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

  1. Hi there,

    We have singed an offer to purchase, all was approved with the bank and we have signed with the transferring attorneys, etc . The owner has one or two repairs that need to be done before we pay over all the money. We have sent emails, etc but the owner isn’t responding .

    Do we pay all the money over and risk them not doing the repairs?? Can the owner cancel the whole deal at this stage as well???

    1. Hi Nadine,

      Once your transaction has reached this point, it’s most unlikely that the seller can cancel the deal.

      As to the repairs that you mention, if this is specified in your deed of sale then it’s the duty of the transferring attorney to make sure that the seller complies. However, if the seller made certain verbal undertakings to you to do repairs, it’s improbable that the repairs will happen at this late stage.

  2. Hi John

    I recently purchased a property and the seller took +-4 weeks to sign. The lawyers are now waiting for fresh rates figures from the municipality after I already paid the initial figures given. Am I liable for the amended figures even though the seller’s delayed signing?

    1. Hi Megan,

      The initial figure you referred to is most likely in respect of transfer costs and expenses other than rates and taxes.

      The rates clearance figure is for the seller’s account. It represents the final amount to be paid to settle the account before the local authority will issue the Clearance Certificate; the certificate indicates that no amount is outstanding on the account and that the account may be closed.

      So a delay will increase the rates clearance amount due from the seller.

  3. I have signed offer to purchase and got approval from the bank. However the registration or transfer is taking long and I have considered other properties and have loan approved.

    I have notified the bank and agency that am cancelling the contract for the first property which registration or transfer is taking long.

    Is there anything wrong? Can I be held accountable?

    1. Hi Lutendo,

      Once you’ve signed a binding contract there is likely to be money involved if you cancel. It would be best for you to seek the help of an attorney who can help you extricate yourself from this deal, perhaps by negotiating an amicable settlement that addresses the interests of both parties.

      You really don’t want to do something that can have negative consequences for you down the line. An attorney can help with that.

      Best of luck, and thanks for your question.

  4. Hi John

    I have bought a house from the owner and we signed an agreement to pay it over 18 months but we gave her the money that the bank can offer us and it was not enough so we reached to an agreement but i failed to pay for four months but now I promised to pay R4000 this month and the rest of the money in August 2015 and the 18 months will be reached next year in July 2016 and now the owner says i must move out over the weekend please advise.

    1. Hi Rebecca,

      It’s very difficult to comment without sight of your documents. Before you move you should have someone, preferably an attorney, peruse your contract and advise you on the options that may be available to you.

      Best of luck.

  5. Hi John

    I signed an offer to purchase at a fantastic price and the loan got approved. I’ve signed documents of both the bond registration lawyers and the seller’s lawyer.

    I’ve been taken from pillar to post regarding the status of the transfer and 8 months later, the transfer is still not done. I’ve been occupying the property for some months now.

    The seller now says he wants to cancel the transaction as the transfer process may take about two years. I want the property at that great price and I’ve made it clear I have no intention of cancelling the transaction.

    How do I ‘force’ the seller to transfer the property?

    1. Hi Anonymous,

      It may be appropriate to engage an attorney to assist you in this situation. Your attorney can investigate the reasons for the delay and if necessary put the seller to terms to expedite matters.

      Often the mere act of appointing an attorney can help to get the other party more sharply focused on their contractual obligations.

      Good luck.

      1. I’m in exactly the same boat and the excuse is that the owner’s wife died, therefore it’s an estate. I am doing the following : I made the transfer attorneys deposit the purchase price into a high earning account to offset the rental I’m paying. I make them nag me for the occupational rental every month and only pay up on the 7th. I complain constantly about the condition of the property, and have forced the owner to pay for all plumbing repairs as they are latent defects he was aware of. I have no choice but to be horribly agent, owner and conveyancing attorneys alike. They will be glad to get rid of me.

  6. Hi John
    I am a first time buyer and I have put Offer to Purchase (OTP) on two property’s and the banks approved me on both property’s but now I need to cancel one property but the agent is refusing to cancel. I can only take one of them.

    Please help

    1. Hi Anonymous,

      Fortunately there may be an easy solution to your predicament.

      First, decide which of the two properties it is that you want. Then approach the bank that granted the bond on the other property, the one that you don’t want. Explain that you are financially committed on the first property and that you would like them to reassess your financial ability to make repayments on both properties.

      In all probability, the bank will turn down your second loan and your problem should be resolved. However, if you are financially capable of handling both repayments, you could find that you’re the proud owner of both properties.

      Good luck.

  7. Hi John

    We were shown property that we were interested in, however, the agent came back saying they first needed to see settlement letters of our accounts. He then made us sign an OTP, just to see if the bank would approve it. At that point we had viewed another property and the Agent on that side was very helpful, giving us feedback on a regular.

    The first agent has now come back to say that the bank has approved and there is nothing we can do, as they will be proceeding whether we like or not. We are no longer interested in their property and furthermore we asked them to give us more time and they agreed, however, we are now forced into taking the property.

    Please advise

    1. Hi Mathapelo,

      Your Offer to Purchase (OTP) became binding on you when the bank approved your loan. You have two choices; take the property or cancel. However, if you cancel now you will almost certainly be held liable for certain costs, including the agents fee, which could be a tidy sum.

      Sorry I can’t offer anything more encouraging.

  8. We put an offer in on a property a few days ago, but after we found out what we were getting paid out on our Johannesburg home and what was left, we realised that we would be short of working capital for a business we have just bought.

    So first thing we emailed the agent to withdraw us from the signed agreement. He said once the property developer had signed it was a done deal but would try his utmost to help us.

    In the meantime my husband had emailed, unbeknown to me, to say proceed as we had signed. Later that day I emailed to say that there was no way we could.

    I wanted to avoid a start of preparing the transfer, etc. The agents reply was we could have serious consequences here. Not sure what he meant.

    Bottom line here is: I want to know how are we protected?

    1. Hi Anonymous,

      Once a binding agreement has been entered into, cancellation will have financial consequences for the party doing the cancelling. If it were not so, there would be little point in entering into a contract in the first place.

      You may be held liable for the agent’s fee if you cancel now. This is probably what the agent is referring to with ‘serious consequences’. In addition, once the transfer process has commenced, you might also be liable for a portion of the transferring attorney’s fee and any costs that have been incurred to date. Also, if the seller suffers damages due to your cancellation, and can substantiate same, you may have that to consider as well.

      Sorry I can’t offer you anything more encouraging. For what it’s worth, you’re probably just suffering from a bit of buyer’s remorse.

      Good luck with your new business and thanks for the question.

  9. 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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