Estate agents’ mandates and the CPA

The Consumer Protection Act, No. 68 of 2008 (“CPA”) applies to the relationship between an estate agent and the agent’s principal (e.g. the seller), if:

-the principal is an individual (or if the principals are individuals) or

-a juristic person (i.e. a company, close corporation, trust, association, body corporate etc.) with a total asset value and annual turnover of under R2 million.

In these circumstances, the CPA will apply to the mandate, whether it is written or verbal.

Section 14 of the CPA will apply to a mandate only if:

(i) it is for a fixed period, and

(iii) where either the estate agent or the seller is not a juristic person.

In terms of section 14, the seller can cancel the mandate at any time, on 20 business days’ written notice. It is not clear whether section 14 automatically gives the principal the right to renew a fixed-term mandate. Section 14(2)(d) states that “on the expiry of the fixed term of the consumer agreement, it will be automatically continued on a month-to-month basis …unless the consumer expressly –

(i) directs the supplier to terminate the agreement on the expiry date; or

(ii) agrees to a renewal of the agreement for a further fixed term.”

Careful drafting of the clause in the mandate governing the term of the mandate can resolve this uncertainty.

In addition, section 48, which requires that consumer agreements’ terms are fair, reasonable and just, will apply to the terms of the mandate agreement. Section 48(1)(a)(i) also requires that the price for goods or services must be fair, reasonable and just. A mandate usually provides that the agent will be entitled to a commission at an agreed percentage of the sale price, if a written offer is accepted from a willing and able purchaser. It can be argued that where a sale is cancelled through no fault of the seller, e.g. if the purchaser disappears just before transfer, that it would be unfair, unreasonable and/or unjust toward the seller for the agent to be entitled to payment of the commission. According to section 51(3), an unfair, unreasonable or unjust term will be void. It is also in breach of the CPA to include an unfair, unreasonable or unjust term in an agreement, and an estate agency which does so, risks being reported to the National Consumer Commission, and as a worst case scenario, getting a fine of up to 10% of the agency’s turnover for the last financial year.

In terms of section 49 of the CPA, any provision of an agreement that limits the risk or liability of a supplier (the agent) or imposes a risk or liability on a consumer (the principal), or is an acknowledgement of fact by the consumer, must, in addition to the fact, nature and potential effect of that risk, specifically drawn to the attention of the consumer by the supplier in a conspicuous manner and form likely to attract the attention of an ordinarily alert consumer, before he or she signs the agreement. The consumer must agree to these “risky” provisions by signing or initialling.

In terms of section 22, read with section 50, a written mandate must be worded in plain language, i.e. in language that an ordinary consumer, with average literacy skills, and minimal experience as a consumer of the services of an estate agent, could be expected to understand without undue effort, also as regards the significance and import of the agreement’s provisions. This is a tall order, and requires careful drafting and lay-out, as well as a watertight procedure which the agent follows before a consumer signs a mandate.

If a sale is made pursuant to a mandate, the estate agent must issue a written sales record to the consumer, which complies with the requirements of section 26 of the CPA.

Most concerning for the estate agent, his or her services under the mandate agreement, will now have to comply with the ‘warranties of quality‘ imposed by section 54 of the CPA. Consumers have the right to:

(i) timely performance and completion of the services, and timely notice of any unavoidable delay in the performance of the services; and

(ii) the performance of the services in a manner and quality that persons are generally entitled to expect.

This means that the consumer can complain to the National Consumer Commission if the agent takes too long to sell, or acts in a way that could be interpreted as not being in line with expectations.

From the consumer’s perspective, the following provisions of the CPA are of concern:

section 113 provides that if an agent of a person is liable for anything done or omitted in the course of their activities on behalf of the principal, the principal is jointly and severally liable with that person. As a seller, if your estate agent e.g. misleads the purchaser (which is prohibited by sections 4(5), 29, 41 and 51 of the CPA) or undertakes direct marketing contrary to the limitations in sections 11, 12, 16 or 32, the seller is also liable to the purchaser. Of even greater concern than a damages claim from the purchaser, is the fact that a purchaser can simply refer the matter to the National Consumer Commission and that a fine of up to 10% of the seller’s turnover can be imposed on the seller due to the estate agent’s behaviour. In addition, in the case of direct marketing, the seller can lose the sale where a consumer cancels in line with the cooling-off right granted by section 16 of the CPA- this applies even where the agent has fully complied with the CPA.

Therefore, before granting a mandate to an estate agent, the seller must ensure that the agent agrees contractually to abide by all of the provisions of the CPA, indemnifies the consumer against any non-compliance by the agent with the CPA, and provides proof of sufficient insurance in this regard. I would also advise that the seller and agent agree whether direct marketing is acceptable, and record this in the mandate agreement.

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