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

  1. Hi

    I have just signed an offer to purchase a property with my fiance. We haven’t submitted the relevant documents needed to get approval from the bank and the property is worth R500 000.

    We contacted the agent and the marketing was conducted through show houses but now we want to cancel the whole process. Is it advisable to do so?

    Kindly help.

    1. Hi Moipone

      Whenever cancellation of a contract is on the cards, it’s always best to consult with an attorney.

      Your attorney, after perusing the contract you signed, would be best placed to advise you on any factors that may help you in your quest to withdraw from the sale.

      Good luck.

  2. Hi

    I recently applied for a joint bond, me and my spouse. The bank approved us and appointed transferring atorneys.

    The property in question was deteriorating and I had to use my credit card to fix the property as I have moved in and I am paying occupational rent until the bond registers in my name.

    However, the bank I’m using says because it’s a deceased estate and the bond takes longer than 3 months to register, they can do a credit check every 3 months.

    Now they want to decline the approval due to my commitments changing in respect of the credit card repayments I have made now and I have also paid the transfering attorneys.

  3. Good day

    We bought a house earlier this year and it was approved in April. As this was an Estate the whole process took longer, everything was finalized in September.

    We found that this property is actually very rotten stuff that we couldn’t see when we viewed the place. Like sellers and estate agents, they don’t disclose anything bad about the area if you ask questions.

    So we decided to fix the place up. No, the house was broken in to twice after numerous people that stay nearby told us this house has been broken into a lot.

    My question is, can we resell? If yes, what should we do and if no, how long should we wait? Will there be any complications for us with the bank?

    Thank you.

    1. Hi Chantel

      The best advice I can offer you is this: talk to an experienced estate agent in your area. Estate agents eat and sleep real estate, have access to buyers, and can often share your listing in a Multi-Listing database to increase your exposure to the market.

      A competent estate agent will know the current market conditions in your area and can advise you on the right asking price, which is critical if you want a quick sale. An experienced estate agent will have the skills and the contacts to get you the best price, quickly.

      It’s important to immediately inform the bank in writing that your property is to be placed on the market. If you neglect to do this, you could be penalised.

      Who knows, you may even be able to sell at a profit. Best of luck.

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