Purchasers of second hand houses have been surprised to learn that the Consumer Protection Act does not offer them any protection against estate agents and the sellers of these houses - a fact that must cause investors to pause before they dive headlong into a transaction involving a second hand house.
Ever since the Consumer Protection Act (CPA) came into force on 29 April, 2009, confusion has reigned about whether or not this legislation applies to the sale of second-hand houses.
The key requirement of the CPA is that the legislation will only apply to a transaction “in the ordinary course of business" of the supplier.
The ordinary course of business of most second hand house owners would not be selling houses: most sellers would be occupied in other activities such as being employed as an accountant, plumber, doctor, electrician and so forth.
So therefore the CPA would not apply to most owners of second hand houses and the sale of their properties. As a result the owner/seller of a second hand house cannot be subjected to any of the provisions of the CPA; whether it be a private sale or a sale managed by an estate agent.
A property developer’s activities are different, as his ordinary course of business is the sale of multiple properties on a continuing basis and he would be covered by the CPA.
The difficult question then emerges - what is the status of an estate agent under the CPA, seeing that his ordinary course of business is very definitely selling houses? Does the agent’s participation in the second hand house sale bring the transaction under the CPA? In what circumstances can the agent be held accountable? Does the agent’s involvement expose the owner and the sale of his house to the jurisdiction of the CPA?
Whilst the primary focus of the CPA is on bilateral relationships between suppliers/retailers and their consumers, the position is less obvious when one is faced with multiple and overlapping relationships, such as those that exist, when estate agents assist sellers of second-hand properties.
For example, these relationships would be those between the estate agent and owner, the estate agent and the purchaser, the agent and the conveyancer, the owner and the conveyancer and the owner and the purchaser. We are all familiar with the fact that an estate agent represents the seller as a go-between between the seller and purchaser. Furthermore it is well understood that an estate agent is paid commission. Essentially, an estate agent’s role is that of an "intermediary” who is defined by Section 1 (a) of the Definitions under Chapter 1 of the CPA, as being someone who “in the ordinary course of business”, represents another (the seller) for remuneration in respect of the potential supply of goods and services.
But significantly, the last sentence of this definition clearly provides that it "does not include a person whose activities as an intermediary are regulated by other national legislation". And of course the affairs and conduct of estate agents are regulated by national legislation in the form of The Estate Agency Affairs Act together with its Estate Agents Code of Conduct.
So therefore, we may conclude that all the activities of an estate agent in her ordinary course of her business (meaning selling both second hand houses as well as selling property developments) are excluded by the last proviso of the definition of an intermediary under the CPA.
By analogy, just as the intermediary activities of a conveyancer (he is an intermediary between the seller and purchaser, estate agent, borrower and bank, purchaser and the taxman) are excluded by the Attorneys Act; so are the estate agent’s activities excluded by the
Estate Agency Affairs Act read together with its Estate Agent’s Code of Conduct.
This means all the detailed requirements stipulated by the CPA such as responsible marketing, honest dealings, equality and privacy, full disclosure of information, plain and understandable language, fair, reasonable and just terms, express notice of any risk or liability and details of a cooling off right, do not apply to the agent’s activities and also do not apply to second hand house owners.
So how does one reconcile heightened consumer awareness and the demand for consumer protection, when one realises that the CPA affords no protection to those participants, (apart from purchasers from developers), in the real estate industry? We have to accept that the status quo remains - the same just as it was before the CPA came into force.
Accordingly, purchasers (other than those who purchased from developers) still have general legal remedies against the seller under the law of contract, the law of sale and The Alienation of Land Act. The voetstoots clause remains (where the purchasers buy a property and accept liability for any latent defects): and for good reason! For instance nobody would seriously expect elderly sellers to climb into the roof – and to just amplify the physical impossibility – to dismantle the geyser in order to check whether or not the inner pressure cylinder, is leaking into the thermal insulation – as was recently demanded by a purchaser!
Purchasers and sellers of every kind of immovable property are still afforded protection against estate agents by virtue of the Estate Agents Code under the Estate Agents Affairs Act.
Although many purchasers have been very disappointed to hear that the CPA does not come to their rescue when they discover rising damp, it is ironic that the Estate Agents Board might well be the forum that deals with their complaint much more quickly than the overloaded and much delayed National Consumer Tribunal.