What happened to the Property Professionals Act (PPA) No. 22 of 2019? The president has signed the law into law, but the effective date of the law is yet to be determined. The Act will repeal the Estate Agents Business Act No. 112 of 1976 (“EAA Act”) in its entirety. Draft regulations were released for public comment in March 2020. However, as things stand, there is no clear indication of when the PPA will come into effect.
Justine Krige, Director of the Corporate & Commercial Department at Cliffe Dekker Hofmeyr (CDH)
When the EAA comes into force, the law will impose a number of new obligations on real estate professionals, not all of which are contained in the EAA law. So what are the main obligations of real estate practitioners under the PPA?
1. Mandatory display of a Fidelity Fund Certificate (FFC)
The holder of an FFC must: (i) display its FFC in a conspicuous place at each place of business where it transacts in real estate, in order to enable consumers to consult it easily; (ii) ensure that the prescribed phrase regarding holding an FFC is reproduced on any letterhead or marketing materials; and (iii) include in any agreement relating to real estate transactions a prescribed clause guaranteeing the validity of the certificate.
2. Maintain a trust account
Each real estate professional must: (i) open and maintain one or more separate trust accounts; (ii) appoint an auditor; (iii) provide the Real Estate Professionals Regulatory Authority (the Authority) with all information regarding the trust account(s) and the appointed auditor; (iv) deposit all Trust Money in the relevant Trust Account; (v) keep separate accounting records relating to the trust account(s) and cause them to be audited.
3. Obligation to keep accounting records and other documents
All real estate practitioners must keep for a period of five years: (i) all documents exchanged with the Authority; (ii) all agreements, mandates and mandatory disclosure forms relating to the financing, sale, purchase or lease of property; and (iii) any advertising or marketing material relating to the exercise of an activity as a real estate professional.
4. The real estate professional is not entitled to remuneration in certain circumstances
A real estate practitioner is not entitled to any remuneration unless the real estate practitioner and, if a corporation, each director of that corporation, is in possession of an FFC. A real estate practitioner cannot pay any compensation or other money to a real estate professional unless the real estate professional has provided him with a certified copy of his FFC.
5. Maintenance of compulsory civil liability insurance
The Minister may, for the purpose of providing redress for a breach of a code of conduct or other conduct punishable under the LPP, prescribe indemnity insurance which a real estate professional must carry and maintain.
6. Respect a code of conduct
Each real estate professional must comply with the prescribed code of conduct (which has yet to be published by the Minister for Human Settlements).
7. Comply with the Real Estate Industry Transformation Charter Code
All real estate practitioners must comply with the Real Estate Sector Transformation Charter Code (currently being published).
8. Provide certain mandatory information
In order to achieve the objective of being consumer-oriented legislation designed to protect consumers in the real estate sector, the LPP obliges real estate professionals to submit a “disclosure form” to a seller /lessor before concluding a mandate, and to a buyer/tenant before making an offer. The disclosure form must be signed by all parties and attached to the sale or lease agreement. If no Disclosure Form is signed and attached, the PPA provides that the Agreement shall be construed as if no defect or defect in the Property had been disclosed to the Buyer. A real estate professional can only accept a mandate if the seller or lessor has provided a duly completed and signed declaration form.
9. Limitation of relations with other real estate market service providers
Article 58 (2) of the LPP prohibits any type of practice in which a practitioner induces a consumer to use a particular transfer agent or service provider. This is probably one of the most debated sections of the PPA, with significant practical ramifications for the way real estate practitioners do business.
These obligations are clearly aimed at consumer protection. Any real estate professional violating the EIA will be required to reimburse all fees collected for a real estate transaction and may be subject to a fine. In addition, anyone found guilty of an offense under the LPP is liable to a fine or imprisonment for up to 10 years. So even if real estate practitioners do not hold money in trust, they will still have to comply with the remaining obligations under the PPA.
Real estate practitioners are advised to familiarize themselves with these requirements as they may soon come into force.