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Leases, Property Sales And The Cpa
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It’s some time since the Consumer Protection Act was introduced and yet there are still differences of opinion about how it should be interpreted. Recently in our region some roleplayers in the industry have been supplying basic lease and property sale contracts which treat all tenants and buyers as consumers who have all the protections afforded under the Act. There are very few High Court decisions interpreting the Act thusfar, but some of its provisions are very clear and any judgment deciding to the contrary would be erroneous.

Two misconceptions have been created. Firstly, that if the landlord earns a taxable income from any source (through employment or running his own business), the letting of any property he may own also becomes part of his normal business enterprise because his rental income is also taxable. Secondly, if he engages an estate agent or letting agency, he falls under the definition of a supplier because all agents qualify as suppliers under the Act and are accountable to their tenants and buyers for the condition of the property, etc.

In my view, and I am supported in this by virtually all attorneys who have expressed their understanding of the new law, both these approaches are inherently wrong. They afford the rights of consumers to their tenants and buyers when it was never the intention of the Act to apply its provisions to leases and sales not concluded in the normal course of a supplier’s business. In the same way the Supreme Court of Appeal erred many years ago in applying the provisions of the Prevention of Illegal Eviction Act (the PIE Act) to normal landlord and tenant contracts. The Court failed to consider the obvious, namely that the Rental Housing Act, introduced virtually simultaneously with the PIE Act, was intended to be the standard legislation covering lease contracts while the latter was designed to cover different issues.

In the same way another recent SCA case decided that the law obliging municipalities to issue clearance certificates once the past two year’s rates had been paid, did not deprive them of the right to still recover any further arrears owing beyond that period from either the original owner or the new owner. Once again the obvious was overlooked – the provisions of the Municipal Systems Act were designed to penalise negligent municipalities which failed to recover long outstanding rates and not to privilege them.

Any decision from the SCA or any other court, which decided that the provisions of the CPA cover all ordinary sales and leases, would be equally erroneous and contrary to the original intentions of the law. These decisions appear to be slanted in favour of the ‘have-nots’ and are not consistent with the more specific intentions of the relevant Acts.

To go back to the two points raised, agents need to know the following. Firstly, the definition of a ‘consumer’ in the CPA is someone who enters into a transaction ‘with a supplier in the ordinary course of the supplier’s business’. This can only be interpreted to mean, in the case of the real estate industry, that the landlord or property owner must be letting or selling properties as part of his normal business. To be in the ordinary course of his business (not exceptional to it), it must be a part of his actual enterprise. Whether he is a taxpayer or not is irrelevant. No employee is conducting an enterprise in the normal course of business (he is working for someone else) and that he pays taxes on his salary does not change the picture. Only landlords and property owners who lease and sell properties as part of a principal means of earning ongoing and regular income (that’s crucial to any definition of a ‘business’, especially the ordinary course of it) fall under the definition of a supplier.

Secondly, a letting or estate agent is only a supplier in terms of his services. The CPA clearly distinguishes between goods and services and agents (and conveyancers) only qualify as suppliers in terms of the latter. The landlord or seller provides the ‘goods’ (the actual property) and just because he engages an agent doesn’t mean he now becomes responsible as a supplier for the quality of the goods he supplies, thereby negating a voetstoots clause. It is important to remember this distinction. Only sellers who qualify as suppliers (those who invest in and sell properties as part of their ongoing principal source of income) are obliged to supply disclosure lists of all known defects for each property.

Agents who include provisions in leases giving tenants 20 business days to cancel leases at any time, or who oblige sellers to furnish disclosure certificates, are failing in their responsibilities to their clients and are severely prejudicing their rights and interests. They are bringing them within all the obligations of the CPA unfairly and unlawfully. All letting and selling agents are advised to check out their clients (landlords and sellers) carefully and to seek legal advice if they are uncertain as to their status under the Act. They are strongly advised against turning them into suppliers (and their tenants and buyers into consumers with all their attendant rights) when they do not qualify as suppliers under the Act.

Many sellers with terms sale contracts have also been wrongly advised to become registered credit providers when there were other options open to them in drawing the sale contract which would have lawfully exempted them under the NCA (National Credit Act). Your sellers and landlords are your clients and it is your duty to protect them in these instances.

John Gilchrist
11th September 2013

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