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

You might also like . .

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

  1. Dear John

    I have recently moved into a house that I bought off plan. I submitted the snag list to the developer. They have addressed most items on the list ( one of which they admitted to arising due to a skew wall). However, they refuse to rectify a bathroom window frame that has clearly been installed skewly. They are of the opinion that I am being unreasonable asking for this to be fixed.

    The show unit that I viewed was perfectly finished off and free of defects yet my unit was not subject to the same quality workmanship that was shown to me. What would you suggest is the best route to follow to get the developers to rectify this issue . The developer is registered with the NHBRC.

    Any advice would be greatly appreciated.
    Thanks
    Theresa

    1. Hi Theresa

      There are at least two promising courses of action that you might consider with respect to the poorly installed window frame.

      Firstly, your developer’s NHBRC membership offers you protection for a broad range of potential problems, including the following:

      1. any major structural defect caused by non-compliance with NHBRC Technical Requirements, within a period of five years from date of occupation;
      2. any problem related to non-compliance with the terms, plans or specifications, within a period of three months from date of occupation;
      3. any defect in design, workmanship, or materials within a period of three months from date of occupation; and
      4. roof leaks which are caused by defects in workmanship, design or materials, within a year of occupation.

      Clearly, your issue falls under point “3.” above – poor workmanship. You can lodge a written complaint with the NHBRC, which may just do the trick.

      Alternatively, you could lodge a complaint with the National Consumer Commission. Under section 20(2)(b)of the Consumer Protection Act, if your agreement to buy was based on the quality of finishes you were shown in the show unit, and the property you received does not, in all material respects, correspond to the standards that an ordinary buyer would expect to find, then you are entiltled to reject ‘delivery’ of the property. In other words, you may be in a position to cancel the sale.

      Before you get involved with any of the above remedies, it may be worth your while to sit down with the developer one more time, eye ball to eye ball, and give them an opportunity to rectify the situation to your satisfaction. You could mention that you are considering approaching the NHBRC and/or the National Consumer Commission.

      It may also be a good idea for you to confirm the details of your meeting with the developer by sending an email to the developer afterwards. This is so that you can have an account of your meeting on record for future reference and to prove that you gave them a reasonable opportunity to rectify.

      Good luck.

  2. Hi John

    I viewed a house and signed an offer to purchase. Two hours before the two day cutoff time for the Seller to accept my offer, the estate agent e-mailed me that the Seller will accept my offer on condition that I allow him 30 days in which to find his next house.

    I mail the estate agent back and confirm that I will allow the seller 30 days to find his next home. The estate agent e-mails me that she will get their lawyers to add the 30 day clause and get the seller to sign the updated OTP.

    I still want to buy the house but the estate agent has not come forward with the agreed upon OTP for 5 weeks now. Do I have any recourse? Most of the terms are agreed in writing on e-mails but I still don’t have a signed offer to purchase (signed by myself and the seller, only have a copy of the OTP that I signed with the estate agent).

    1. Hi Dudesky

      You need a signed Offer to Purchase (OTP) for it to be a binding agreement of sale. In the absence of the seller’s signature, unfortunately, you have nothing.

      Possibly the seller has changed his mind or he could perhaps have received a better offer. Whatever the case, once the cut-off time for the seller to accept your offer has expired, your OTP is dead and can’t be revived. You have to make a new OTP for the seller to accept.

      Good luck.

  3. Hi John,

    What would constitute as “direct marketing”? I retracted my OTP in 5 days but the lawyers are refusing to let me use the cooling off period based on the fact that the sale didn’t result via direct marketing and that I am not a purchaser as the seller is not a supplier – but the OTP was signed with the agent who by law is a supplier.

    1. Hi Coco

      A 5-day cooling off period is applicable to any transaction that comes about as a result of direct marketing. The cooling off period starts on the day of signature and ends on the fifth business day, excluding week-ends and public holidays.

      An example of direct marketing would be if you saw an advert and then immediately went off and signed an OTP (Offer to Purchase). However, in practice this rarely ever happens. Most people, after seeing an advert, would most likely view the property with an agent before signing. In this case the decision to sign is not the result of direct marketing and no cooling off period would apply.

      The Consumer Protection Act defines a “supplier” as a seller who sells properties “in the normal course of business.” In other words, a seller that sells the odd private property is not a “supplier.” Note that where the agent is the owner of the property being sold, the agent is legally obliged to declare this fact to any prospective purchaser.

      However, in most cases the agent is nearly always employed by the seller, who pays the agents fee from the proceeds of the sale of the property. Here the agent is representing the seller and a supplier/consumer relationship exists between agent and the seller, the latter being the consumer.

      Whenever cancellation of a contract is envisaged, it’s always best to consult with an attorney. You should do this as soon as possible.

      Best of luck and thanks for your question.

  4. Hi John

    We found latent defects after occupying the house purchase (re-appearing cracks that were painted, pipe leaks, some doors not catching due to the hiddent cracks roof leaks etc).

    I then wrote the seller a letter of conncern but she denied everything. On her responses she said she relied on tenants for defects. The roof and toilet pipe leaks she said she fixed it before so its my problem going forward. The gate motor stops wroking after every heavy rain according to tenants.

    What are the chances of me winning the legal recourse with her responses.

    1. Hi SSS

      Your chances are pretty good if you can prove that the seller knew about the defects before your offer was accepted.

      Take plenty of colour photographs of the problems you’ve mentioned. See if you can get corroboration of previous repairs from local contractors. You’ll need to do some detective work, make some phone calls, talk to the neighbours, etcetera. It’s amazing what you can find out by asking a few questions.

      Once you’ve got it together you should approach an attorney (not the transferring attorney who is looking after the intests of the seller). The more evidence you can collect, the better chance you’ll have of getting some relief.

      Ideally, you’ll want to avoid litigation if possible — even if you win, it can be be very expensive to go this route. Hopefully, your attorney can help you negotiate an ammicable settlement with the seller.

      Best of luck.

      1. Thanks John, however it seems there are very few attorneys specialising in properties issues at hand, except those in conveyancing…Have been trying to get a good one from around PTA.Will keep looking.

        Kind regards.

  5. I purchased an apartment and it is a brand new. After it was completed I went to view it only to find that is is very small and I am not willing to stay in such a tiny place. It is in the process of being registered in my name. Is it possible yo cancell the deal at this point?

    Thanks…

    1. Hi Veroe

      Cancelling at this stage is likely to involve some costs. If there’s an agent involved, for example, you may be held liable for the agent’s fee. You may also be in for a portion of the transferring attorney’s fee, plus any non-refundable disbursements that the attorney has made to date.

      Should you decide to go ahead with cancellation, it would be best to consult with an attorney. Note that the attorney handling the transfer is acting for the seller so it’s best to use one of your own choosing.

  6. Hi there

    I have signed an offer to purchase and would like to revoke it. The seller has just agreed on the offer. Please advise?

    Thanks

    1. Hi Lee

      Once your offer has been accepted, subject to the fulfilment of any suspensive conditions which may be outstanding, it is a binding contract. At that point, cancelling will usually translate into some costs for the party that cancels.

      If it were not so, there wouldn’t be much point in entering into a contract in the first place.

      Whenever cancellation of a contract is envisaged, it’s always best to consult with an attorney. You should do that without delay.

  7. Hi John,

    I’m a first time buy property buyer. I signed and offer to purchase with an agent. They have been unable to secure me a 100% bond, but can only get 75% bond. What can I do to get out of the offer?

    1. Hi Miki,

      Your agent is legally required to provide you with a copy of the Offer to Purchase (OTP) that you signed. Your OTP should contain a clause that specifies the amount that is to be applied for and makes your offer “subject to” the granting of bond finance.

      The purpose of this clause is to offer you some protection in the event that the bank turns down your application for 100% bond finance. In other words if your finance is not granted, your OTP will be automatically cancelled.

      If you still feel uncertain it would be best have someone, preferrably an attorney, peruse your offer in order to make sure that you are in the clear.

      Good luck.

Leave a Reply

Your email address will not be published. Required fields are marked *