The way estate agents advertise a property, what they tell the buyer and how they deal with the seller is all set to change when the Consumer Protection Act (CPA) comes into force on 1 April this year.
The fact that laws have been passed protecting the South African man on the street comes as no surprise, given that a large majority of our population has never engaged in a property transaction. While the legislation remains untested, the implications of the Act may have far-reaching consequences for agents.Although the regulations to the Act have not yet been published, once they are, these regulations will clarify many unknown factors, such as precisely who will be subject to the Act, to what extent they will be subject to the Act and whether they will have to make changes to their business practices and documentation.
The consequences for not complying with the Act are severe and businesses around South Africa will be affected by the new legislation. What is the CPA and how will it impact on the lives of estate agents?Richard Day, the general manager of Pam Golding Properties (PGP) says that it must be borne in mind that the CPA is intended to govern the relationship between suppliers, who, in the ordinary course of business supply goods or services to customers. “Once-off, private sales transactions fall outside the ambit of the CPA as these are not transactions conducted by sellers in the ordinary course of business.” He says that as a consequence of this, the standard PGP documentation will remain largely unaffected.The CPA, however, does affect transactions where the seller is a large developer or an institutional investor who sells property in the ordinary course of his business.
In cases such as these, Day says PGP will be looking to the developer itself to warrant and ensure that its sales documentation complies with the provisions of the Act in all respects.In addition, he notes that certain amendments will be made to the mandate documentation that the group uses. “These documents will be available for use by agents and will include amendments that give effect to the plain and simple language requirements of the CPA. Illustrations have been used in certain instances to facilitate understanding and comprehension.”Certain phrases in contracts such as the ‘voetstoets’ clause that are likely to be misunderstood by consumers will be replaced with easier-to-understand terminology. Although disclosure has always formed part of an estate agent’s duties, extra care will now have to be taken to ensure that the buyer is aware of every defect, whether latent or patent. Elmar Pittendrigh, the national sales manager for BetterBond believes that consumer protection is important in any market place and says that his company has worked closely with legal advisors who have presented training sessions with their consultants and clients.
“In anticipation of the Act coming into effect, the changes have already been implemented and clients have to sign an acceptance of a bond and confirm that any information given has been correctly supplied.”The general consensus seems to be that the Act is going to change the way property is marketed. Long viewed as a bit of a joke, the way agents advertise a home, at times embellishing to ridiculous levels, could come back to bite. If certain aspects of the property are exaggerated and found to be untrue, buyers may have the right to cancel the sales contract. Puffing is set to become a thing of the past and agents are going to have to tell it like it is - disclosing every known defect whether latent or patent.
Peter Gilmore, the Chairman of RE/MAX of Southern Africa says sellers are going to have to sign a declaration that they have listed every fault of which they are aware. Similarly, the buyers will have to sign a document stating that they are aware of the defects and fully understand this aspect. He says that if enforced correctly, the CPA will no doubt instil great confidence in local and international investors alike. He may have a point, given that American consumers are perhaps the most protected in the world. McDonald’s found, to its detriment, that the warning on its coffee cups was neither large enough nor sufficient when an elderly woman burnt herself with their product. A jury awarded her $2.7 million which was later reduced on appeal and then settled for an undisclosed amount which is believed to be under $600,000.Termed frivolous litigation, most would argue that while the American model may not be ideal, the South African consumer undoubtedly needs greater protection. The Act allows consumers to approach the National Consumer Commission instead of conducting litigation through the Magistrates or High courts. While this will undoubtedly prove to be the less expensive route, it remains to be seen how effective the commission will be and to what extent it will do a better job of protecting consumers than the ordinary courts of the land.