What does the property practitioners act mean for managing agents?

Since 1 February 2022 the business of all property practitioners is subject to new legislation; the Property Practitioners Act (“the PPA”) and the Property Practitioners Regulations (“the PPA Regulations”). The PPA replaces the Estate Agency Affairs Act of 1976 (“the EAAA”).

Some of the major changes that the PPA introduces to the property management industry include the following:

• A wider scope of applicability to include more property industry role-players, amongst others, managing agents.
• The replacement of the Estate Agency Affairs Board with the Property Practitioners Regulatory Authority (the “PPRA”).
• The continuation of the Estate Agents Fidelity Fund as the Property Practitioners Fidelity Fund (the “Fidelity Fund”).
• The introduction of “candidate property practitioners”. This would be a person who still needs to attain all the prescribed qualifications or experience to practise as a property practitioner, and who is undergoing training.
• Introduction of indemnity insurance.
• The enforcement of trust accounts, bookkeeping document retention and letterheads.
• Prohibition of certain relationships with service providers.

Outlining the objectives and aims of the PPA

The PPA aims to transform the property market in South Africa, align property legislation with other legislation in South Africa, professionalise the property sector, and improve its efficiency. It aims to do so through the following initiatives:

• The regulation of conduct and services provided by property practitioners.
• Protection of property consumers’ interests, and professional assistance to consumers in property transactions.
• Dispute resolution in the property market.
• Education, training and development of property practitioners and candidate property practitioners.
• Provision for a framework for the licensing of property practitioners.

Who are considered to be property practitioners?

Whereas the EAAA only applied to estate agents, the scope of the PPA has been broadened significantly. The definition of “property practitioners” has been expanded to include various other role players whose business revolves around property and related matters, including property developers and managing agents.

Under previous legislation managing agents had found themselves in a no man’s land not formally regulated by any authority. However, the PPA now also regulates the roles and responsibilities of managing agents. The definition of property practitioner states the following:[1]

“includes any person who for remuneration manages a property on behalf of another;”

Non-compliance with the PPA can result in up to 10 years imprisonment and/or a fine of up to R25 000 and/or withdrawal of the Fidelity Fund Certificate (“FFC”). Therefore, managing agents must familiarise themselves with the obligations of the new legislation and its protective mechanisms for property consumers.

The scope of the PPA is very detailed, and therefore we will be looking at some different aspects in a series of blog posts, starting with the Fidelity Fund and the FFC.

Fidelity Fund

 The PPA determines that property practitioners need to pay an annual application fee for an FFC.[2] The fund’s purpose is for the PPRA to compensate persons who suffer a financial loss due to the wilfully unlawful conduct (e.g. theft) of property practitioners who had an FFC at that time.[3]

The fees payable under the PPA are set out in Regulation 17 of the PPA Regulations and includes an initial contribution of R400 to the Fidelity Fund upon registration. Managing agents would need to pay a levy of R2 340 every three years (or R780 per annum). Candidate managing agents would need to pay R380 for the first two years of their candidacy period, whereafter they would need to pay the same amount as managing agents.

Fidelity Fund Certificate

The PPA requires that managing agents acquire FFCs, BEE certificates and tax clearance certificates. Chapter 8 of the PPA deals extensively with property practitioners’ responsibilities with regard to FFCs.

Firstly, every entity or person practising as a property practitioner needs to have a valid and up-to-date FFC to render such services. Managing agents who have not been issued FFCs under the repealed EAAA would need to apply for one urgently. Those managing agents who had been issued an EAAA FFC for the 2022 calendar year, and who intend to continue operating as property practitioners in 2023, would need to apply for an FFC by 31 October 2022.

Every director/member of a property practitioner company/close corporation must have an FFC.[4] The PPA also requires employees rendering property practitioner services to be issued with a certificate. However, support and administrative staff need not have one.[5]

Contravention

Managing agents would not be entitled to any remuneration or payment for their services should they not have an FFC at the time of rendering the service (at the conclusion of the transaction and on the date of payment). Managing agents who are in contravention of this law would be guilty of an offence and need to immediately repay any amount received for any property transaction immediately upon request to the PPRA. The consumer would be able to claim the funds from the PPRA within three years of the event.

In the event of failure to apply for an FFC, managing agents would be charged a penalty of R125 per month until they apply for the certificate[6] and may be liable for a fine of up to R15 000.00.[7]

Applications and validity

FFCs are valid for three years, up to 31 December of the third year. Applications for the renewal of FFCs need to be lodged before 31 October of the calendar year in which their current certificate will expire.[8] Managing agents need to provide the PPRA with updated contact details, or any other relevant change in personal or business information, in writing, within 14 days of the change.

PPA Regulation 26 further stipulates that FFCs be industry-specific, and that a property practitioner needs to apply for, and hold a separate certificate for each different industry in which they operate.

Before issuing the certificate, the PPRA will ensure that the managing agent meets all requirements provided for in the PPA, and is not disqualified from being issued a certificate. According to the PPA, if a managing agent had submitted a correct application and all the necessary information, the PPRA must deal with the application within 30 working days. Should good grounds exist for not being able to do so, it needs to inform the applicant in writing, and consider the application within no longer than an extended period of 20 working days. If the PPRA fails to do so, the application is deemed approved, and the PPRA must issue the applicant with a certificate within 10 working days from the written request.

Should a managing agent not meet the requirements of the application for the FFC, they would be charged an additional penalty fee on top of the application fee before being issued a certificate.

Display, prescribed clause and letterheads

Managing agents would need to produce an original or certified copy of the certificate upon request from any relevant party. The certificate needs to be legibly and prominently displayed in every place of business where property transactions are being conducted, for consumers to easily inspect it. Any property transaction agreement entered into needs to include the following prescribed clause, stating that the managing agent guarantees the validity of the certificate:

“[Insert name of property practitioner as defined in the agreement] hereby warrants the validity of his / her / its FFC as at the date of signature of this Agreement.”

In addition to this, managing agents need to have the following wording on all their letterheads and marketing material: “Registered with the PPRA”.

Withdrawal, lapsing and disqualification

The PPRA may amend the FFC, providing it informs the holder in writing and citing the reasons. An FFC may also be withdrawn on the PPRA’s initiative, or under an instruction issued by a court or an adjudicator. This may be due to the lapsing of the certificate, or a managing agent becoming subject to any reason for disqualification. The managing agent must thereafter refrain from using or displaying the certificate.

Reasons for lapsing may include death or disqualification, winding up or deregistration of a company or close corporation, and/or sequestration of a partner or trustee. A withdrawn or lapsed certificate must immediately be returned to the PPRA unless the managing agent can declare under oath reasons preventing them from doing so.

Section 50 of the PPA deals with reasons for which a property practitioner may be disqualified from being issued an FFC. The PPA lists numerous grounds for disqualification, including the following:

• Having been found guilty of contravening the PPA, its regulations or similar legislation.
• Having been found guilty of a criminal offence or have acted fraudulently, dishonestly, unprofessionally, dishonourably or in breach of fiduciary duty.
• Having been dismissed from a position of trust due to improper conduct in the past five years.
• Being an unrehabilitated insolvent.
• Not having a tax clearance certificate.
• Having been found guilty of unfair discrimination.
• Not having a valid BEE certificate.
• Not complying with the prescribed standard of training.
• Not having the required practical experience.
• Operating under a trading name that is identical or confusingly similar to the trade name of another property practitioner, which has a valid or suspended, lapsed or withdrawn FFC.

The new legislation brings about numerous changes, particularly for those industries that had not been regulated by former legislation. It is therefore crucial for managing agents and other property practitioners who had not formerly been governed by the EAAB to take some time to familiarise themselves therewith.

Fortunately, our Legal Advisory team is available to provide expert advice. Get in touch if you have any questions.

FOOTNOTES:

[1]     Section 1 of the PPA.

[2]     Section 41(1)(a) of the PPA.

[3]     Section 35(1) of the PPA.

[4]     Section 48(2) of the PPA.

[5]     Regulation 25.2 of the PPA Regulations.

[6]     Regulation 23.1 of the PPA Regulations.

[7]     Regulation 38 of the PPA Regulations.

[8]     Regulation 15.4 of the PPA Regulations.