Third Party Referral Commission is Illegal

Private Property South Africa
Tahir Desai

According to Section 34A of the Estate Agency Affairs Act, any person who does not hold a Fidelity Fund Certificate may not earn commission on the sale of a property and this rule would apply to those who try to claim or earn commission by referring agents to a buyer or a seller, thereby thinking they can earn a “spotters” or “finder’s” fee, says Lanice Steward, managing director of Knight Frank Residential SA.

In a recent case mentioned in a Smith Tabata Buchanan Boyes property law update, Haigh Farming (Pty) Ltd (‘Haigh Farming’) instituted action against EG Elliot Real Estate CC (‘Elliot Real Estate’) for payment of a consultancy fee, which was a portion of commission Elliot Real Estate earned on deals given to it by Haigh Farming.

In this case Haigh Farming claimed that they had an agreement with Elliot Real Estate whereby Haigh would facilitate negotiations and pass on details of purchasers and sellers to Elliot Real Estate, who would then finalise the deal. Haigh would then be paid a portion of the commission earned in return.

Elliot Real Estate applied for absolution from this agreement and even though Haigh was doing the work of an estate agent, he was not a registered agent and could not, therefore, claim any commission.

The legal question arose, not whether Haigh did the work of an estate agent, but whether it was illegal for a member of the public to enter an agreement to earn commission from the agency in the case of a sale from one of his referrals, which is usually referred to as a “finder’s fee”, said Steward.

It is thought that the new Property Professionals Bill will require those in various sectors of property dealings to register with the EAAB and will have to hold Fidelity Fund Certificates in order to trade. Anyone transacting in property in some way, she said, such as developers, managing agents, holiday rental agents, etc, will have to hold some form of qualification and hold an FFC in order to earn their commission in future but as it stands now, the Estate Agency Affairs Act does still state it quite clearly who should be able to earn commission and who cannot.

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