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

  1. Hi John,

    We put in a written OTP on a property which was rejected. We put in a 2nd written OTP and the seller went traveling and we got no feedback.

    When the seller returned he gave feedback on what he wanted and we advised the estate agent we would put in another offer. She then showed the property to someone else while we wrote up the third OTP. We submitted the OTP and were advised on Friday that the OTP was not accepted. Before we were able to feedback the other buyer put in an OTP and that was that.

    I suppose there is no legal or ethical or otherwise reason why the estate agent should not have sold to someone else even though we had the house under offer and were waiting on feedback, but she showed it to someone else.

    1. Hi Karen,

      You have my sympathies. This must be a hard one to swallow. However, you are right about there being no legal or ethical basis not to sell to someone else. From the agent’s point of view, the house was still available when the second buyer expressed interest and then made a competing offer.

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