The Consumer Protection Act in relation to Estate Agents and Property Transfers

The Consumer Protection Act in relation to Estate Agents and Property Transfers

The Consumer Protection Act (“the CPA”) is not a recent piece of legislation (came into operation on 1 April 2011)

Author: Matthew Davidse

The Consumer Protection Act (“the CPA”) is not a recent piece of legislation (came into operation on 1 April 2011). Nevertheless, uncertainty remains with the practical application of certain provisions of the CPA, it would be useful to recap on its purpose and how it would apply to the typical property transaction.

The CPA’s purpose is to set out the rights of consumers and to prohibit unfair and unjust marketing and business practices. It further allows for the imposition of penalties which could be severe, including a maximum fine of R1 million or up to 10% of the guilty party’s annual turnover whichever is the greatest.

Section 5 of the CPA contains a provision which notes that the Act would not apply to a transaction if the consumer (seller or purchaser) was a juristic person whose asset value or annual turnover is equal to or exceeds the threshold value of R2 million, at the time that the transaction took place. Further, the CPA would not apply to ‘once-off’ agreements between a seller and purchaser which do not fall within the ordinary scope of business for either party.

The CPA includes a provision which defines ‘goods’ to include a “legal interest in land or any other immovable property”. The provisions of the CPA would thus apply to the sale of immovable property as an Estate Agent falls within the definition of a ‘supplier’ for the purposes of the CPA as they market goods and services in the ordinary course of their business to a consumer for their consideration. If the estate agent acts under the instruction of a seller to market their house to the public, the agent becomes a supplier and the seller becomes the consumer.

A consumer for the purposes of the CPA, is defined to include a person who enters into a transaction with a supplier in the ordinary course of the supplier’s business. The agent’s actions with regard to marketing and concluding a transaction in relation to immovable property is then governed by the CPA.

The estate agent is regulated in how they represent material facts concerning the property for which they are instructed to market to a consumer. An estate agent is not allowed to mislead, deceive or make false representations to a consumer regarding the immovable property/land they are instructed to sell. They further have a duty to correct any misapprehensions on the part of the consumer with regard to a material fact. An estate agent may also not attempt to deceive a consumer in exaggerating the characteristics of the property/land (for example, that the property has features or amenities which it in fact does not have) or that the property can be used for a purpose which is either impractical, impossible or unlawful.

It is therefore important that the consumer (purchaser) is informed of any known defects and that the purchaser in turn accepts that the property is offered in a specific condition.

Furthermore, in terms of the CPA, an estate agent is prohibited from using physical force, undue influence, coercion or pressurizing a consumer to conclude a mandate or in the subsequent marketing of a property, whether in the negotiation or conclusion stage of an agreement of sale.   The CPA further prohibits a seller and thus their agent from marketing a property at an unfair or unreasonable price to the general public.

In order for an agreement to be compliant with the CPA, the following is noted:

  • The wording of the agreement should be plain and understandable;
  • The agreement should not contain unfair, unreasonable or unjust terms;
  • Should not adversely impact the consumer disproportionately (or in the alternate, be one-sided in favoring the consumer disproportionately);
  • Include the unfair waiving of rights or charging the consumer unreasonably high charges or prices related to the goods sold.

The consumer must also be given express notice should a term be included in an agreement which would transfer risk or liability to the consumer or would limit the risk or liability of the supplier.

It is important to note that the mandate agreement between the seller and estate agent is deemed to be a fixed term agreement for the purposes of the CPA, thus affording the seller the right to cancel the mandate by giving 20 business days’ notice to the agent. The agent can however claim expenditure already incurred in the marketing of the property from the seller at that stage.

While grey areas exist with regard to provisions of the CPA (in relation to Estate Agents), there is no doubt that further certainty will be provided in future as the provisions are tested in Court.

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