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

  1. 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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