This article examines whether the registration and enrollment requirements in the Housing Consumers Protection Measures Act 95 of 1998 (the “Act”) applies to home builders who build homes with the intention of leasing same to tenants, as opposed to selling.
The establishment and objects of the National Home Builders Registration Council (“NHBRC”)
The Act provides for the establishment of the NHBRC, which objectives include:
- representing the interests of housing consumers by providing warranty protection against defects in new homes;
- regulating the home building industry;
- providing protection to housing consumers in respect of the failure of home builders to comply with their obligations in terms of the Act;
- establishing and promoting ethical and technical standards in the home building industry;
- improving structural quality in the interest of housing consumers and the home building industry;
- promoting housing consumer rights and providing housing consumer information;
- communicating with and assisting home builder to register in terms of the Act; and
- assisting home builders, through training and inspection, to achieve and to maintain satisfactory technical standards of home building.
The Act, through Case Law In Hubbard v Cool Ideas the Court stated that: “The broad thrust of the Act is obviously to protect home consumers, the vast majority of whom will undoubtedly be poor and unsophisticated, against shoddy and unsafe houses at the hands of unskilled, unregistered and perhaps even unscrupulous home builders.”
In National Home Builders Registration Council v Adendorf & others, the Court pointed out that the Act was drafted for purposes of offering protection to consumers against incompetent constructors and the building of houses which have structural defects, and in order to achieve the objectives, the registration of home builders and the enrolment of the houses built by such home builders.
Registration as a “Home Builder”
The Act defines a home builder as “a person who carries on business of a home builder”. “Business” is defined in section 1 of the Act as meaning: “… to construct a home for the purposes of sale, leasing, renting out or otherwise disposing of such a home…”. Leasing was recently included in the definition by amendment through the Housing Consumers Protection Measures Amendment Act 17 of 2007. Section 10 of the Act requires a person who carries on a business as a home builder or who receives consideration in terms of an agreement with a housing consumer with regard to the construction or sale of a home to be registered as such. Accordingly, and in terms of the Act, a person may not conduct business as a home builder if not registered as such.
Application of section 14(1) and enrolment of homes built for purposes of rental
In terms of section 14(1) of the Act, a home builder shall not begin construction of a home which falls under any category of a home (as prescribed by the Minister of Housing) unless the said home builder has submitted the prescribed documents, information and relevant fee to the NHBRC; the NHBRC has accepted the submission and entered it into its records; and the NHBRC has issued a certificate of proof of enrolment in the prescribed form and manner to the home builder.
In National Home Builders’ Registration Council & Another v Xantha Properties 18 (Pty) Ltd, the Supreme Court of Appeal (“SCA”) had to determine whether section 14(1) of the Act applies to homes built with the intention of being leased and not sold. Xantha Properties 18 (Pty) Ltd (“Xantha”) is a building contractor that was in the process of constructing a property development consisting of apartments and shops. The NHBRC compelled Xantha to comply with Section 14(1) of the Act by registering as a home builder and paying an enrolment fee (of approximately R1.5 million) in respect of the homes built. Xantha argued that it was not required to register as a home builder and to pay the enrolment fee because its intention was to lease the apartments and not sell them. Xantha nonetheless paid the fee under protest and thereafter made an application in the Western Cape Division of the High Court, Cape Town (“court a quo”) for an order declaring that section 14(1) of the Act did not apply to Xantha, which order was granted giving rise to the appeal in the SCA. In the appeal, Xantha further argued that the definition of “housing consumer” is limited to people who either purchased a home or have a home constructed for them. In essence, that there must be acquisition. As such, so the argument went, the Act should not apply to homes constructed with the intention of being leased and that it was therefore not liable to pay an enrolment fee for the homes built. The SCA confirmed that the Act was drafted in order to protect consumers against incompetent builders and preventing building of homes having structural defects. In order to achieve these objectives, home builders are required to be registered as such and enrol the homes they build. The SCA held that the underlying purpose of the Act trumped Xantha’s argument in that the Act was drafted in order to afford consumers sufficient housing by ensuring that the homes were built by competent builders in terms of approved standards.
Given that the underlying purpose is to protect housing consumers against contractors building sub-standard houses and that the meaning of a “home builder” was amended by legislation (as stated above) to specifically include building of homes for purposes of being leased, the SCA found that the legislature did not have an intention to treat homes built for leasing purposes differently from those built for sale. Registering both categories of houses built for lease and for sale would prevent sale of houses built below standard. Furthermore, such registration would also prevent unethical home builders from building homes of lower standard for purposes of lease and later reneging and selling them.
The SCA further held that section 14(1) of the Act also applies to homes built for purposes of being leased and that the order made in the court a quo was incorrectly arrived at. Accordingly, the SCA found that the Act is not arbitrary, irrational or discriminatory, upholding the appeal by the NHBRC.
A person who conducts business of building homes for purposes of sale or lease is obliged to enrol the prospective development with the NHBRC in terms of section 14(1) of the Act before commencing construction. Should a home builder fail to register in terms of the Act, he/she/it is precluded from conducting the business of a home builder. Furthermore, should a party be found guilty of contravening the Act, specifically section 14(1), such party can be fined R25,000.00 or imprisoned for a period not exceeding 1 year.
Written by Mohau Ledwaba and Musa Mathebula