When does the CPA apply?
In the case of the sale of a home or a holiday home, the contract is between the seller and the buyer, which is governed by common law. So what is the risk for the estate agent?
In Part 1 we discussed the application of common law in buyer-seller disputes arising after the sale of a home or holiday home. But it turns out that estate agents can also be implicated in such disputes, according to the terms of the Consumer Protection Act (CPA).
A dispute can arise after conclusion of the sale. If the buyer detects undisclosed latent defects. The question then is who should be held liable? Common law has a clear position on this matter, but a grey area exists with regard to the intermediary role of the estate agent as defined by the CPA. This is where the estate agent may be vulnerable.
The intermediary role of the estate agent
The CPA regards the estate agent as an intermediary in a purchase agreement between the seller and buyer of a home or holiday home.
An intermediary is defined by the CPA as “a person who in the ordinary course of business and for remuneration or gain, engages in the business of representing another person with respect to the actual or potential supply of any goods or services; accepting possession of any goods or other property from a person for the purpose of offering the property for sale; or offering to sell to a consumer any goods or property that belongs to a third person”.
Thus the agent is considered a supplier who provides a service to the customer. In this case the estate agent performs a two-fold service. He enters into a mandate agreement with the seller and facilitates the sale agreement between the seller and the buyer.
Although it can be argued that estate agents are already regulated by the Estate Agency Affairs Act and the Estate Agents Board, they are deemed to be included under the definition of intermediaries in terms of the CPA.
The responsibility of the estate agent
First, with regard to the mandate agreement with the seller. The estate agent is expected to practice responsible marketing. In terms of the CPA this constitutes being honest in his dealings and showing regard for the consumer’s fundamental rights of equality and privacy.
Second, with regard to the purchase agreement between the seller and the buyer. The agent is required to disclose to the buyer any latent defects that he is aware of as well as any other relevant issue regarding the property.
Onus of proof can put estate agents in the hot seat
What steps can an attorney take in claiming for damages when a dispute arises over undisclosed latent defects?
The reality is that, in the case of a voetstoots purchase agreement, it can be very difficult to prove that the seller is liable. Did he knowingly withhold information about the defect or was he not aware of it? To what extent will he be protected by the voetstoots clause? Did the estate agent fulfil his obligation to detect and disclose defects to the buyer?
Attorneys usually tend not to want to sue the seller under common law because it’s not easy to prove liability; in this instance they usually advise their clients to either sue the agent under the CPA or to refer the dispute to the Consumer Affairs Ombudsman.
This is allowed because the CPA argues that the estate agent provides a service not only to the seller but also to the buyer. By facilitating the sale agreement, the agent is considered to be the supplier of services to the buyer. And under the CPA, if the consumer is not happy with the goods delivered, he is entitled to claim for compensation.
The agent is at risk here. If found guilty, he may be faced with a hefty fine.
Understand the rules of the game
So what does the estate agent need to do in order to protect himself? A watertight process during the process of the sale is essential to prevent any dispute over disclosure of defects after conclusion of a sale.
We recommend that:
- The mandate agreement should record that the seller accepts and acknowledges that it is his (the seller’s) duty and responsibility to disclose any latent defects that he is aware of as well as well as any relevant issue regarding the property.
- The purchaser should initial (and thereby acknowledge) the voetstoots clause in the agreement of sale.
- The seller should complete and sign a comprehensive “Property Condition Report” in the listing phase of the property which can be presented to the prospective purchaser prior to signing the agreement of sale.
In this way the estate agent can take adequate care of both parties and ensure that they know exactly what their rights and obligations are.
Area of greatest risk
The greatest risk for the agent lies in the assurances he may give to a prospective buyer about the value of the property, its development potential, its zoning or its condition. The buyer may make the purchase decision for a certain price based on this information. Should the buyer subsequently find that these assurances were not accurate or true, he may take legal action against the agent.
This is where estate agents have to tread very carefully.