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

  1. Hello John, we signed an OTP on the 7th of Feb and the seller signed the offer on the same day. However, we were notified of the accepted offer on the 10th. Our contract says the offer is irrevocable until 3pm on the 10 February. On the 12th we sent through an email stating that we were no longer interested in buying the property and the agent never got back to us. Instead he sent the lawyers who are busy with the transfer process.

    According to section 16 of the CPA we did what we were supposed to do, even though the property is over R250k. The lawyers now say we are in breach of the contract and liable for the full amount. Is this right? What protection do we have as the consumers?

    Added to that, the contract has suspensive conditions which are in an “Annexure D” we have not seen in the signed contract, thus do not even know what the cancellation / suspensive conditions are. Can we argue bad faith?

    Please advise. We are even thinking of going to the consumer court.

    1. Hi Mbali,

      Section 16 provides for a 5-day cooling-off period in instances where the transaction came into being through direct marketing. An example of this would be if you signed the contract directly after seeing an advert.

      It’s not direct marketing if you later viewed the property with an agent before you signed.

      The suspensive conditions probably relate to your bond application; this is there so that, if the financial institution turns down your loan application, you can’t be bound to the contract.

      Whenever cancellation of a contract is envisaged, it’s always best to first seek the advice of an attorney who can peruse your paperwork and give you some informed advice as to the way forward. You should do that.

      Good luck and thanks for the question.

  2. Hi there,

    I signed an OTP in December which was accepted by the seller. My bond was later approved and signed the transfer documents and bond registration documents. When we signed the papers the property was vacant as it was bought in a repossession sale by the seller, hence the property is being transferred from the sheriff to me.

    Ever since the OTP was accepted the seller has got in tenants that now occupy the property! I’m taking occupation as per the OTP on the 1st March, the agent says the tenant will only be out on the 1st as well! How do I ensure that the property hasn’t incurred damages and will be in livable condition?
    Thx

    1. Hi Marlon,

      If the property is not in the same condition as it was when you signed the Offer to Purchase, you could take legal action against the seller for compensation. Of course, you will need to make an assessment as to whether this might be a viable proposition, or not.

  3. Hi John,

    I am a first time buyer and have signed an Offer to Purchase. Bank granted my application, but when I sit down and do my calculations, I honestly realise that going ahead with the deal means trouble for my family and myself.

    As the sole breadwinner, my wife and two kids are dependent on me fully. Going ahead with the deal means I will be about R9150.00 in arrears every month. I don’t know where the money will come from. Please help.

    1. Hi Charles,

      Financial institutions are obliged to follow strict guidelines when considering any new bond applications, particularly in the case of a first time buyer. Loan repayments may not exceed 30% of the lender’s gross income.

      It’s just possible that the reason for your shortfall is due to an understatement of your liabilities and or exaggeration of income on your loan application.

      Whatever the reason, if you have no way of addressing the shortfall, perhaps you need to have the bank reassess your loan application. Somehow, and for some reason, their numbers don’t agree with yours.

      Good luck.

      1. Hi John,

        Thanks for the response. Once the calculations are reviewed and the bank find that the loan should not have been granted, what are the consequences on my side?

        Because I have called the agent and told him that the loan was granted but I am not happy with it because I have realised that I can not afford the repayments.

        All that he is concerned about is that they will make a plan and bring down the amount of sale. All the same, I realised that even if they bring it down to R500 000, I will still be unable to afford it. This propery is sold for R650 000.

        What are my chances in this matter? Do I have to pay the agents?

        1. Hi Charles,

          Usually, if the bank turns down your loan application, you can walk away.

          However, if the bank thinks you can afford the loan you probably can — unless you gave incorrect info on your application. If you cancel you will most likely be liable for the agents fees.

          If you do decide to cancel it may be best to first consult with an attorney. It will save you a bundle.

  4. Hi John,

    Could we get your thoughts on the following …

    Buyer signs OTP for property unseen as response to email (direct marketing) from estate agent, together with a property report stating no defects at all.

    Subsequently discovers that property has major damp problems that both seller and agent were aware of and wants to cancel the OTP within 5 days.

    Does the 5 day cooling-off apply between a normal seller and buyer (i.e. neither of them is strictly a trader or supplier), or does it relate more to the relationship between estate agent and buyer? Would it apply in this case?

    1. Hi Grant,

      On the face of it, the buyer may be entitled to the benefit of the 5-day cooling-off period provided for under Section 16 of Act. Also, the seller would not be protected by the voetstoots clause where the seller had prior knowledge of the damp problem and did not disclose the problem before signing the deed of sale.

      Bear in mind that any subsequent interaction after the initial contact, such as the agent going through the property with the prospective purchaser, for example, will move the transaction out of the realm of direct marketing.

      The agent is nearly always employed by the seller, who pays agents fees from the proceeds of the sale of the property. Therefore in this instance a supplier/consumer relationship exists between agent and seller, the latter being the consumer. If the agent first contacted the seller, the seller has 5-days to cancel the mandate agreement.

      The use of Buyer’s Agents is a lot more prevalent in markets like the USA. The buyer (consumer) enters into a mandate agreement with the agent as supplier of agent’s services to the buyer. In South Africa, estate agents are rarely employed by prospective purchasers to find a suitable property. Usually the agent has no contractual and no CPA relevant relationship with the buyer.

      Hopefully the above may be of some help to you. Good luck and thanks for the question.

  5. Good day,

    We signed an offer to purchase as the rates the agent worked out was a lot cheaper and affordable.

    The application was sent to the bank and they came back with a quote which is way more expensive and which we can’t afford. We are getting married and need to have a home for us but due to the rate of the banks we can’t afford it.

    I mailed the agent and shared my views but he’s saying we cant cancel as the offer we signed, was accepted and was binding.

    Please advise as I’m a first time buyer.

    1. Hi Rowena,

      Since the introduction of the National Credit Act 35 of 2005 (NCA), all credit providers are required to do due diligence before granting a loan application. This means that you can’t be forced to proceed with any transaction you genuinely can’t afford.

      Credit providers may be in contravention of the NCA and may be judged guilty of reckless lending if they fail to properly assess the consumers ability to service the loan, before granting credit.

      However, it is equally important that consumers make a full and honest disclosure of their financial position to the credit provider when applying for the loan. Consumers who fail to make a full and honest disclosure of their liabilities on the loan application are not protected by the provisions of the NCA.

      If you think the bank made a mistake, you would be well advised to go back to the bank and ask them to reassess your financial position. Perhaps there was an error of some kind and your loan should not have been granted.

      Agents have a special responsibility to guide and advise first time buyers. Ask the agent to assist you with this. Clearly, the agent and the bank are not talking the same language.

      Good luck.

  6. Hi John,

    I purchased a unit in a development in 2012 November,I have now got a problem where in each room on one corner there is a crack showing straight from the floor all the way to the ceiling. Also, the people from the flat bellow now complain that my shower pipe is leaking into their flat and I am responsible for the repairs.

    My question: is the HOA not responsible for all the repairs for the first 5 years of the development and given the issues on the unit is there a way that I can now sell the unit without having to share any profit with the developer for selling before the five years?

    Regards,
    Mokone

    1. Before you can think about selling, you may first need to take steps to find out what these cracks mean.

      Surface cracks could be symptoms pointing to a structural failure of some kind or they could just as easily be less serious “settlement” cracks. The latter is relatively inexpensive to fix.

      It’s not a good sign that you have fractured piping in the walls.

      Repairing a structural problem has the potential to cost a small fortune. If that’s the case, you may not find a willing buyer that will meet your asking price. Don’t try to hide the problem; you could end up being liable in terms of the ‘voetstoots’ clause.

      As the owner of a sectional title unit, and as member of the Body Corporate, you could start by getting the BC involved. It will be useful to your cause to establish if there are other units with similar issues.

      Best of luck.

  7. Good Day

    I signed an offer to purchase and want out of it because I feel the agent concluded the contract in bad faith: there is this part on the contract that says:
    “OFFER AND ACCEPTANCE
    The Purchaser’s offer shall constitute an irrevocable offer, which may not be withdrawn prior to presentation to the Seller, and which
    offer shall remain available for acceptance until 22h00 on 7th December 2014 whereafter it shall lapse and be of no further force and effect” .

    But now after the signing of the contract the date has been changed to the 10th which I didn’t write, but it was cancelled and amended by the agent in my absence.

    Can you please explain what is the meaning of changing the date and what effect does it have since i didn’t change it. The copy that was sent to me had the 7th of December date.

    1. Hi Lee,

      By altering a clause of the contract after you signed it, the agent has effectively invalidated your offer. Should you wish to withdraw, you can do so.

      If you decide to go this route it may be wise to first seek the assistance of an attorney who can peruse your Offer to Purchase and ensure that you walk away unscathed.

      Best of luck.

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