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

  1. Hi

    My wife and I recently bought a house. Now we found out there is a wall which has major water damage as well as plumbing issues with the house flooding up. The seller and agent did not mention any of this to us.

    Due to my wife and I getting married in October, we only moved into the house in November and found these problems. Now no one wants to pay for the damages that were existing from before we bought the house.

    1. Hi Sharan

      You need to establish if your seller is a ‘supplier’ under the CPA. As mentioned in the above article, a seller who is defined as a supplier may be liable for any defect that was not disclosed to the purchaser by the seller or the agent at the time of the sale. The seller is obliged to make a written declaration or disclosure of any hidden defects in the property. This document must be included as an addendum to the Deed of Sale and must be signed by both parties.

      Your contract may have included a voetstoots or ‘as is’ clause, which might be an indication that that the CPA is not applicable to your transaction. In that case, any defects that were visible to you at the time of the sale are likely to be ‘patent’ (visible) defects that the seller is not liable for under the provisions of this clause.

      The voetstoots clause also protects the seller from liability for any ‘latent’ (hidden) defect that the seller didn’t know about at the time of the sale. However, if the seller knew about a hidden defect, and concealed this from you or failed to disclose it, the seller can not rely on the protection of the voetstoots clause. You may need to do some digging for evidence that the seller knew about it in order to prove your claim against the seller.

      If you think the seller has purposely concealed a defect in the property from you, and you can prove it, you will then have to consult with an attorney in order to seek compensation from the seller. Alternatively, you may be able to negotiate a compromise that’s acceptable to both parties.

      Good luck.

  2. Good day

    We found a property, it’s a new development.

    On Saturday the agent called and said the developer is happy and we can sign the Purchase agreement. On Sunday we met with the agent, received the Purchase agreement – signed by the developer. On Monday morning we emailed the agent, who is also the bond originator, with our application for finance along with the signed Purchase agreement. She then submitted the application to the banks the same day ( Monday ).

    On Tuesday she informed us that she just had a meeting with the developer and he informed her that the unit can’t be sold to us anymore – no reason given.

    It’s now Wednesday and we haven’t heard anything from the agent regarding the reason why the unit is no longer available. Also waiting for the feedback from the agent on the finance, as yet. What are we to do?

    Your feedback is much appreciated.

    1. Hi Donovan

      Your contract should include a clause which specifies how much time you have to obtain finance approval. Once your bond is approved, the contract will be binding on both parties.

      It shouldn’t take more than 48 hours to get an approval in principal. If the agent drags her feet, you can do it yourself; simply take a copy of the agreement of sale to the bank and fill out an application.

      Best of luck.

      1. Hi Johan

        Thank you for that feedback. However the concern here is even if finance is approved- the developer has now said the unit is not available…

        1. Unless there’s a valid and compelling reason, the developer can’t simply do a u-turn.

          Once your finance is approved you will have a binding contract and will have the option of approaching an attorney in order to put the developer to terms.

  3. Good day

    I’ve been approved 100% loan on a R800 000 property by the bank. I’m now in the process of paying the transfer and conveyancer’s fees but I’ve realised that I still have to be in the rented property I’m at now because I have to move out of the property by end of my lease which will be end of February.

    I want to delay the process to enable me to get my deposit from the rented property. Will I have to pay extra on the lawyers if I delay the process because I’ve been told registration could be finalised by end of November when payment is made. I still want the to buy the property and will the bank still give me the loan with such delays? Thanks.

    1. Hi Lebo

      The transferring attorney is usually appointed by the seller and will only take instructions from the seller. For this reason, you may not have much luck in attempting to delay the transfer process for four months while you wait for your funds to become available.

      A more viable solution may be to seek “property bridging finance”. This type of loan is offered to property buyers for the payment of transfer duty and costs, either where a bond has been secured or where the proceeds of a prior sale are to be used to cover the buyer’s transfer costs.

      You can find more information on this by doing a search for “property bridging loan South Africa”. Google is your friend.

      Good luck and thanks for the question.

  4. Good day.

    Please shed the light.

    I signed an installment property sale last year and I am in the process of cancelling the contract because of latent defects.The seller agreed, but wants me to pay the transfer duties first because we cannot cancell without such payment. How true is that?

    Please shed some light as i believe when you cancel you get refunded, but I’m speaking under correction here.

    Also, am I forced to use the conveyancers who were involved initially or can I get mine since they were the sellers and we are not in good terms because of this dodgy deal. And what is the process of cancellation and the costs thereof?

    As well, how long will the process take in approximation as I will need to find a place to stay afterwards.

    Thanking you in advance.

    1. Hi SS

      Real Estate Installment Sale transactions are governed by The Alienation of Land Act, 68 of 1981.

      This Act specifies that the purchaser must pay the transfer duty within six months of signing the sale agreement. There’s a penalty payable to SARS, calculated at 10% of outstanding transfer duty, if it’s not paid within the stipulated period.

      Whenever cancellation of a contract is envisaged, it’s always best to consult with an attorney. As the seller appoints the conveyancer that handles the Installment Sale agreement, and the conveyancer is therefore looking after the interests of the seller, it would be wise to consult with your own attorney to advise you on the cancellation procedure.

      Your attorney can best answer your questions regarding costs of cancellation and how long it will take. Your attorney would need to peruse the contract in order to answer these questions accurately.

      Good luck and thanks for an interesting question.

  5. Hi John

    I’ve signed an offer to purchase. The bank has approved 90%. I will not be able to come up with the deposit. Is this a good enough reason to cancel?

    Will there be legal implications?

    1. Hi Sandra

      Your Agreement of Sale should have a clause which makes the contract subject to approval of bond finance, and it should specify the amount applied for.

      The purpose of this clause is to ensure that, if you get turned down or if the approval is for less than you need, the contract will automatically be cancelled and you can walk away without consequences.

      Perhaps it may be best to consult with an attorney (not the transferring attorney who is representing the seller) so that your attorney can peruse your contract and provide you with some informed advice.

      Best of luck.

  6. Hi

    I signed an offer to purchase and paid a deposit end of March. To date the house has not been built. Plans have not been approved by council. It is just a painful process.

    A lot of info was not disclosed to me before and even after I signed. Factors such as: they advised there is a pool in the vicinity — only to find that there is no pool, I have to drive out to the next estate; I have to pay extra for a plan for a fence, garage, etc.

    Last month I was advised that the plans have been approved. Now I find out they are not approved. I’m very unhappy about a lot of things and I want to cancel. Can you advise me?

    1. Hi Palesa

      Clearly your developer is not meeting contractual obligations and you appear to have exhausted other avenues. At this point it may be best to approach an attorney.

      This is so that your attorney can put the developer to terms. If the developer then fails to comply within a reasonable time frame, the next step is usually cancellation of the contract and a deposit refund.

      Getting an attorney to represent you may seem extreme. However, any other course of action is likely to be a waste of your time.

      Good luck.

  7. Good day John,

    I purchased a home from a developer for R895 000. The bond was approved in August 2015 the transfer took place in August 2016 but bank hasn’t paid developer due to developer non compliance and snaglist issues.

    To make matters worse there is a huge snaglist which will cost R200 000+ to fix the developer has no money and isn’t willing to drop the purchase price so we can fix the property ourselves. The developers lawyer has asked us to walk away from the deal, can we sue?

    1. Hi Denise

      You need to take this problem to attorney who can peruse all your documentation and give you some informed advice.

      In a situation where the developer has no money, there would be little point in suing. However, your attorney may be able to help facilitate an ammicable settlement between you and the seller. Often, the mere act of appointing an attorney to represent you can quickly get the opposing party more focussed on their contractual obligations.

      Good luck.

  8. Hi John,

    i have a similar problem:

    Please assist. I signed an offer to purchase for a town house, ONLY: the bank approved but i called them and i asked them to cancel – they did.

    I also realized I won’t be able to afford the bond payment. The town house is R1 000 000 and and they are also telling me that i must pay them R 74 000 in order for them to cancel.

    Is CPA protecting us from these agents…….it’s too much. Basically they are forcing us to buy even though we can see that we cannot afford?

    1. Hi Lindo

      Since the National Credit Act (NCA) was passed into law in 2006, credit lenders are obliged to carefully consider the affordability of each borrower before granting credit. They will look at your income and your current debt repayment commitments as well as your household expenses before making a decision. If the bank approved your loan, it’s probably because you can afford it.

      Naturally, it is equally important for consumers to make a full and honest disclosure of their financial position to the credit provider when applying for the loan. Failure to make a full and accurate disclosure of income and or liabilities on the loan application may lead to mistakes and leave the consumer at a disadvantage.

      The bottom line, following the approval of your bond, is that the suspensive conditions of your contract have been fulfilled and you are now the new owner of the town house.

      You need to consult with an attorney if you are serious about going ahead with cancellation. This needs to be someone other than the seller’s conveyancing attorney, who is representing the interests of his client, the seller. Do not even think of going it alone. It could cost you plenty.

      Best of luck.

  9. Hi John,

    Please assist. I signed an offer to purchase for a town house, but now I’ve just realized I won’t be able to afford all the payments.

    The town house is R650 000 and I’m supposed to pay the transfer costs of R20k, Bond registration fee of about R19k and the initial fees of about R5k+, but I have decided to cancel the whole offer seeing I won’t be able to afford the whole payment.

    So I don’t know what I’m going to do because the agent is telling me I’ll have to pay about R70k for the damages.

    1. Hi Calvin

      The transfer costs you’ve been quoted seem a little on the high side; even if you’re going for a 100% bond, the costs seem to be at least R10k too much, maybe more.

      There are many online calculators available on which you can check your transfer costs. For example, you could try this one here.

      Perhaps you should start by asking the agent to give you a summary of your transfer costs in writing and then compare this with what you find online. Ask the agent to explain any discrepancies to you and then take it from there.

      If you do find that you must cancel after all, it would be best to consult with an attorney — not the transfering attorney who is looking after the interests of the seller. You may find that an attorney can assist you by minimising the cancellation costs that you will be liable for if you cancel the contract.

      Good luck.

      1. Hi John,
        Thanks for the quick response. I did do the transfer/bond calculation online and it is way less than what I got charged. I think the amount I got charged is way too much. On the their contract the damages are somewhere about R39k but what the agent is telling me, is that everything will cost me about R70k or more. I think I’m being taken for a fool here, but because I signed a contract, that’s why I’m clueless on what to do from here. I do think the agent is trying by all means to get her commission.

        1. Hi Calvin

          The extra is probably the agent’s fee. When the buyer cancels the contract the buyer may be held liable for the agent’s fee as well.

          Best consult with an attorney.

  10. Two years ago we put a deposit down for a new house buying off plan.
    The developer has cancelled the contract saying they could not secure finance and a new developer has taken over with much higher prices. What are my rights?

    1. Hi John

      Without seeing the contract you signed, it’s a little difficult to comment. However, one of the parties to the contract has changed and the price has subsequently been inflated so it may be reasonable to assume that the contract is no longer binding on you.

      Perhaps an attorney could peruse your documentation and give you some informed advice. That would probably be the best way to put your mind at rest.

    2. I just rented a commercial property and for some reasons the landlord demands that I pay the legal fees of drafting the agreement R2,500 and also the occupation date is supposed to be 1st of June but she has not cleaned the place. She only completed painting the place today and there is still grass uncut behind and in front.

      I have requested that the rental should take effect only when the place has been cleaned as I have not even started any business as we speak and she has refused. I have not signed the lease agreement I only have signed the letter of intent.

      What do I do? Is it my (tenant) responsibility to pay for the legal fees of drafting up a lease contract for a commercial property? I sincerely would appreciate any advise from all business owners. Thank you.

      1. Hi Louis

        With a residential lease the landlord must provide the tenant with proof of expenses incurred when claiming lease costs. However, in the case of commercial lease agreements, this is for negotiation between the parties at the time of signing the lease or renewal thereof.

        Commercial leases are intended to cater for the specific needs of commercial lessees and landlords and they can be relatively complex compared to the average residential contract. Without knowing the details of your particular situation, it’s difficult to say if the lease cost that your landlord is demanding is reasonable. In my experience, the average commercial lease agreement cost is usually in the region of the sum you’ve mentioned. In the case of more complicated and complex agreements, it’s often substantially more.

        Once you have received your lease agreement, you have the right to take it to an attorney in order to have it perused before you sign. You may want to do this to ensure that there are no onerous conditions in your lease agreement that may come back to bite you at a later stage.

        Best of luck.

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