How Consumer Protection Act Affects Property Transactions — Part 1

Consumer Protection Act will effect Real Estate transactions
Consumer Protection Act will effect Real Estate transactions

South Africa’s new Consumer Protection Act comes into effect on 1 April 2011. This law fundamentally changes the way business is done in South Africa. The law regulates the way businesses market their products and services and makes South African consumers among the most protected in the world.

Three important changes relating to Real Estate transactions are introduced with the CPA.

Firstly the Act introduces a bill of rights, granting consumers the right to cancel certain contracts within a “Cooling-off” period of five business days.

Secondly, the Act changes the way the voetstoots clause will be applied in Real Estate contracts.

The third is about how the CPA effects the Letting of property. This one will be covered in Part 2 of this post.

Cooling-off period
In terms of the Act, a Purchaser that purchases a property as a result of direct marketing has the right to cancel the sale within five business days, the “cooling-off” period. This applies only to sales that result from direct marketing. The “cooling-off” period does not apply to sales that result from any other form of marketing such as show houses and conventional print advertising. Nor does it apply to any purchase made by a client that the agent is already working with. Transactions that arise from these forms of marketing are excluded from the “cooling-off” provisions of the Consumer Protection Act.

The start of this 5-day “cooling-off” period is the date of delivery of the goods to the Purchaser. In Real Estate terms this means, not the date of signature of the contract, but the date of transfer of the property into the Buyers name. Transfer generally takes place three to six months after signature of the Offer to Purchase. Obviously cancellation after a delay of these proportions will be problematic for all the parties involved. However, this provision is as yet untested in law and it remains to be seen how it will be interpreted by the courts.

In South African Property Law, in terms of Section 29a of the Alienation of Land Act, property transactions of less than R250 000 are subject to a “cooling-off” period of five days, calculated from the date of signature of the Offer to Purchase. This provision remains in place and is not effected by the new Act.

“Voestoots” clause
Voetstoots is a term derived from Roman Dutch Law which means literally “as is”. Prior to the introduction of the Consumer Protection Act, all property was sold voetstoots. However, the new Act changes this.

From 1 April 2011, developers, speculators, and investors with property portfolios who sell property in their ordinary course of business, cannot exclude their liability for defects by way of a voetstoots clause.

However, an ordinary once-off seller, who does not sell property in the ordinary course of business, may continue to rely on the protection of the voetstoots clause for the simple reason that the sale of this property does not fall with the ambit of the Consumer Protection Act, as detailed above.

Part 2 of this post takes a look at how Lease Agreements will be effected by the CPA.

Source: Bisset Boehmke McBlain
Photo Credit: zysclassifieds

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828 thoughts on “How Consumer Protection Act Affects Property Transactions — Part 1”

  1. I signed an OTP last year June 2014 with a developer and was approved home finance. I was provided with an occupation date for the end of February 2015. However, the developer was declared bankrupt and the development stopped. As a result new trustees were appointed and they have since taken over the development.

    If I wanted to get out of the agreement and get my deposit back, how would I go about doing that? The new trustees have not given me an occupation date and it is quite frustrating.

    1. Hi Faith,

      Without knowing the financial details of the bankruptcy or the state of the development it’s very difficult to comment.

      It would be best for you to approach an attorney who can investigate the situation on your behalf, peruse your contract and then give you some informed advice as to the options that may be available to you.

      Good luck.

  2. Hi John,

    In 2013 October we signed offer to purchase vacant land. The contract was for the period of 12 months and the agent explained that in order to secure the contract, we need to pay R10 000 upfront. Then on monthly basis we must pay not less than R1 500. We did exactly that.

    The selling price was R135 000 excluding VAT. The agent told us that because of infrastructure delays there is no need to finalize payment within 12 months. We agreed with him as we wanted to make a loan for both building and land ( to make one loan) at the bank.

    We have been talking to our agent each month to check how far are they with infrastructure and he keep on telling us that soon as they are done he will notify us.

    Early this year we went to the site to check how far are they. To our surprise the land was sold. When we asked why, they told us that the current buyer had cash with him.

    Now they want to sell us another stand smaller to the previous land. We humbly need advice on how to go the legal route.

    Please, please advise.

    1. Hi Portia,

      You have entered into an installment sale transaction which is governed by the provisions of the Alienation of Land Act 68 of 1981. Certain basic requirements must be met for the sale to qualify as an installment sale:

      1. The transaction period must be longer than 12 months;
      2. Price must be payable in more than 2 installments;
      3. The property must be residential in nature.

      If you have a valid contract the agent may not simply alter the terms without consulting you; the contract is binding on both parties.

      It would be best for you to seek the help and advice of an attorney who can peruse your agreement in order to give you an informed opinion as to the options that may be available to you.

      Best of luck.

  3. Hi John

    I signed a OTP about a week and a half ago and bonds have been granted but not signed yet. We were under the impression that the complex is pet friendly as the agent advised us of this. We them asked for confirmation in writing but received nothing so we went to the complex and asked for the body corporate members number and called him. He confirmed that it is not pet friendly. I have now advises the agent that I wish to cancel the OTP, will this be an issue? What will banks do?

    1. Hi Jennifer,

      Usually, once the bond has been granted it means that the suspensive conditions have been fulfilled and the transaction is final and binding. If you cancel at this point it’s likely that you may be held liable for the agents commission and some additional costs such as a portion of the transferring attorney’s fee and possibly bank cancellation fees.

      However, as you were provided with false information which led you to believe that the complex is pet friendly, when clearly it is not, you should be able to cancel the sale.

      It would be prudent to seek the advice of an attorney (not the transferring attorney who is representing the interests of the seller) as it’s vital that the correct procedure be followed if you are to walk away from this unscathed. If you get it wrong it could easily turn into an expensive exercise for you.

      Good luck.

  4. Hi there,

    My husband and I went to see a house and put in an offer to purchase which was not accepted. A few days later the same agent sent me another property which we saw and then put in an offer to purchase which was accepted.

    Due to unforeseen circumstances we can no longer buy the property. The only thing that has been done is we singed an offer to purchase. We have not applied for the bond yet.

    Are we able to revoke or cancel this offer? We also crossed out the clause where we will be liable for the agents commission should the bond not be approved.

    1. Hi Anonymous,

      Depending on the wording of your contract, if your bond application is declined you may be free to walk away without consequences. However, if you cancel at this point, it is very likely that you will be liable for the agent’s fee.

      Whenever cancellation is envisaged, it’s always best to seek the advice of an attorney who can peruse your contract and give you an informed opinion as to the options that may be available to you.

      Best of luck.

  5. HI John

    I advertised a property to rent and the applicant viewed through the current tenant without me being present.

    He then decided that he wanted to purchase the property and then rent if the finance was declined.

    I suggested that he rent with the option to buy however he decided against that.

    The application form was sent to him and he was asked to add or delete clauses so that I could have the OTP typed up,

    The OTP was signed with the voetstoets clause and accepted by the Seller. There was no inspection done before the OTP was accepted

    The Purchaser has added an addendum with a list of defects and repairs that he wants the Seller to pay for and accept.

    Does the Seller have to now accept the addendum after signing the Deed of Sale which include replacing of all carpets, removing nails from walls and painting them, etc. The Seller would however take care of damp issues, etc.

    Please advise


    1. Hi Tracy,

      The purchaser viewed the property so it’s not accurate to say “There was no inspection done before the OTP was accepted.”

      Assuming that the addendum was introduced after the OTP was accepted, and failing seller’s signature on this document, it can safely be ignored if the seller so chooses.

  6. Hi John,

    I signed an OTP in September 2014 and the bond has been approved by the bank. Also I have signed transfer docs with the transfer and bond attorneys. However, when I went to view the property in January there was a tap leaking for 3 months which caused dampness and damaged the walls.

    The owner has now repaired the damages, however after viewing the property after the repairs I am not satisfied. I have also been misled as the repairs have taken two months and I was told that the entire house will be painted which is not the case after viewing.

    The agent only provided me with a defect list in February 2014, after several requests to the transfer attorney, and according to the list there are no defects at all to this property. I am getting a property inspector to validate this property as there are visible cracks and damage in cupboards due to dampness.

    If damages are picked up by the property inspector would I be in a position to cancel the sale? The agents has said to me that I have no legal right to cancel.

    1. Hi Reshal,

      Obtaining a home inspection report is a very good starting point. Armed with your inspection report, you may then consider approaching an attorney, not the transferring attorney who is representing the interests of the seller, to have your contract perused. Thereafter your attorney will be in a better position to give you an informed assessment as to the options that may be available to you.

      It’s possible that the seller might have concealed defects in the property or perhaps the seller may have neglected to inform you about defects that he was aware of. If that’s the case you may have a valid claim against the seller. With the help of an attorney you may be able to reach an amicable settlement with the seller, failing which you may be able to cancel. Your attorney would be the best person to advise you on this.

      Good luck.

  7. Hi,

    I signed an OTP in November, my bond was approved, I had signed all transfer and registration docs so has the seller. Everything was ready for lodgement in February but the seller is delaying paying his shortfalls and keeps on disputing the final figure.

    The transfer attorneys have now gone as far as to offer discounts on their cost to him but he still refuses to pay. I was told we can put him on terms but I don’t want to cancel the deal. What can I do? This is costing me money as I still have to pay him rent every month that could be used to pay my bond?

    1. Hi Francois,

      This sounds a lot like seller’s remorse. Fortunately this is a curable condition.

      Usually the seller appoints the transferring attorney, in which case the transferring attorney is representing the interests of the seller. For this reason, you may find it worthwhile to consult with an attorney of your own choosing. Often the mere act of appointing an attorney can help get the other party more sharply focused on their contractual responsibilities.

      Depending on the amount involved, you might also consider making the seller an offer to assist with the shortfall, particularly if one factors in the potential savings in occupational rent that a speedy resolution might yield. Preferably, have your attorney handle these negotiations to move things along.

      Good luck and thanks for the question.

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