The Property Practitioners Act is new legislation which will have an impact on all estate agents. The Act was signed by the President and published in the Government Gazette on 3 October 2019. Proclamation 47 of 2022 published in the Government Gazette on 14 January 2022 determined that 1 February 2022 is the date on which the Act becomes operational.
The regulations to the Act have been finalized and also published in the Government Gazette on 14 January 2022 and become operational with the Act on 1 February 2022.
What follows serves only as a brief introduction to this legislation.
OBJECTS OF THE ACT
The stated objects of the legislation are to inter alia:
- Provide for the establishment of the Property Practitioners Regulatory Authority;
- Provide for the definition, regulation and licensing of Property Practitioners, as defined;
- To provide for the continuation of the Fidelity Fund;
- Provide for the protection and promotion of interests of consumers;
- Provide for dispute resolution in the property market;
- Promote the meaningful participation of historically disadvantaged individuals in the property market;
- Provide for the repeal of the Estate Agency Affairs Act.
CONTENT OF THE ACT
The Act has various chapters. What follows is a brief indication as to the content of the most important chapters as they apply to estate agents (now known as Property Practitioners).
Section 1 of the Act contains various definitions, one of which is the definition of a Property Practitioner. This definition is very broad and needs to be read to be understood. It extends to estate agents (sales, auction and letting), property leasing / managers, time share and fractional ownership sales, mortgage originators, bridging agents and managers of a Property Practitioner business.
Property valuers and inspectors appear to have been excluded from the Act.
The Act applies to the marketing, promotion, managing, sale, letting, financing and purchase of immovable property (Section 2).
Chapter 1: Establishment of the Authority
This chapter creates a juristic entity, the Property Practitioners Regulatory Authority, to be referred to as the Authority. The Estate Agents Affairs Board (EEAB) will be deemed to be disestablished and shall be replaced by the Authority. The members of the board of the EEAB shall become members of the Authority (subject to the transitional arrangements in the Act).
The Authority will have the function of inter alia, regulating the conduct of Property Practitioners in dealing with consumers insofar as the marketing, managing, financing, sale and letting of property is concerned. The Authority will further ensure compliance with the Act and protect consumers from undesirable and sanctionable practices.
The Authority will educate and inform consumers and ensure the property sector is transformed.
The Board of the Authority will have various powers and functions, one of which will be to approve a code of ethics applicable to the Board and employees of the Authority.
Chapter 4 Transformation of the Property Sector.
Property Sector transformation
This chapter deals with measures to promote transformation in the Property Sector.
Section 20 provides that the Property Sector Transformation code, as amended from time to time will apply to all Property Practitioners.
When procuring property related goods and services, all organs of state must use Property Practitioners who comply with BEE and employment equity legislation. The Authority is directed to take steps to ensure an inclusive and integrated property sector and ensure transformation.
The Authority is obliged to implement, assess and promote measures to ensure transformation.
Property Sector Transformation Fund
The Authority must within 6 months of establishment, open a Property Sector Transformation Fund, which fund will receive grants from the Property Practitioners Fidelity Fund. This fund will be used by the Authority to promote transformation by inter alia promoting black owned firms and principals, encouraging participation of historically disadvantaged people and working with SETA to develop training and development of historically disadvantaged people, which must include recognition of prior learning.
Property Research Centre
A Property Sector Research Centre is also established. The centre must, inter alia conduct market research, increase research and innovation, be a central repository of knowledge, support transformation, identify barriers to entry and meaningful participation of historically disadvantaged people and promote customer awareness and education.
Chapter 5 Compliance and Enforcement
This chapter enables the Authority to appoint Inspectors. Inspectors will receive certificates and ID cards which must be shown to any person who is affected by an Inspector’s actions or who requests to see this.
Inspectors will have various powers, including the right to, without a warrant, at any reasonable time and without prior notice, enter and inspect the business premises of any Property Practitioner, to inspect any records, accounts and or documents. Where the business is conducted at a private residence, the Inspector must give advance notice in writing and must set out the details of the inspection.
Inspectors may further on authority of a warrant (issued by a judge or magistrate) enter and search premises or a person on the premises, unlock any facility or room, request information, take extracts from books, documents or computers and seize and remove any of the aforementioned. The inspector may be accompanied by a police officer who may use necessary force to enter a premises. These warrants are subject to a variety of rules more fully set out in the Act.
This chapter further deals with compliance notices. The Minister may determine contraventions of the Act as “Minor” in nature and of a “Substantial” nature and may, by notice in the gazette prescribe maximum fines for each type of contravention.
The Minister has now in Chapter 8 of the Regulations dealing with “Administrative and other matters” set out and classified various contraventions in the Act as minor and substantial and has prescribed the maximum fines.
The Authority may, where an Inspector on investigation finds a contravention of the Act and such contravention is of a minor nature, issue the appropriate compliance notice calling for compliance within a reasonable time.
The Authority may, in the compliance notice, determine a fine to be paid, if the person acknowledges that there was in fact a failure to comply. Where the fine is paid, there can be no further prosecution for the contravention.
Chapter Three of the Regulations dealing with “Compliance, Enforcement and Dispute Resolution” contains the prescribed Compliance notice. The prescribed notice provides that where there is a denial of a contravention, the recipient of the notice can make representations to the Authority as to why the notice is disputed. Representations may further be made as to the extent of the fine imposed and as to why the fine should be reduced.
Fine as Compensation
A portion of a fine imposed, may be applied toward the payment of compensation to any person who suffered a loss as a result of the conduct of a Practitioner.
No payment is required until all appeals in respect of the fine have been finalized or abandoned. This section does not preclude any person from referring a dispute against a Property Practitioner to the Authority however any award made must take the fine into account.
Lodging of Complaints
Any person may lodge a complaint to the Authority on the prescribed form. The authority must within seven days acknowledge receipt and may call for more information or documents.
The Authority may refer a matter for mediation if it believes the complaint can be resolved this way or on application by the person concerned.
The Authority must within 7 days appoint a mediator who must, with seven days, give notice and set the matter down within 30 days. If the matter is not resolved through mediation, same must be referred to adjudication.
Property Practitioners may by consent refer inter Property Practitioner disputes for mediation to the Authority – on a cost recovery basis.
An Adjudication notice is sent in the following circumstances:
- Where there is failure to comply or timeously comply with a compliance notice;
- Where there is a failure to pay a fine imposed;
- Mediation has failed;
- The nature of the complaint and contravention is serious and warrants adjudication.
The adjudicator must be an independent legally qualified person appointed by the Authority. Within 14 days of appointment, the adjudicator must give notice and set the matter down within 60 days. The hearing must be attended to expeditiously in accordance with prescribed procedure. The adjudicator must render a decision to uphold the complaint or not.
If upheld, the Adjudicator must make an order which, in the circumstances, is appropriate. The order made has the status of a magistrates’ court decision and may include:
- A fine not exceeding an amount determined by the Minister of Justice;
- An order that not more than 80% of the fine be paid as compensation to the complainant;
- Any other appropriate order under the circumstances.
The adjudicator must provide written reasons for the decision.
Adjudication Appeal Committee
The decision of an Adjudicator may be appealed to the Adjudication Appeal Committee which committee must comprise of three suitable qualified independent persons.
The committee must be formed within 14 days and set the matter down within 60 days. After the hearing, a decision must be made and communicated with written reasons.
Establishment of the Ombud
The Bill that preceded the Act created the office of the Property Practitioners Ombud Office. This has not been followed through into the Act at all. This function is assumed by the Authority as set out above.
Chapter 6 Funds of the Authority
This chapter deals with the issues around the source of funds for the Authority. Whilst there are various sources of funding, there is one that is of interest and relevance to Property Practitioners.
Where the Authority conducts an inspection or an investigation and finds that a property Practitioner has failed to comply with a duty imposed by the Act and the Authority has incurred costs in the proceedings instituted, or has incurred a liability for audit fees, the Authority may recover the costs incurred in so far as it relates to the duty or may recover the taxed costs on an attorney client scale from the Practitioner.
Chapter 7 Property Practitioners Fidelity Fund
The Fund established in terms of the Estate Agency Affairs Act, known as the Estate Agents Fidelity Fund will continue to operate as if it were established under the Property Practitioners Act and will be known as the Property Practitioners Fidelity Fund.
The purpose of the fund is to reimburse persons who suffer pecuniary loss due to theft of trust money by a Property Practitioner.
The Fund may further authorize grants from the fund with regard to inter alia research into the business of Property Practitioners, maintenance and promotion of a standard of conduct and/or training standards of Property Practitioners and transformation of the property sector.
The Authority may arrange group insurance to cover Property Practitioners liability to members of the public.
The Fund must receive payment annually of a fee for the issue of a Fidelity Fund certificate. These are prescribed in Regulation 23.
Note that Regulation 20 provides that the maximum pay out from the Fidelity Fund to any claimant in respect of each cause of action is R2 000 000.00. This amount is not substantial and Practitioners are advised to seek additional insurance.
Chapter 8 Property Practitioners
Application for a Fidelity Fund Certificate
This chapter deals extensively with the requirements around Fidelity Fund Certificates and the requirement that every Property Practitioner be in possession of such certificate. The certificate is applied for every three years.
Chapter 5 of the Regulations dealing with Fidelity Fund Certificates deals, with the practicality’s arounds these. Property Practitioners must lodge an application on the prescribed form (in the Regulations) by 31 October of the year in which the certificate will expire.
With the advent of the extended definition of Property Practitioner, the Regulations enjoin the Authority to, in good faith, consult with industry representative bodies to define the various industries in which different categories of Property Practitioners operate.
Fidelity Fund Certificates to be Industry Specific
Regulation 26 sets out that a Practitioner shall hold a separate Fidelity Fund Certificate for each different industry in which it operates. A separate application must be lodged with the Authority in respect of each Fidelity Fund Certificate.
Prohibition on Rendering Services without a Fidelity Fund Certificate
Every Property Practitioner must on request produce the certificate or a certified copy. No person who has not been issued with a valid certificate may act as a Property Practitioner.
In the absence of a Fidelity Fund Certificate, a Property Practitioner must immediately upon receipt of a written request from a relevant party, repay any amount received in respect of or as a result of a property transaction during the contravention.
Mandatory time periods for Issuing Certificates
The Authority is obliged by the Act to issue the certificate within 30 working days unless the Authority on good grounds, informs the Applicant that the period is extended. The extension may not exceed 20 working days. The 30 working day, time period starts afresh if the Authority requires additional documents.
If the Authority fails in terms of the above, the application is deemed approved and a certificate must be issued within 10 working days.
Disqualification from issue of Fidelity Fund Certificate
This chapter deals at length as to who may be disqualified from being issued with a certificate. This includes, inter alia, any person who not an SA citizen and who does not lawfully reside in SA, any person who is not in possession of a valid BEE certificate and any person who is not in possession of a valid tax clearance certificate.
It is important that Property Practitioners consult the chapter for detail. Note the use of the word “may” be disqualified. This implies that the Authority has a discretion to issue a certificate under circumstances where there is non-compliance.
Withdrawal or Lapse of Fidelity Fund Certificate
The Authority may of its own initiative or by order of a court or adjudicator, withdraw a certificate. Section 52 deals with this issue in detail.
Mandatory Display of Fidelity Fund Certificate
The holder of a certificate must prominently display the certificate at every place where he conducts business to enable consumers to easily inspect it.
The holder must further ensure that the prescribed sentence regarding holding a Fidelity Fund certificate is reproduced in legible lettering on any letter head or marketing material relating to that Property Practitioner.
In addition, the prescribed clause must be included in any agreement relating to property transactions entered into by the Property Practitioner (or company), which clause ensures that he, she or it guarantees the validity of the certificate.
Wording on Letterheads and in Agreement
Regulation 37 in Chapter 7 of the Regulations deals with the above obligations:
- The following wording must appear on all letterheads or marketing material pertaining to a property practitioner: “Registered with the PPRA”
- Where a candidate estate agent is making use of such letterheads or is referenced in such marketing material, the fact that such individual is a candidate estate agent must be clearly stated.
- Any agreement in connection with a property transaction to which the property practitioner is a party must contain a clause in the following terms:
“[Insert name of property practitioner as defined in the agreement] hereby warrants the validity of his / her / its Fidelity Fund Certificate as at the date of signature of this Agreement.”
This chapter deals with the requirement for the opening of trust accounts and dealing with trust funds and investments. The duty to keep accounting records and other documents is set out together with obligations around audit reports.
The Act provides that Practitioners must cause the accounting records to be audited within 6 months of the financial year end. The section must be consulted for detail around this.
A Property Practitioner whose turnover is less than R2.5 million must have his accounting records subjected to an independent review by a registered accountant. The Minister may by gazette determine under what circumstances certain Property Practitioners may be exempted from a trust account and may determine different dispensations for the review of accounting records.
It should be noted that Section 54(14) provides that a Property Practitioner must annually confirm or update the details of his, her, its auditor as prescribed. Regulation 32 in Chapter 6 of the Regulations provides the prescribed procedure for this. The section provides that the Property Practitioner must, before end of the financial year, confirm the auditors’ details or changed details, if applicable on the Property Practitioners Regulatory Authorities online portal.
Exemptions in respect of accounting records and trust accounts
Exemptions in respect of trust accounts are dealt with in Chapter 1 of the Regulations – Regulation 2: “Exemption from Trust Accounts”.
Regulation 2 of the Regulations sets out the requirements in terms of which an agency may be exempted from the requirement of administering a trust account. An agency is exempted if:
- The agency has never received trust monies; or
- It no longer will receive any trust monies going forward; and
- The agency submits an affidavit in the form prescribed by the Regulations. This includes proof that any previously held trust account has now been closed and all funds disbursed.
If an agency fulfills the above exemption, they will be exempted from having their annual financial statements audited. There are various conditions and provisions that relate to the exemption contemplated which must be consulted.
This exemption for the agency may be beneficial in that it will relieve them of the administrative burden of paying for, administering and the auditing costs that come with a trust account.
Duty to keep accounting records and other documents
A Property Practitioner has the obligation to for a period of 5 years (this was 10 years in the Bill), retain the following documents:
- all documents exchanged with the Authority;
- if applicable, correspondence with his, her or its employer or franchisor;
- any agreement incidental to his, her or its carrying on the business of a Property Practitioner;
- any agreement, mandate, mandatory disclosure form or other document relating to the financing, sale, purchase or lease of a property;
- any advertising or marketing material related to his, her or its carrying on the business of a Property practitioner; and
- any other document prescribed by the Minister.
A Property Practitioner must forthwith on request provide the Authority with a legible certified copy any document requested. The documents may be stored electronically if such storage meets the requirements of the Electronic Communications and Transactions Act.
Regulation 40 in Chapter 8 of the Regulations deals with “Document Retention” and provides that the following documents must be retained for the purpose of Section 55 of the Act:
- copies of all electronic communications sent or received by the Property Practitioner to and from members of the public in the course of carrying out its activities as a Property Practitioner.
- where a Property Practitioner employs any other Property Practitioner, copies of all electronic communications sent or received by such employee Property Practitioner to or from members of the public in the course and scope of his or her employment duties.
The above obligation does not extend to electronic communications on social media which are generally accessible by members of the public. Arguably “electronic communications” includes WhatsApp messages as these fall within the definition of “electronic communications” in the Electronic Communications and Transactions Act.
The above is an area where some attention and organization will be needed from Property Practitioners in order to comply. Systems such as “mimecast” which stores all emails on a server will assist.
Property Practitioner not entitled to remuneration in certain circumstances
Property Practitioners are not entitled to remuneration or any payment arising from an act as a Property Practitioner unless at the time of such act, he is in possession of a Fidelity Fund Certificate.
Any Property Practitioner who contravenes this must pay the funds to the Authority and such person entitled to the funds (i.e. a seller) can claim the funds from the Authority – within three years. Funds not claimed in three years are forfeited to the Authority.
Conveyancers may not pay any remuneration to Property Practitioners unless they have been provided with a valid Fidelity Fund certificate:
- during the period or on the date of the transaction to which the payment relates, and
- on the date of the payment.
Note the provisions to the effect that the certificate must be valid for the date of the conclusion transaction and on the date of payment.
Mandatory Indemnity Insurance
The Minister may for the purpose of redress of a contravention of the code of conduct, or sanctionable conduct, prescribe indemnity insurance which a Property Practitioner must take out and maintain.
Limitation on relationships with other property market providers
The conduct of Property Practitioners with regards to relationships with other property market service providers is regulated.
A Property Practitioner may not practice in association with any person who is prohibited by any law, any professional code of conduct or code of ethics or protocol, report or charter on corporate governance, from doing so.
A Practitioner may not enter into an arrangement formally or informally whereby a consumer is obliged or encouraged to use a particular service provider, including an attorney. A contravention of this could result in any remuneration earned being repaid to the consumer. The service provider can in addition be required to repay any remuneration received with interest.
Chapter 9 Conduct of Property Practitioners
Code of Conduct for Property Practitioners
This chapter enjoins the Minister to, after consultation with the Authority, prescribe a code of conduct for Property Practitioners.
Chapter 7 of the Regulations deals with “Training, Conduct and Consumer Protection” and more specifically Regulation 34 sets of the prescribed Code of Conduct. The prescribed code appears to be largely the same as the existing code, save that the “vicarious liability” provision has been deleted.
Section 61(5) provides that the Minister together with the Authority may prescribe norms and standards for advertising and marketing by Property Practitioners. The published regulations do not provide for these and it must be assumed are still to come.
Sanctionable conduct is defined and set out in some detail. Note that subsequent ratification or correction of sanctionable conduct does not constitute a defense.
The penalty for being found guilty of sanctionable conduct is the withdrawal of the Fidelity Fund Certificate, imposition of a fine (as prescribed) and or a reprimand (with noting on the web site). These may be suspended for three years as determined by the Authority.
The provisions of Section 62 must be studied to understand Sanctionable Conduct.
The chapter enjoins the Minister to, in consultation with the Authority, by notice in the gazette, declare a particular business practice in the market to be undesirable and thus prohibited. Various factors are set out to determine whether a practice is undesirable. A contravention can result in any remuneration earned being repaid to the consumer.
Regulation 35 in Chapter 7 of the Regulations contains some initial published “Undesirable Business Practices”. These must be consulted as additional reading.
Supervision of Candidate Practitioners
This chapter deals with the supervision of candidate practitioners. A candidate practitioner may not draft or complete any document or clause in a document conferring a mandate or relating to the sale or lease of property. A contravention here results in the candidate not being entitled to any remuneration or payment or damages arising from the transaction.
It is not a defense that the principal was not aware of the actions or omissions of the candidate. A principal must ensure proper supervision and control. This is also the case where the Property Practitioner conducts business from more than one premises.
These provisions appear to be in line with the previous position.
Candidate Estate Agents – per the Regulations
Regulation 33.4 deals in detail with the rules around candidate estate agents.
A Property Practitioner who registers in the estate agent industry prior to becoming entitled to practice as such shall be known as a candidate estate agent.
A candidate estate agent cannot act as such unless, they have disclosed as far as practically possible, that he or she is a candidate estate agent and is acting under the active supervision and control of a qualified Property Practitioner (or a practicing attorney, with at least 3 years’ experience where applicable), which supervision and control may be exercised either in person or by means of any electronic medium (excluding authorized advertisements in the press).
A candidate estate agent may not hold himself or herself out or advertise, as someone who has complied with the educational requirements contemplated in the Regulations or as someone who is no longer subject to any restriction in terms of Regulation 33.3.
A candidate estate agent may not complete or draft any documentation relating to any transaction negotiated by him or her in his or her capacity as a candidate estate agent, otherwise than under the supervision of a Property Practitioner qualified in terms of regulation 33.1 and who is no longer subject to any restriction in terms of regulation 33.3, and who certifies on the documentation in question that the said documentation has been completed under his or her supervision.
The Property Practitioner supervising the candidate shall be responsible for all acts of a candidate estate agent done in his or her capacity as such, of which the principal Property Practitioner is aware.
No person may act as a candidate estate agent for a period exceeding 180 days in aggregate. After the 180-day period they must sit for their PDE, provided that if such person fails to pass then on application and good cause shown, the Authority may permit the candidate to register as a candidate for another 180 days.
Regulation 33.3 of the Regulations provides that once a Property Practitioner qualifies as a non-principal Property Practitioner, for a period of 6 months thereafter they may not enter into any mandate for sale or purchase of property or letting or hiring of any property or conclude any agreement for the sale or purchase or letting or hiring unless such agreement has been reviewed and co-signed by another qualified Property Practitioner.
The fellow Property Practitioner co-signing is obligated to ensure the documents are compliant with the norms and standards and duties and obligations of the industry, however the co-signor will not assume any liability in relation to any matter other than the contents of the document in question.
Standard of Training / Establishment of Professional Designation Examination (PDE) – Regulation 33
The Regulations recognize that as a result of the extension of the definition of Property Practitioner, different rules relating to qualifications and training must apply to the different industries covered by the new definition.
As such, the Authority is enjoined to consult in good faith with the representative bodies of the various industries to establish qualification standards, course material, professional designations and standards for practical training.
These standards may vary according to the industry that the Property Practitioner operates in.
A franchisee Property Practitioner may not carry on business under the name of a franchise unless he/she/it is the holder of a Fidelity Fund Certificate and must disclose clearly and unambiguously in all his, her or its written communication, advertising and marketing materials that he, she or it operates in terms of a franchise agreement, as well as the name of the franchisor.
Prohibition on conduct to influence issue of certain certificates
Property Practitioners are prohibited from influencing the issue of various certificates in that they may not accept any financial or other incentive from a person who issues electrical, vermin, damp or other certificates.
Chapter 10 Consumer Protection
Mandatory Disclosure Form
This chapter introduces the concept of a mandatory disclosure form. A Property practitioner may not accept a mandate to sell or lease unless provided with a fully completed and signed mandatory disclosure form (prescribed in the Regulations). This form must be provided to every purchaser or lessee who makes an offer to purchase or lease.
The disclosure document must be signed by all relevant parties and annexed to the agreement. If not completed, signed and annexed, the agreement must be interpreted as if there were no defects or deficiencies on the property disclosed to the purchaser. Failure by a Property Practitioner to comply may result in being held liable by an affected consumer.
The consumer is still free, on own account to have the property inspected before finalizing the transaction.
Regulation 36 in Chapter 7 of the Regulations contains the “prescribed mandatory disclosure” document. From 1 February, the use of this document is mandatory. It is assumed that Practitioners may use their own disclosure document in addition to the prescribed document. Whether the prescribed document can be added to and used, is not known at this point.
A further issue that is not dealt with is circumstances where the seller is unable to make disclosure such as where a deceased estate is the seller. There does not seem to be an exemption in such circumstances and the prescribed document remains a requirement. It is suggested that a recordal of circumstances be made on the document.
Consumer Education and Information
The Authority must conduct campaigns to educate the general public of their rights. A Property Practitioner owes a duty to a buyer and a seller.
Agreements to sell or lease and disclosure documents must be drafted by the seller or developer for his own account. The Authority must publish an updated version of guideline agreements on its web site from time to time.
Chapter 11 General
The Minister may make regulations regarding any matter in the Act as may be necessary to achieve the objects of the Act.
Transitional Arrangements – Regulations
Regulation 41 in Schedule 5 of the Regulations deals with some transitional arrangements which are important. There are various provisions. Some of the more significant are as follows:
- A Practitioner who failed to register as an “estate agent” under the previous Act or failed to obtain a Fidelity Fund Certificate, shall not be prosecuted or disciplined, provided that the Practitioner registers with the Authority within six months of 1 February 2022 and subsequently obtains a Fidelity Fund Certificate per the Act within 12 months after the date such person registers with the Authority.
- The Authority shall be entitled to from time to time in good faith consult with the representative bodies of the industry or industries concerned, to take steps in respect of and arrange for the regularization of the affairs of, the Property Practitioners in such industry or industries in order to enable the Property Practitioners concerned to bring themselves into compliance with the provisions of the Act and the regulations.
- A Practitioner who on 1 February 2022 holds a Fidelity Fund Certificate issued under the previous Act shall be entitled to continue acting as a Property Practitioner under the Act, using such existing Fidelity Fund Certificate, until the end of the year during which the effective date falls.
- To the extent that any person has during the 12-month period preceding 1 February 2022 obtained any qualification which would entitle such person under the provisions of the previous Act to be registered as an estate agent (as non-principal or as principal), the Authority must recognise such qualifications for the purposes of the Act.
Whilst this article is voluminous, it still represents a mere summary of the Act and Regulations which must be read and understood by all Property Practitioners.