsafe or defective goods; or
- Refund the consumer the price paid by the consumer for the goods.
- If a supplier repairs any particular goods or any component of any such goods, and within 3 months after that repair, the failure, defect or unsafe feature has not been remedied, or a further failure, defect or unsafe feature is discovered, the supplier must:
- replace the goods; or
- refund to the consumer the purchase price.
- The commission clause in every deed of sale
- In every deed of sale where there is a commission clause, that commission clause constitutes an agreement between the seller (as the consumer) and the estate agent (as the supplier).
- Like all agreements where the CPA applies, the clause must conform to the plain language requirement in order to be understandable and cannot be unfair, unreasonable or unjust in any way.
- The marketing of immovable property
- In the general marketing of immovable property by estate agents, little is new – the relevant sections of the CPA in relation to marketing confirm existing principles.
- A supplier may not market goods or services by making false misrepresentations or in a manner that is misleading, fraudulent or deceptive.
- The usual requirements apply – all brochures and marketing material must conform to the plain language requirement in order to be understandable and cannot be unfair, unreasonable or unjust in any way.
- There is a positive duty on an estate agent to correct misunderstandings, so the agent is obliged to correct a clear misunderstanding to the effect that the property:
- has characteristics that it does not have;
- may be lawfully used, or is capable of being used, for a purpose that is in fact unlawful or impracticable; or
- has or is proximate to any facilities, amenities or natural features that it does not have, or that are not available or proximate to it.
- It is important to differentiate between ordinary marketing and direct marketing:
Brochures displayed at the agency
Electronic communications – email and sms
Print media eg newspaper flyers and inserts
- Direct marketing is not prohibited – you can market directly to a consumer. However, the CPA demands that you can only do direct marketing at certain times such as on weekdays between 8am and 8pm and on Saturdays between 9 and 1 and not on Sundays or public holidays.
There remains much uncertainty in the practical application of the CPA. There are vast and severe implications for all role players in the sale and conveyance of immovable property and this piece of legislation presents a huge problem for suppliers in real estate transactions.
Although we believe it is extremely unlikely that the solution could be to re-transfer the property, we wait in anticipation for guidance from the courts.
This article was written by Michele Steindl. If you have any queries on the CPA or any other property related questions, please contact Michelle Fiorentinos, the head of our Conveyancing and Property Department, on 021 2000 0770 or email@example.com