Marlon Shevelew on How the CPA Affect Estate Agents Mandates….

Marlon Shevelew is our guest blogger today, below is his insightful, expert opinion on the CPA and Estate Agent mandates.

An estate agent’s involvement in the sale of immovable property gives rise to two distinct agreements, namely the mandate agreement with the seller and the resultant sale agreement between the buyer and the seller.

This article only discusses the first agreement, namely the mandate agreement the estate agent signs with the seller, specifically with regards to the impact of the Consumer Protection Act 68 of 2008 (CPA) on such agreements.

It is inarguable that the mandate agreement is subject to the provisions of the CPA as the service the estate agent provides to the seller in attempting to sell the property is in the ordinary course of the estate agent’s business.

The estate agent must therefore ensure that all the provisions of the mandate agreement comply with the CPA.

These are some practical examples.

The CPA grants the seller the right to cancel a mandate within 5 (five) business days, without penalty, where the mandate was concluded as a result of “direct marketing” by the estate agent. In other words, where the estate agent first approached the seller with a view to signing the mandate, the seller has 5 (five) days from when the mandate was signed to cancel it without reason or penalty. Even if there was no “direct marketing” of the seller, the seller would still have the right to cancel the mandate on 20 (twenty) business days’ notice without reason, except that where there is no “direct marketing” the estate agent can charge the seller a “reasonable cancellation penalty”.

There is no certainty about what would constitute a “reasonable cancellation penalty”. It would probably include any expenses the estate agent has incurred up to the date of cancellation of the mandate in regards to marketing the property, yet it probably excludes potential loss of income by the estate agent.

The estate agent must also ensure the mandate is written in plain and understandable language. This means that the estate agent must ensure that the ordinary seller with average literacy skills and minimal experience can understand it. If the Latin terms, such as “domicilium”, are used, they should be properly explained to the seller.

The mandate must also not contain terms that are unfair, unreasonable or unjust. A possible example of a mandate which would fall foul of this requirement would be where an estate agent knows that properties in the same area of the seller’s property take approximately 3 (three) months to sell, yet they make the seller sign a sole mandate for a period of 2 (two) years. Similarly, the amount of commission payable to the estate agent in terms of the mandate cannot be unfair, unreasonable or unjust.

As a final and extremely interesting point, previously the Code of Conduct enforced by the Estate Agency Affairs Board (EAAB) had no weight in court. The only possible ramifications for an estate agent which breached the Code of Conduct were being subject to internal sanctions by the EAAB. In other words, no right of compensation accrued to a seller where the estate agent breached the Code of Conduct. However, the CPA drastically changes this. It provides a seller with a right to “the performance of the services in a manner and quality that persons are generally entitled to expect”.

Arguably, a failure by an estate agent to meet the standards set in the Code of Conduct, would be a failure to comply with this obligation under the CPA, as a seller is certainly entitled to expect performance up to the EAAB’s standards. The CPA is therefore likely to open the door for a seller to directly rely on the Code of Conduct and demand reasonable rebate of the estate agent’s commission where the standards set in the Code of Conduct are not met.

In short, while there is much uncertainty in regards to exact impact of the CPA on property transactions, it is beyond doubt that estate agents must ensure their mandates with sellers comply with the provisions of the CPA.