Section 2 Part H of the CPA deals with the consumer’s fundamental right to fair value, good quality and safety. The CPA has a major influence on the common law warranty against latent defects. It is however extremely important to keep in mind that the CPA is not applicable to all property transactions.
The CPA will not be applicable where there is a once-off transaction, and the goods and services are not supplied in the ordinary course of business. Where a homeowner, for example, wants to sell his residential property or even a vacation property and sells it once-off or not in the ordinary course of his business, the common law position discussed above will be applicable.
Typical examples where the CPA will apply to the sale of immovable property would be where the seller is a property developer or an investor who buys, renovates and sells houses as a business.
Legal Position where the CPA is not applicable (common law position)
The common law position has been amended by the CPA but because of the scope of its application, many sale agreements will fall outside of its ambit. In such instances, the common law position prior to the commencement of the CPA will remain applicable.
Where the CPA does not apply and the “voetstoots“ clause is excluded from the terms of the agreement
Common law position is that the seller will not be liable for clearly noticeable (patent) defects. The rationale behind this is that the said patent defect would (or should) have been spotted through a reasonable and careful inspection of the property by the purchaser. However, the seller is responsible for disclosing any hidden (latent) defects and will be made liable if not disclosed.
Where the CPA does not apply and the “voetstoots“ clause is included in the terms of the agreement
The seller provides no warranty in respect to the property. The “voetstoots” seller is not liable for latent or patent defects. However, if the seller had knowledge of such defects or should the seller have known of these defects and had not communicated same to the purchaser, the seller would not be at rights to call on the “voetstoots” clause for protection. The burden of proof would lie with the purchaser to prove such knowledge.
Legal position of the estate agent under the CPA
Estate agents are regarded as intermediaries in terms of the CPA. An intermediary is defined 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”.
Section 1 of the CPA further provides that a person whose activities as an intermediary are regulated in terms of any other national legislation is not included in the definition of an intermediary. Though 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.
It is clear from the definition of “intermediary” that the CPA will apply to the Mandate Agreement between the seller and the estate agent. The CPA will also apply to the marketing practices of the estate agent and should amount to responsible marketing. The agent should be honest in his/her dealings and have regard for the consumer’s fundamental rights of equality and privacy in terms of the CPA. Finally, section 27 of the CPA and regulation 9 of the regulations made under the CPA require full disclosure of certain prescribed information.
The question that arises is whether the involvement of an estate agent in the sale of property, where the sale is not in the seller’s ordinary course of business, will make any difference to the transaction and the inclusion of a “voetstoots” clause.
The involvement of an estate agent in the sale of immovable property gives rise to two transactions namely the mandate agreement and the resultant sale agreement. The service the agent provides to its client (the seller) is the marketing and advertising of the property in the hope of procuring a willing and able purchaser for the property for which the estate agent will then receive consideration. The estate agent receives no consideration for his services in advertising and marketing the property unless those services are successful and result in the production of a purchaser for the property.
The agreement that results from the estate agent’s marketing efforts does not fall under the scope of the CPA. The contractual relationship that is the result of the agent’s marketing efforts is a once-off transaction between the seller and the purchaser.
In mitigating the agent’s risks, it is important to give careful consideration to the fact that the agent also provides a service to the purchaser in the process of conclusion of the sale agreement, which qualifies under the CPA as a transaction between a supplier and a customer involving the supply of services. This is so if in a given case the purchaser or the seller provides consideration for such services. Whether or not an agent can be held liable in a given instance will depend on the facts of the matter at hand.
In order to avoid any arguments between the seller and the estate agent, after the conclusion of a sale, with regards to what was and was not disclosed by the seller to the estate agent, it is suggested that:
- It be recorded in the Mandate Agreement 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 any issue regarding the property which may be of relevance to the purchaser.
- It is further suggested that the purchaser should initial (and thereby acknowledge) the “voetstoots” clause in the agreement of sale.
- It may be prudent for the agent to have the seller 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.
Having thus clearly advised the seller of his obligations and the purchaser of his acknowledgements with regards to the condition of the property, the estate agent will have taken adequate care of both parties ensuring that they know exactly what their rights and obligations are.
However, the greatest risk for the agent lies in assurances which may be given to a prospective purchaser with regards to the value of a given property, the development potential thereof, or the zoning or condition thereof, that may, in fact, move the purchaser to proceed to buy a given property at a certain price and which assurances may later be found inaccurate or untrue.
Attorneys usually tend not to want to sue the seller under the Common Law (“Voetstoots” – did the seller know/or should he have known about the latent defects?) due to the severity of the onus of proof and they usually advise their clients to either sue the agent under the CPA or to refer the dispute to the Consumer Affairs Ombudsman.
The latter institution usually has a panel of non-legal persons presiding over these matters and if found guilty an agent may face hefty fines.
The rules of the game have changed and for this purpose, agents are urged to tread carefully.