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
Hi John
I recently purchased a house. We moved in in Decemeber 2012 and the registration was done in early March 2013. Before the registration was done we reported a leaking roof. Obviously we could only report this once it had rained severly enough to notice anything. The seller or estate agent never attended to this.
We’ve had a roof expert look at the roof and under the home owners’ insurance claimed for a few broken tiles, but the leaking is apparently due to the slope of the roof being incorrect. This seems to be very expensive to repair and I cannot believe that the seller didn’t know about the leaking roof before he sold the house.
Do I have any recourse and how do we go about it?
Thank you,
Hi Morne,
Your agreement of sale should have a voetstoots or ‘as is’ clause which protects the seller from liability for latent (hidden) defects. However, this protection falls away if the seller knew about the hidden defect. You will need to come up with some evidence to prove that the seller must have known about the defect and failed to inform you before you signed the Deed of Sale. For example, you may be able to obtain copy invoices of damp-repair work previously carried out by local contractors on the roof or ceiling.
Once you’ve done your homework it’s time to consult with an attorney, preferably armed with more than one written estimate for the work that needs to be done. Hopefully, your attorney may be able to help you arrive at an amicable settlement with the seller. You want to avoid litigation if at all possible; your attorney is best placed to evaluate your options in this regard.
Best of luck, and thanks for your contribution.
Hi John,
Please help. We just sold our flat, but there was a hole burned in the carpet by the previous tenants. Because a cupboard stood over it, we forgot about this. They got the purchase price at a lower rate that we wanted, and when I came forward (just out of decency) and let the sales agent know about the hole and that we simply forgot about it- they (the buyers) want us to replace the carpet. The carpet was old and now they want a brand new one at our cost.
Above you mentioned that the “voetstoots” clause does not affect a “once-off” seller? Is this true? Do I need to replace the carpet?
Hi Wolf,
Replace the carpet, I think.
A ‘once-off’ seller would certainly not be classified as a ‘supplier’ under the Act. So it’s fair to say that it’s unlikely that your contract falls under the CPA.
Generally, the voetstoots clause is used in contracts that do not fall within the ambit of the CPA. The voestoots clause usually protects the seller from liability for a latent (hidden) defect which is not visible on a reasonable inspection by the purchaser. However, not if the seller new about the defect and failed to make a disclosure before signing the contract. Typically this disclosure is done in writing and it usually forms part of the Deed of Sale.
Out of the goodness of your heart, you have firmly established that you knew about the defect. Kudos to you!
If there’s any doubt in your mind about this, it may be worth your while to consult with an attorney. Many will impart some basic advice free of charge.
Thanks for the question and best of luck.
Hi John
My husband and I are first time buyers, and we have already signed with the bond attorneys as well as the transfer attorneys on a property. We are currently awaiting the electrical clearance certificate in order to register the property.
This property was a liquidation property purchased from the Sherriff by a cc, and then given to an estate agent to sell, and we bought the house through the estate agent.
The problem we are having is that we have never recieved a fixtures list or a defects list from the estate agent, and every time we have requested one, our requests are ignored.
I would just like to know what our rights are in terms of finding any defects on the house, and what we are able to hold the seller responsible for?
Hi Roxanne,
Congratulations on the purchase of your first home.
The Offer to Purchase (OTP) that you signed may have contained a voetstoots or “as is” clause. If that’s the case, your seller is protected from liability from latent (hidden) and patent (visible) defects in the property. As far as hidden defects go, your seller may not avoid liability for a hidden defect if the seller was aware of it at the time of sale, and did not disclose the hidden defect to you before you signed the OTP. You would have to substantiate the facts.
The term “Fixtures and Fittings” generally refers to any item fixed to the property such as curtain rails, light fittings and TV aerials, including plants, trees and shrubs in the garden. All fixtures and fittings are usually included with the sale of real estate. Your OTP should specify if any have not been included in the sale. The seller can’t simply remove fixtures and fittings that have not been excluded, in writing.
Hello,
I have a sale agreement in place as of the 18th February 2013. The transfer is due any moment and only awaiting the rates certificate. The bond has been approved and all other documents are in place. The purchaser viewed the property and noted the renovations needed when the offer was placed. Unfortunately, his wife, who also signed the sale agreement, did not view the unit.
However, when we met, the husband and wife agreed that they wish to keep the current tenants while they renovate and seemed excited about it. I had to submit 2 independent valuations as the offer was much lower than the market value.
The purchasers now wish to pull out of the deal, with the wife stating that the property has deteriorated from February to now. This is not the case. She did not view the unit and the husband is aware of the renovations. A voetstoots clause completely liberates me from any liability for patent defects and there are no latent defects.
There are no undisclosed latent defects to the property. She is the only person communicating with the attorneys and the husband is silent on the matter. My transfer attorneys have informed the purchasers to seek advise on cancelling the sale.
Please advise. Thank you.
Hi Reka,
Unless your purchasers have a valid reason, cancellation at this late stage may end up costing them a tidy sum. Typically this would include the agents fee, transfer costs to date and attorney fees to date — plus whatever damages you can substantiate.
The next thing that will happen, if your purchasers don’t get good advice, is that your transferring attorney will put your purchasers to terms in order to force them to take transfer of ownership. If it ends up in court they’re likely to lose and may saddled with the legal costs, too.
I hope for your sake they make the right decision. Good luck.
John, I need your advice again.
I have given my house to various agents to sell. They respectively added from R40K to R90K commission to the R1.2m that I want in my pocket. I have also advertised the house on gumtree and the local newspapers.
One of the agents with the high commission introduced a buyer to my property and she made a OTP subject to the normal conditions. She applied for a loan but only R1.1m was approved. As far as I am concern this OTP expired because she did not meet the requirements. She in the meantime has managed to put the difference in price and some of the commission together but not the R1.290m that the agent wanted.
However she has now enough money to do the deal with an agent who charges less commission or even directly with me. The agent now threatens her with legal action and claiming his full commission should she do the deal with any person but him. He claims that he introduced her to the property therefore he gets the commission.
Is this ethical and correct? He is now basically holding me at ransom and delaying the sale of my property. He never had sole rights to sell my house. Regards.
Hi Tom,
Welcome back.
The agent can’t really threaten the purchaser. Agent ‘A’ may have a claim for his fee against you as the seller of the property, if you do a deal with Agent ‘B’ while agent ‘A’ is the effective cause of the sale. It’s both ethical and correct.
Perhaps you could ask the agent to negotiate his commission a little, the buyer to come up a bit and trim your expectations a tad. Do the deal. Everybody wins
Hi John
If I approach an owner of an property who already has the property listed on the market with an estate agent, will he/she be liable for commission or would it be seen as a private sale?
Kind regards
Lynne
Hi Lynne,
This depends on how the property is listed. If the seller has signed a Sole Mandate then commission will be payable by the seller to the agent, irrespective of how the transaction comes about.
However, if it’s an ‘open mandate’ it generally means that anyone, including the seller, can sell the property. If a transaction takes place under these circumstances, provided that you were not introduced to the property by an agent, there will be no agents fees payable.
Thank you very much for your reply John. I’m very happy with your response
I’m happy that you’re happy, and glad I could help
Hi John
I have a query. I signed an offer to purchase which the seller accepted. The agent assisted me with bond applications and only one bank approved me at a very high interest rate. I now realise that I cannot afford the repayments at this rate. I have requested the agent to negotiate a lower rate with the bank or try to find a more affordable property for me. She doesn’t have other properties available and says she cannot negotiate the rate.
She has now threatened to sue me for breach of contract. Can she do that? I feel I’m being put in a difficult position financially because I am not saying I don’t want the property but merely concerned that I will not afford the repayments which she had advised me of a lower repayment initially. Please help me.
Hi Simphiwe,
Since 2006, when the National Credit Act (NCA) was passed into law, credit lenders must carefully consider the affordability of each borrower before granting credit. They will look at all your current debt repayment commitments and your household expenses before making a decision. If you believe that somehow the bank got it wrong, you need to discuss this with your bank as soon as possible.
However, the bottom line here is that the suspensive condition of bond approval has now been fulfilled on your contract. The house is yours. Unless your financial institution is prepared to reverse their decision, you may have to go ahead with the transaction.
Hi John
Immediately when I got the response from the bank I spoke to my agent about my affordablility. I also asked if she can not get me something else that I can afford.
The agent said she doesnt have other properties and also informed me that I cannot cancel the deal now. The seller will take legal action against me.
Please advise.
Unfortunately, the agent can’t help you with the affordability issue. Speak to the bank to see if they haven’t made a mistake with your loan approval.