Restraints of trade may spell financial ruin for estate agents

Private Property South Africa
Press

Unfair restraints of trade are compromising the livelihoods of some of South Africa’s best real estate agents and forcing many out of the property industry. As a result, the sector is losing valuable experience and skills.

“Right now, the property market is challenging and many real estate agents are leaving the profession. That’s often because, when they try to move from one agency to another, punitive restraints of trade kick in. That leaves them with the choice of spending up to six months without any income or remaining with a company where they are unhappy. Unfortunately, it is the client who needs the guidance of a professional in what is often the biggest investment of his or her life, who is the ultimate loser, warns Jonathan Davies, Tyson Properties regional director for Gauteng.

According to the Estate Agency Affairs Board, there are approximately 30 000 registered real estate agents operating in South Africa – far fewer than 10 years ago, when that number was around 70 000.

Whereas some of the decline can be attributed to natural attrition, many agents who have built up years of experience and significant qualifications are now finding their careers compromised.

Davies paints a picture of a talented young professional who joins a real estate agency eager to grow his career in real estate.

“Everyone seems happy to have you on board and your future looks bright! The company you have joined presents you with your contract and, in your haste to get going, you eagerly sign it after casually browsing the terms and conditions. You notice a clause entitled restraint and, although it seems unusual in a real estate contract, you sign it. What could possibly go wrong? You have just joined a great company and your plan is to be there as a successful agent for many years.”

But, according to Davies, things don’t always go according to plan.

He feels that restraining an agent without financial compensation is completely one sided. “The agent carries the entire risk. Even if the company dismissed the agent, he or she would still be restrained from earning a living.”

It could also go further than that, he warns.

“An agent who has a restraint in play may find that he or she cannot work at any other real estate agency in his or her entire home province! They are trapped. Their only option is a costly court battle with no guarantee of winning,” he says.

In fact, two recent judgements in the High Court have upheld restraints of trade of three months and six months respectively.

These revolved around whether or not an employee / estate agent had access to confidential information that would provide a competitive advantage and potentially harm the business for which he or she was working.

In a tight market where buyers and sellers are hard to come by, it seems that greater value is being placed on the intellectual property, confidential information and contact details to which an estate agent may be privy.

But Davies believes that it is relationships rather than secret formulas that count in real estate.

“Let’s face it, real estate relies on the quality of its people. There’s no secret recipe to protect like Coca Cola. There are no engineering blue prints or product patents. Real estate techniques and practices are reasonably generic. They don’t create a successful agent. Ultimately, it is hard work, relationship building and trust that create sales, not secret formulas,” he argues.

He believes that a good employer and successful real estate company should not need to restrain its agents.

“A company that can’t provide a nurturing environment for its agents needs to realise that it is at risk of losing them and address this problem. A restraint of trade cannot fix this problem only they can,” he points out.

However, he adds that the only way for potentially damaging restraints of trade to be eradicated is for real estate agents to more carefully scrutinize contracts and to refuse to sign those with clauses that are potentially detrimental.

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