The ins and outs of the new Consumer Protection Act for property developers, real estate agencies and property owners

Prior to the implementation of the Consumer Protection Act (CPA), a number of questions and concerns were raised by the property industry about the effects that the Act would have on day-to-day business. Although South African consumers are now the most protected consumers in the world, businesses have had to adjust severely and re-strategise how they will turn regular consumers into loyal customers in the long term.

The CPA brought about three major changes in the way that property developers, real estate agencies and property owners market, sell and lease their properties. The first change introduces a bill of rights for consumers, and allows them to cancel certain contracts within a ‘cooling-off’ period of five business days after the sale of a property has taken place.

The sale specifically refers to the date of transfer of the property into the buyer’s name. This, however, only refers to property that has been sold as a result of direct marketing, and does not apply to marketing such as show houses and conventional print advertising, nor sales that are generated from clients with whom the agent is already working.

If a consumer is unable to examine the property, as is the case in off-plan developments, then it must be described. Failing to do so could result in the consumer returning the property at the seller’s cost and risk, and without penalty to the consumer.

Specifically, the Act prohibits companies from making false or misleading representations to sell a property.

Examples of which include portraying characteristics that a property does not have; stating that immovable property can lawfully be used for purposes that are unlawful or impractical; or making reference to any facilities or amenities it does not have or which are not available.

The caution that the property industry will have to exercise in how it markets its products and services will ensure the number of possible cancellations after a property has been transferred into the buyer’s name will be kept to a minimum.

Sellers will have to be responsible and ethical in their practice because they cannot require a consumer to waive his/her rights, or assume the obligations or waive liability of the supplier on terms that are unfair or unreasonable. In short, the price and terms must be fair.

Responsible marketing will serve to build long-term relationships with clients and customer or brand loyalty, with the company marketing the properties.

The second change that the Act enforces is the way the “voetstoots” clause will be applied in real estate contracts. The term means “as is”, and was common practice before the CPA to sell a property in the condition it is in.

Although private, once-off sellers can still be protected by the voetstoots clause, developers, investors, agents or anyone who sells property as ordinary course of business will be liable for defects and subject to discourse if the condition of the property is not fully disclosed in clear, layman’s terms in the contract or sale agreement.

To avoid negative repercussions from the sale of property, the Act stipulates that all agreements need to be in plain, easy to understand language; and that the terms cannot be unfair, unreasonable or unjust. If agreements do not comply with the Act, the terms within the contracts will not be enforceable.

According to the CPA, an implied warranty of quality allows the consumer to return goods to the supplier if they are faulty or unsafe within six months after the sale has taken place. The supplier can then choose to either repair, replace or exchange the goods. This warranty of quality stands to ensure property is sold between parties in more than merely good faith, but that all parties are aware of what exactly they are selling and buying.

The third major change that the CPA brings to the property/real estate industry specifically relates to the letting of property and particularly the maximum length of lease that a supplier can offer a tenant. Under the Act, a tenant is allowed 20 business days’ notice to arbitrarily cancel a lease agreement, and leases can now only be valid for a maximum period of 24 months.

After the lease has expired, the agreement will roll over on a month-to-month basis unless a new agreement is signed.

This has implications for commercial properties leased for business purposes because banks will not give credit to a consumer to start his/her business if the two-year lease agreement is not enough time for the consumer to recover the start-up costs required to establish the business.

Property owners and buy-to-let investors will be the most affected parties in this case because unless agreements are made lawfully and carefully, they will now be uncertain of rental income, their bond repayment shortfalls and their ability to use lease agreements as collateral security for loans.

Initial concerns raised by the industry included the far-reaching effects that the Act would have on the sector as a whole.

While organisations such as the South African Property Owners Association fully support the additional protection for consumers, they are aware of the changes that would have to take place within the property industry to protect developers, landlords and brokers from abuse of the Act.

While the full impact of the CPA on the property sector is yet to be seen, those involved can use the Act as a guide to avoid negative repercussions.

The overall impact that the Act will have on the industry will be to ensure ethical business practices are upheld within the property sector; consumers are protected from exploitation; and that harmful business practices become a thing of the past.

By re-evaluating the level of service the Act requires to uphold the rights of consumers, the property industry will be working toward long-term sustainability rather than trying to keep up with unpredictable market trends.

By taking a more consumer-centred approach, agents, developers and landlords have the opportunity to build lasting relationships with their clients, encourage repeat business, and avoid the negative implications of selling or letting property unfairly or unlawfully.

Taryn Springhall