Buying or selling property? It is important to do your due diligence on the professionals involved.

We often hear and read about fraudulent property transactions in the media. The truth is that it happens more often than what is reported. The property sector generates a constant flow of individuals looking to either buy or sell properties which creates opportunities for fraudsters to deceive buyers and sellers alike.  The aim of this article is to explore ways in which buyers and sellers can guard against the misfortune of losing their investment and should worse come to worst, to look at the relief that may be available to the victims of property transactions that have gone wrong.

In the first instance, property buyers and sellers are advised to do their due diligence on the key role players in the transaction to verify and confirm that these individuals are properly and legally qualified to provide property related services to members of the public. This will include the property practitioner (more commonly referred to as the “estate agent”) as well as the conveyancing attorney who have been appointed to oversee registration of the transaction.  Dealing with legitimate professionals does not only afford peace of mind, but also provides security against the risk of suffering financial losses due to theft or misappropriation of funds.

By law, both estate agents and conveyancing attorneys are required to have a valid fidelity fund certificate before they are allowed to render their services to the public. A fidelity fund certificate for estate agents is issued by the Property Practitioner’s Regulatory Authority (PPRA), while a fidelity fund certificate for conveyancing attorneys is issued by the Legal Practitioner’s Fidelity Fund (LPFF).  Although the two funds are established, regulated, and managed separately by different legislation and bodies, their main purpose is to protect the public against losses suffered at the hands of either estate agents or attorneys.

The PPRA will only consider a claim against an estate agent if:

  1. the claim relates to financial losses arising from theft of trust monies, failure of an estate agent to timeously deposit moneys received into a trust account, the failure to open a trust account or the failure to retain money in a trust account until lawfully entitled to it or instructed to pay such money to a third party;
  2. the theft or failures were committed by a property practitioner;
  3. the claimant has, within 3 months of becoming aware of the theft or failures, given written notice of the claim to the PPRA board;
  4. the claimant has, within 6 months of being requested to do so, furnished the PPRA board with the necessary proof to substantiate the claim.

The LPFF has contracted with the Legal Practitioner Indemnity Insurance Fund (LPIIF) to provide a primary layer of professional indemnity insurance to all legal practitioners in South Africa. The LPFF protects the public against indemnifiable and provable losses arising out of legal services provided by attorneys. For more information on how to submit a claim against an attorney, visit the website of the LPFF at  https://www.fidfund.co.za/claims/

So, between the seller and the buyer, whose responsibility is it to perform the due diligence and how?

The estate agent is usually appointed – and commission paid for marketing the property, by the seller.  However, the buyer can also approach an agent with the request to find a suitable property. Estate agents often hold the buyer’s deposit or part of the purchase price in their trust account and therefore both buyers and sellers have a vested interest in the legitimacy of the agent and the agency concerned. Regardless of the estate agent’s appointment, the agent, by law, has a duty of care to both parties.

One can verify the name of an estate agent and confirm whether such agent is in possession of a valid fidelity fund certificate by calling the PPRA on 087 285 3222.

Similarly, the conveyancing attorney is also required, by law, to be registered and register the firm with the Legal Practice Council and to obtain a fidelity fund certificate for all partners or directors of the firm. It is important to note that not every attorney is permitted to attend to the transfer of a property or to registration of a bond.  Only attorneys who have passed the conveyancing exam and who have been admitted by the High Court of South Africa to practice as a conveyancing attorney are legally authorised to attend to property registrations at the Deeds Office.

Although the conveyancing attorney is usually appointed by the seller, it remains the duty of both the seller and the buyer to do due diligence on the conveyancing attorney especially since the attorney will oversee all financial aspects of the transaction until the proceeds of the sale of the property are paid over to the seller once registration has taken place. Where the purchaser borrows money from a bank to finance the purchase price, or part thereof, the bank will select a conveyancing attorney (usually referred to as a “bond attorney”) from their panel of attorneys.

One may verify the name of the conveyancing attorney, and confirm whether such attorney is in possession of a valid fidelity fund certificate on the following website https://lpc.org.za/members-of-the-public/list-of-legal-practitioners/ or by calling the Legal Practice Counsel on +27 (0) 10 001 8500.

Immovable property is considered an investment and since it usually involves large sums of money, it goes without saying that proper checks on the estate agent and the conveyancing attorney are crucial to ensure that work will be carried out with great accuracy, skill, and care.  Moreover, making thorough enquiries to ensure that the estate agent and conveyancing attorney have been thoroughly vetted by their respective bodies and that they have been issued with a valid fidelity fund certificate will ensure that one has some form of recourse in the event of a loss.

What to know about a property condition before signing the agreement

Concluding an agreement for the sale or lease of immovable property can be an overwhelming experience, and one can easily overlook some of the most important clauses in the agreement. The condition of the property often becomes a contentious issue after registration of the property or conclusion of a lease, when the purchaser or lessee finally takes occupation of the property and realises that there are defects that were never identified or disclosed. The law has over the years developed a mechanism to prevent the occurrence of such incidents and to provide guidelines on how such incidents should be dealt with.

This article will focus on the following aspects:

  • The common law principle of voetstoots and its legal implications;
  • The Mandatory Disclosure Form and its legal implications, as introduced by the Property Practitioners Act No. 22 of 2019 (“the Act”) which came into operation on 1 February 2022; and
  • The core differences between the common law principle of voetstoots and the Mandatory Disclosure Form.

The voetstoots principle is usually contained as a standard clause in property sale agreements. The voetstoots clause will stipulate that the purchaser buys the property from the seller as it stands, thereby indemnifying the seller against claims for damages in respect of any defects on the property, whether patent or latent.

Patent defects are defects that are, or should reasonably be, easily identifiable upon inspection of the property (for example cracked walls, broken windows or damaged ceilings). The purchaser is expected to acquaint himself with the general condition of the property to identify patent defects before entering into a property sale agreement.

Latent defects are hidden and not discoverable through a reasonable inspection. An expert is required to identify them (for example rising damp, a faulty pool pump or geyser, rusted internal pipes or leaking roofs). Although the seller is indemnified against claims in respect of defects, he cannot rely on the voetstoots clause if he was aware of a latent defect and deliberately concealed or failed to disclose it with the intention to defraud the purchaser.

The purchaser who wants to challenge the seller’s right to rely on the voetstoots clause should allege and prove that the seller:

  • was aware of the latent defects (or its extent) when the contract was concluded;
  • deliberately concealed the defect;
  • bore a duty to disclose the defect; and
  • failed to disclose the defect with the intention to defraud.

Section 67 of the Act brought several changes which, amongst others, seek to transform and professionalise the property sector and to further ensure that members of the public are protected when they participate in property sale or lease transactions. This section aims to minimise disputes due to the condition of the property.

A property practitioner (such as an estate agent) must facilitate the completion of the Mandatory Disclosure Form.  The Act stipulates that a property practitioner is required to:

  • not accept a mandate, unless the seller or lessor of the property has provided him or her with a fully completed and signed Mandatory Disclosure Form in the prescribed form; and
  • provide a copy of the completed Mandatory Disclosure Form to a prospective purchaser or lessee who intends to make an offer for the purchase or enter into a lease agreement for the property.

The Act further stipulates that a completed Mandatory Disclosure Form, signed by all parties must be attached to any agreement for the sale or lease of a property and forms an integral part of such an agreement. However, if such a Mandatory Disclosure Form was not completed, signed, or attached, the agreement will not be null and void. It will only be interpreted as if no defects or deficiencies of the property were disclosed to the purchaser. The Act emphasises that nothing prevents the purchaser from undertaking a property inspection to confirm the state of the property before finalising the transaction. Regulation 36 to the Act provides a format that the Mandatory Disclosure Form must follow to ensure a uniform practice of detailed disclosure of information relating to the property.

The Act emphasises the compliance aspect of Section 67 by using the compelling word “must” and therefore highlighting the obligatory compliance requirements that the property practitioner is compelled to adhere to. The main purpose of this provision is to ensure consumer protection for all parties to the transaction and further avoiding unnecessary legal disputes due to non-disclosure of defects.

Further, the provisions of Section 67 are only applicable to property practitioners and does not extend to private sales. Although private sellers or lessors do not need to adhere to this requirement, as they are not regulated by the provisions of the Act based on the definition of a property practitioner in the Act, they are strongly advised to follow a similar approach, by disclosing all known defects to potential purchasers or lessees.

Certain consequences will flow from non-completion of Section 67 by a property practitioner who may be held liable by an affected consumer. In addition, the Property Practitioners Regulatory Authority may act against a property practitioner or impose an appropriate sanction, should a property practitioner fail to comply with the provisions of Section 67. If a property practitioner is found guilty of contravening the Act, a committee of inquiry may impose a fine of R15 000.

Section 67 does not repeal the common law principle of voetstoots. A purchaser still has a duty to inspect a property and identify the patent defects. This provision was implemented to enhance the principle of voetstoots by compelling the property practitioner to assist a seller and a purchaser in meeting their obligations imposed by the voetstoots principle and to minimise the legal disputes that may arise therefrom.