By Lisa Schmidt (Associate) and Ayanda David Katjitae (Associate)
In this article we will discuss how the provisions of the Financial Intelligence Centre Act No. 38 of 2001 as amended (“FICA”), Property Practitioners Act 22 of 2019 (“PPA”) and the Rental Housing Amendment Act 35 of 2014 (“Rental Housing Act”) apply to:
- lease/sale agreements;
- rental agents; and
- the relationship between rental agents’ sellers or lessors and buyers or lessees.
FICA imposes certain obligations on “accountable institutions”, which in this instance includes estate agents / rental agents. These obligations are listed in Chapter 3 of the FICA and are, inter alia:
- the duty to identify clients (Part 1);
- the duty to keep records (Part 2);
- reporting duties and access to information (Part 3); and
- measures to promote compliance by accountable institutions (Part 4).
The duty to establish and verify the identity of clients and others
An estate agency may not establish a business relationship or conclude a single transaction with a client unless it has taken the steps prescribed by the regulations to which are inter alia:
- establish and verify the identity of the client;
- the person representing the client; and
- the person for whom the client may be acting.
The FICA defines a “transaction” as a “transaction concluded between a client and an accountable institution in accordance with the type of business carried on by that institution”. A “business relationship” is defined as “an arrangement between a client and an accountable institution for the purpose of concluding transactions on a regular basis”.
Estate agents that are given a mandate to sell or let immovable property do not conclude transactions between themselves and prospective buyers or lessees. The only “transaction” concluded between an estate agent and a client is the mandate agreement whereby the estate agent agrees to perform some or other estate agency service for the client. The client is therefore the person granting the mandate; in the normal course of events the seller or lessor of the property.
An estate agent may of course accept a mandate from a prospective buyer or lessee to find a suitable property, in which case the buyer or lessee will be the client. This is generally referred to a “buyer agency” agreement/ mandate.
In everyday practice, estate agents mainly accept mandates from sellers and lessors, meaning that the seller or lessor is the estate agent’s client. Accordingly, estate agents would be required to FICA past, present and future landlords (i.e. seller or lessor) and would not be required to FICA past, present and/or future tenants who they do not have a mandate with.
Notwithstanding the above, it would be considered good practice to FICA past, present and/or future tenants in order to ensure an accurate record is held and that parties remain fully compliant with FICA act in respect of any future amendments.
If, however, the agent acting in terms of a mandate from a property owner to find a tenant, contractually undertakes the responsibility to FICA a tenant, they will be bound to comply with this contractual undertaking.
Property Practitioners Act
The Property Practitioners Bill, 2018 was intended to replace and repeal the Estate Agency Affairs Act of 112 of 1976 and was intended to govern (amongst others) estate agents. It has since been passed by the National Council of Provinces on 28 March 2019 and the Bill was signed by the President into law on 3 October 2019.
The Property Practitioners Act 22 of 2019 (“the PPA”) has accordingly repealed the Estate Agency Affairs Act of 112 of 1976. Section 1 of the PPA stipulates that:
“A property practitioner includes any person who sells, by auction or otherwise, or markets, promotes or advertises any part, unit or section of, or rights or shares, including time share and fractional ownership, in a property or property development””.
It is evident from the above that the definition of a property practitioner in terms of the PPA is expansive and includes estate agents as well as bond originators, bridging finance institutions, auctioneers, home inspectors, commercial property brokers, HOAs, property developers, property managers, fractional title and companies that sell timeshare.
The PPA has prescribed that the former Estate Agency Affairs Board be replaced with new governing authority known as the Property Practitioners Board or Board of Authority.
The Fidelity Fund Certificate (“FFC”) that must be applied for and obtained by all property practitioners is dealt with in Chapter 8 of the PPA. Chapter 8 prescribes that all property practitioner needs to have a valid FFC. Thus, anyone that earns a commission or brokerage from leasing or selling a property, needs a valid FFC. Section 50 (b) (ii) and (iii) of the PPA disqualify property practitioners that do not comply with the prescribed standard of training, and that do not have the practical experience as determined by the Property Practitioners Regulating Authority (which is governed and acts through the Property Practitioners Board or Board of Authority). The PPA also obliges property practitioners to have a valid tax clearance and a BEE certificate.
The PPA deals with Consumer Protection in Chapter 10 and in terms of section 67(1) prescribes as follows:
- A property practitioner may not accept a mandate unless a lessor or seller of the property has provided him with a fully completed and signed mandatory disclosure form and such practitioner must provide a copy of the completed mandatory disclosure form to a prospective lessee or purchaser who intends to make an offer to lease or buy the property.
- The mandatory disclosure must be signed by all parties and forms an integral part of the agreement. If such disclosure form is not completed, signed or attached the agreement (which agreement – the mandate agreement, or the agreement between the buyer/seller or landlord/tenant) must be interpreted as if no defects or deficiencies in the property were disclosed to the purchaser.
If a property practitioner fails to adhere and/or comply with section of 67(1) of the PPA, the property practitioner may be held liable by the affected consumer (section 67(3)). In addition, the Property Practitioners Board is obliged to publish updated guideline agreements on its website from time to time.
The Rental Housing Amendment Act 35 of 2014
The Rental Housing Amendment Act 50 of 1999 is the principal legislation governing residential rental housing and defines what the obligations are of the landlord and tenant respectively. Recently, the Legislature effected changes to it by means of the Rental Housing Amendment Act, which is to come into operation on a date to be promulgated by the President. The Rental Housing Act was published in 2014 and the amendments thereto will come into operation on a date to be determined by the President in the Government Gazette.
Inspections and Deposits
The Rental Housing Amendment Act aims to substitute certain definitions to coherently take account of the rights afforded to parties in the rental market. It has done so with the insertion of sections 4A and 4B, which sets out the rights and obligations of the landlord and the tenant. Some of the pertinent inclusions would be that a tenant, in terms of section 4A(2), may now request that a landlord, during the period of their occupancy, provide him or her with written proof of the interest accrued on the amount deposited by the tenant into an interest-bearing account by the landlord. Further, section 4A(5) of the Amendment Act states that a tenant has a right to privacy should the landlord wish to exercise his right to inspection. The inspection must be done in a reasonable manner after reasonable notice to the tenant has been given.
The provisions pertaining to lease agreements have also been amended, in terms of section 5 of the Rental Housing Act, which previously recognised that oral agreements could be entered into between parties and that a landlord would only be obliged to provide a written agreement if it was requested by the tenant. Subsection 5(1) has been replaced and the amendments to the Act have now made it compulsory for lease agreements between the landlord and tenant to be reduced to writing in order to be legally enforceable in a Tribunal or competent court. In addition, the onus for doing so rests on the landlord. Further amendments to the Act include, subsection 5(6) which deals with information to be included in a lease and provides that all leases must include certain information.
Tribunals in every province soon
The Rental Housing Act has extended the application of Chapter 4 to all Provinces. It specifically, states in section 7 that every MEC must within the first financial year following the commencement of the Act, by notice in the Gazette, establish a Tribunal in the Province to be known as the ‘Rental Housing Tribunal’. What should be noted is that the amendments seek to:
- extend the powers of the Rental Housing Tribunals;
- provide for an appeal process;
- require all local municipalities to have Rental Housing Information Offices;
- provide for norms and standards related to rental housing; and
- extend the current offences.
Consequences of non-compliance
Subsection 16(a) of the Rental Housing Act has been amended to provide for a general offence. This subsection provides that a person who fails to comply with subsection 5(1) will be guilty of an offence and be liable on conviction to a fine or imprisonment not exceeding two years, or to be liable for a fine and imprisonment. Therefore, a person who fails to reduce a lease to writing will be guilty of an offence and liable on conviction to a fine or imprisonment not exceeding two years or to both such fine and such imprisonment.
Accordingly, if you are a landlord and you:
- do not provide your tenant with a written lease agreement;
- fail to repay your tenant’s deposit and interest;
- cut the utilities to the dwelling e.g. electricity;
- lock your tenant out of the premises;
- provide your tenant with a dwelling that is uninhabitable; or
- fail to maintain the premises that you are leasing,
- then, you are guilty of an offence in terms of the Act.
The South African Police Service (SAPS) can be approached for assistance in any of these instances, as the State is responsible for investigating and prosecuting offences (crimes) in South Africa, and they are punishable through our courts by a fine or imprisonment.
FICA places an obligation on estate agencies to verify the identity of its clients which is usually the seller or lessor. Accordingly, an estate agency must comply with FICA in respect of the party and/or parties it accepts a mandate and/ or mandates from. If it only accepts a mandate from the seller or lessor and not from the prospective buyer or lessee, then the regulations imposed would not apply to the prospective buyer or lessee. In this regard, managing agents would be required to FICA all past, present and/or future Landlords and not past, present and/or future tenants. However, it would be considered good practice to ensure tenants have also been FICA’ed.
The PPA requires a signed mandate to be attached or to be incorporated into any lease/sale agreement. This mandate would usually be from the seller or lessor and not from the prospective buyer or lessee. In the case of pre-existing lease agreements, it is suggested that an agent embarks upon obtaining signed mandates from the lessor and that such mandates may be sent to the tenants. Furthermore, failure to attend to same in respect of pre-existing lease agreements may be interpreted as if no defects or deficiencies in the property were disclosed to the lessor. I am not sure about this – see my comments above. Perhaps a bit more thought it needed on this issue.
According to the Rental Housing Act and the Amendment Act, rental and estate agents’ clients, being the landlords, would be required to provide all past, present and/or future tenants with written lease agreements. Should landlord fail to furnish a tenant with a written lease agreement and/or comply with the other requirements of the Act within six months of the new legislation coming into force they could be liable to pay a fine or even face a jail sentence for non-compliance.
If you are an agent/ landlord/seller and are uncertain how the above acts apply to you or if you require assistance drafting lease or sale agreements that comply with the Acts do not hesitate to contact us.