- The new Property Practitioners Act provides a substantive change to the real estate market in South Africa with a bigger focus on transformation and consumer protection
- The Act introduces new restrictions on the conduct of ‘property practitioners’ in their interactions with consumers, including obligations relating to the display of Fidelity Fund certificates and the completion of a mandatory disclosure form
- In line with its transformative aims, the Act requires property practitioners to be in possession of a valid BEE certificate for them to receive Fidelity Fund certificates
- The Act imposes new requirements for the training of ‘candidate property practitioners’ and imposes heightened transparency in practitioners’ management of trust accounts and accounting records
The Property Practitioners Act 22 of 2019 (‘the Act’) came into operation on 1 February 2022. The Act replaces the Estate Agency Affairs Act 112 of 1976 and seeks to provide a more transformative, consumer-friendly regulatory framework for the real estate sector in South Africa. The most important changes are set out below.
Expanding consumer protection in the real estate market
The Act replaces the terminology of an ‘estate agent’ – that had been used in the EAA – with the broader term: ‘property practitioner’. The latter term includes not only estate agents, but also auctioneers, property developers and managers, franchisees, and bridging financiers and bond brokers (who are not typical financial institutions such as banks and insurance companies).
All property practitioners must apply every three years to the Property Practitioners Regulatory Authority (‘the Authority’) for a Fidelity Fund certificate to be issued by the Property Practitioners Fidelity Fund, without which the property practitioner cannot act or receive fees as a property practitioner. A property practitioner is further obliged to produce the certificate or a copy thereof upon request from any ‘relevant party’ and to prominently display the certificate where it can be easily inspected by consumers in each place where they carry on business as a property practitioner. Moreover, in any agreement relating to a property transaction, the property practitioner must guarantee the validity of their certificate and will consequently be in breach of that contract if the certificate is invalid.
Property practitioners will, in terms of the Act be subject to a code of conduct to be drafted by the Minister of Human Settlements (‘the Minister’). Property practitioners may further be required to take out insurance to indemnify consumers for contraventions of the code of conduct, although the extent of this requirement is still to be determined by the Minister.
The Minister’s power under the new legislation is comprehensive: the Minister has the power to declare a business practice as ‘undesirable’ and hence prohibited. In terms of this power, the Minister has declared the following practices as prohibited in the Regulations to the Act (‘the Regulations’):
- Arrangements in terms of which a franchised business requires a franchise outlet to market or sell their operation through the franchisor’s agency or a property practitioner designated by the franchisor
- Arrangements in terms of which a residential development, such as a body corporate or a homeowners’ association, rewarded in exchange giving preferential treatment in respect of the marketing of properties in that property development
- Arrangements requiring that any property in that property development may only be sold through the residential development’s agency or a property practitioner designated by that residential development
- Arrangements requiring that any property in the property development may only be disposed of to the residential development or a person or entity designated by the residential development
- Any other arrangements that practically provide an advantage to a particular property practitioner, or group of property practitioners, over other property practitioners, through the provision of services relating to the properties in the property development
- Arrangements that practically exclude or disadvantage any property practitioner, or group of property practitioners, from being able to provide services relating to the properties in the property development
A property practitioner is now obliged to refuse to accept a mandate received by a seller or lessor to sell or lease their property unless the seller or lessor has signed a mandatory disclosure form which discloses all defects in the property to be sold or leased. The property practitioner must furthermore provide a copy of the disclosure form to a prospective purchaser or lessee who intends to make an offer for the purchase or lease of the property. The property practitioner may be liable to an affected consumer for failing to comply with these requirements and could even face a fine or imprisonment up to 10 years. If the disclosure form is not signed and attached to the agreement for the sale or lease of the property, the agreement must be interpreted as if no defects in the property were disclosed to the purchaser.
Transformation in the property sector
One of the main purposes of the Act is to transform the property market to benefit historically marginalised groups who are underrepresented in the property market. The Authority is therefore required to establish the Property Sector Transformation Fund whose purpose is, amongst other things, to promote black-owned firms and black property practitioners, and to increase participation in the property market by historically disadvantaged persons.
Also noteworthy is the requirement that a person or entity must be in possession of a valid Black Economic Empowerment (‘BEE’) certificate in order to be issued a Fidelity Fund certificate by the Authority. This has the effect of elevating BEE compliance to a requirement for a person or entity to carry on their business as a property practitioner. There is, however, some uncertainty concerning this requirement as it applies to Exempted Micro Enterprises (EME’s) – in other words, enterprises with an annual total revenue of R10 million or less – who are issued affidavits, as opposed to certificates, by the BEE commission and therefore do not fall squarely within the Act’s requirement of a BEE ‘certificate’. It is expected that the Act will be amended to remedy this uncertainty.
Education requirements under the new legislation
The Act and the Regulations impose more regulation into the training of trainee property practitioners – called ‘candidate property practitioners’ in the Act. As part of their training, candidate property practitioners must be placed under the supervision and control of a principal with at least 3 years’ experience, and they must pass several professional examinations for qualification as a property practitioner. Candidate property practitioners are also placed under a duty of disclosure to their clients: to perform any duties for them, the candidate property practitioner must disclose their status as such. Finally, candidate property practitioners’ powers are limited in various important respects, including that they cannot draft or complete any documentation, or any clause in any documentation, relating to the sale or lease of property.
Even after they have qualified as a property practitioner, for the first six months after registering as a property practitioner they cannot conclude mandates or contracts for the sale, purchase, letting or hiring of property without it first being reviewed and co-signed by another qualified property practitioner.
Accounting records, bookkeeping and trust accounts
Every property practitioner is required to open one or more separate trust accounts for their clients’ trust money. In addition, property practitioners are required to: appoint an auditor; provide the Authority with information regarding the trust accounts and the appointed auditor; deposit the trust money into the respective trust accounts; and keep accounting records for the trust accounts and to have them audited. Property practitioners must confirm or update the details of their auditors annually.
Property practitioners are also required to retain for five years information relating to:
- Documents exchanged with the Authority
- Correspondence between the property practitioner and their employer or franchisor (if applicable)
- Agreements that are ‘incidental’ to the property practitioner’s business
- Agreements, mandates, mandatory disclosure forms and other documents pertaining to the financing, sale, purchase or lease of property
- Advertising and other marketing material used by the property practitioner
The Minister furthermore has the discretion to expand the list of documentation required to be retained for five years.
If you have any further questions regarding how the Property Practitioners Act may affect your business, please give our offices a call and one of our attorneys will gladly assist you.