It has come to the IEASA Board’s attention that certain malpractices are taking place between some Home Owner Associations (HOA) and Agents across South Africa and the purpose of this newsletter is to notify those members that any form of involvement can or could lead to disciplinary action from the Estate Agents Affairs Board (EAAB).
The said malpractices pertains to agents paying accreditation fees to HOA’s in return for marketing exclusivity, to the detriment of home owners and other agents who as a result are excluded from marketing in these areas.
Another malpractice is where HOA’s are asking a percentage of the agent’s commission or a levy from an owner who has used a non-accredited estate agent, once a sale in an estate is concluded. This is against the law, as HOA’s are not in possession of a valid Fidelity Fund Certificate from the EAAB, therefore not able to share in the commission of a sale in the security estate.
Members / agents /agencies involved with the said malpractices are at risk to have extreme penalties / fines or resulting legal action, imposed by one or more of the EAAB, CPA Tribunal or the Competitions Board and are urged to refrain from any involvement or further involvement from such actions.
An opinion was provided by Johan Muller, Director – Snyman de Jager Inc, explaining the permutations, furnished herewith to our members:
OPINION
The requirement of Accreditation of Estate Agents with Home Owners
Associations in gated areas
(Drafted by Johan Muller, Director Snyman de Jager Inc)
Background
In step with the development of numerous security estates in recent years and the need to regulate and manage the communal areas situated in such estates, Home Owners Associations (HOA) (normally functioning as a Section 21 Company under the previous Companies Act 61 of 1973 or Non-Profit Companies under the New Companies Act 71 of 2008) play an increasingly dominant role in the residential domain.
Notwithstanding their importance and with exception of the aforementioned, they do not enjoy any direct statutory recognition and their conduct is not regulated by any statutory body.
On inception of a HOA a set of rules are adopted prescribing the rules and regulations in terms of which each and every purchaser and registered owner will subject itself to the Management of the Estate and which management function is performed by the HOA and Board of Directors to whom these management functions and responsibilities are delegated.
Although most of the rules and regulations are contained in written form and approved by the prescribed majority of members at Annual General Meetings held by the HOA, many of the functions and actions taken by the Board of Directors exceed the mandate provided to them and the HOA and its members.
One of these practices are the appointment of “accredited” estate agents who may work in estates together with the prescriptions and requirements that estate agents have to subject themselves to, should they wish to apply for accreditation. The aforementioned accreditation process normally coincides with the payment of accreditation fees payable on an annual basis by the accredited estate agent once his application for accreditation has been approved.
Although the aforementioned practice has been introduced in the past for seemingly honourable reasons (such as a threat of breach of security or uniformity), the practice has in certain circumstances escalated in numerous malpractices by HOA’s and its members and even other estate agents in fear of allowing further competition in the area which malpractices include but are not limited to the following:
- Sellers (as members of the HOA) are required to utilize the services of the accredited estate agents instead of an estate agent of his choice with whom he may have a longstanding relationship of trust;
- HOA’s refuse to accredit estate agents of the seller’s choice on application without providing sound reasons for such refusals or providing frivolous reasons;
- HOA’s refuse access to estate agents into estates based on a separate set of rules which are not applicable to other service providers such as garden services, contractors, plumbers, electricians and the like;
- Large amounts of accreditation fees, and in certain instances even a percentage of their commission, is required as an annual accreditation fee or payment in return for the right to operate in the estates which fees are not always justifiable or representative of the value they receive from the HOA in return;
- The accreditation fees are levied by the HOA’s against estate agents as service providers whilst no other service providers are required to pay such fees in return for operation in the estates, such as the other service providers aforementioned;
- HOA’s refuse access to estate agents as service providers to valuate or source properties in estates in execution of buyers mandates;
- Pressure groups consisting of accredited estate agents within estates regulate the accreditation of outside estate agents creating an unfair monopoly, to name but a few;
Law Applicable
In the light of the aforementioned and the fact that the initial regulation of service providers and amongst others, estate agents, has created an unfair advantage to certain groups, to the disadvantage of others, and even an inequality amongst members of the same groups of service providers, it is necessary to take cognisance of existing legislation that HOA’s and their members are possibly transgressing by means of their current activities.
Consumer Protection Act 68 of 2008 (CPA)
With reference to the definition of a supplier in terms of the aforementioned Act, it defines “supplier” as meaning a person who markets any goods or services. The word “supply” with reference to services means to sell the service, or to perform or cause them to be performed or provided, or to grant access to any premises, event, activity or facility in the ordinary course of business for consideration.
In the light of the aforementioned definition the thought should be entertained that this is exactly the function that the HOA performs as it owns and maintains common property, in certain instances, and provides security services at access points and generally regulate the conduct of members owning properties within the security estate for the mutual benefit of all.
The benefits of all these activities are offered to members and are received in exchange for payment of money, being a monthly levy. It is therefore my view that the HOA is accordingly a supplier and each member of the HOA is a consumer.
Section 8 of the CPA
Protection against discriminatory marketing:
A supplier of goods or services must not unfairly:
8(1)(a) exclude any person or category of persons from accessing any goods or services offered by the supplier;
8(1)(b) grant any person or category of persons exclusive access to any goods or services offered by the supplier;
8(1)(e) charge different prices for any goods or services to any person or category of persons;
8(1)(g) exclude a particular community, district, population or market segment from the supply of any goods or services
Where the regulation of the accreditation of estate agents in security estates are not justified as prescribed in Section 13 of the CPA and applications for accreditation are refused or declined for frivolous or no reasons at all, such actions and practices will be a contravention of the aforementioned Section.
Section 13 of the CPA
Consumer’s right to select suppliers
(1) A supplier must not require, as a condition of offering to supply or supplying any goods or services, or as a condition of entering into an agreement of transaction, that the consumer must –
(a) Purchase any other particular goods or services from that supplier;
(b) Enter into an additional agreement or transaction with the same supplier or a designated third party; or
(c) Agree to purchase any particular goods or services from a designated third party,
unless the supplier –
(i) Can show that the convenience to the consumer in having those goods or services bundled outweighs the limitation of the consumer’s right to choose;
(ii) Can show that the bundling of those goods or services results in economic benefit for the consumers; or
(iii) Offers bundled goods or services separately and at individual prices.
It can be argued that the prescription by the HOA to the owner of property in the estate that he may only deal with certain estate agents or suppliers is an infringement of his basic right contained in the aforementioned Section of the CPA.
It has been debated that HOA’s are institutions that regulate private affairs and they should therefore be regulated by the Private Law and should not be subject to rules of natural justice however as previously stated almost all of these HOA’s are incorporated as previously known Section 21 Companies or Non-Profit Companies in terms of the previous or new Companies Act and are classified as being public companies. These companies are further incorporated for a public benefit or other object as required by Item 1(1) of Schedule 1 of the Companies Act 71 of 2008.
In the light of the aforementioned and the conclusion that the Public Law most probably applies to HOA’s the case could be made out that the requiring of an accreditation fee that is designed to keep certain estate agents away or to reserve a form of exclusivity, could be an unlawful administrative action.
Constitution
Section 22 of the Constitution of South Africa, Act 108 of 1996 provides “every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by Law.”
Although the horizontal applicability of the Constitution between citizens per se has been an issue of contention for quite some time, the case of D & E Trading (Pty) Ltd / Hilton Village Centre CC Case Number 1342/2013 Kwazulu Natal High Court, suggests that it does by stating “to interpret Section 22 to be of such a nature as not to be inapplicable to natural and juristic persons, would amount to declaring private contracts to be no-go zones for Constitutional scrutiny. Post-apartheid, very little of public and private lives escape scrutiny.”
If accepted that the Constitution as aforementioned finds applicability it is necessary to refer to further case law for example Barkhuizen v Napier 2007(5)SA 323(CC) where the Judge commented as follows :
“thus a term in a contract that is inimical to the values enshrined in our Constitution is contrary to public policy and is therefore unenforceable.”
Although the aforementioned leaves space for the doctrine of pacta sunt servanda est (contracts entered into should be enforced) and the argument that a home owner who purchased a property in an estate consented to the rules and regulations to be enforced by the HOA, it at the same time allows courts to decline to enforce contractual terms that are in conflict with the Constitutional values, even though parties may have consented to them.
Some may further argue that the fact that a trade, occupation or profession may be regulated by law, is already in tact in that an estate agent is regulated by the Estate Agency Affairs Act 112 of 1976 and is further subjected to the Estate Agency Affairs Board Code of Conduct. An estate agent is further required to qualify himself in accordance with the standards prescribed by the Estate Agency Affairs Board from time to time (NQF 4 & 5) and once he has complied with all these prerequisites and is in position of a fidelity fund certificate, he is adequately qualified to practice his/her profession in any area without restriction.
The fact that HOA’s subject estate agents to a different set of requirements than those governed by law are seriously frowned upon.
Competitions Act 89 of 1998
The Competition’s Act prohibits practices which have a negative influence on competition and in terms of Sections 4 & 5 prohibits the following:
An agreement between, or concerted practice by firms or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if-
a) It has effect of substantially preventing or lessening competition in a market, unless a party to the agreement concerted practice, or decision can prove that any technological efficiency or other pro-competitive, gain resulting from it outweighs that effect; or
b) It involves any of the following restrictive horizontal practices:
(i) Directly or indirectly fixing a purchase or selling price or any other trading condition;
(ii) Dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or
(iii) Collusive tendering
If the actions of HOA’s and certain estate agent groups in restricting accreditation of estate agents cannot be justified as required in the Act and could be proven that their actions substantially prevent competition in the market and amount to “collusive tendering”, which I am of the opinion is the case in many instances, it will be a contravention of the Act which justifies investigation by the Competition Commission, who have their own investigation powers and can impose large penalties on parties contravening the Act (in 2007 Tiger Brands was fined R98,8 million rand by the South African Competition Commission for colluding with other bread producers to raise the price of bread between 30 and 35 cents per loaf).
Gated Communities and Road Closures
Many security areas have been established by way of road closures or boomed-off areas in existing township establishments which security points and guarded entrances are equally regulated and managed by a HOA, established during the road closure procedure.
In some of the aforementioned instances estate agents are equally required to subject themselves to an accreditation procedure to enable them to work in these areas and are denied access to these areas if not accredited with the HOA.
When areas are “boomed-off” by way of the required procedure and such closure does not require alteration or amendment of the general plan of an approved township, the rights of ownership on the land comprising such public street shall still vest in the Local Authority.
It is further interesting to note that Section 19(1)(b) of the Natal Local Authorities Ordinance 25 of 1974 affirms that a street is a public street if it is owned by the Local Authority in whose area of jurisdiction the street is situated and is further a public street if a Local Authority has the responsibility to maintain such a street.
Although the Memorandum of Incorporation and Articles of Association of the Section 21 Company or Non Profit Company (under which the HOA is created) constitutes an agreement between the Company and its members (the registered owner). The intention (as confirmed by Judge Bertelsman in the unreported case of City of Tshwane vs Woodhill Home Owners Association) is that the access to security Estates should be regulated by way of access control rather than restricting access completely.
The aforementioned intention is further in line with the Rationalisation of Local Government Affairs Act 10 of 1998 which provides for the creation of so-called “gated communities” where the concept of control versus complete restriction of access is discussed.
The conclusion is therefore that if a security estate amongst other amenities consist of public roads, access to those roads should be granted to any member of the public and that HOA’s can merely exercise access control in these instances and not restrict access completely.
Conclusion
Although many of the aforementioned aspects of this opinion and its applicability will have to be tried and tested in a relevant Court with Jurisdiction, it is my opinion that HOA’s and its members who subject estate agents to rules of accreditation and levy exorbitant and unjustifiable accreditation fees and have a different set of requirements for different categories for service providers are treading on dangerous terrain and are transgressing existing statutory legislation in more ways than one, which might end in the liability of HOA’s to the detriment of its members.
JE MULLER
DIRECTOR
SNYMAN DE JAGER INCORPORATED
BLC, LLB, LLM (CORPORATE LAW)
Enquiries may be directed to IEASA via email and provision will be made to liaise with either Legal Advisors, own Board members and / or the EAAB in a structured meeting for affected members. Also please feel free to report these malpractices via email to IEASA for attention Vice-Chair responsible for the HOA affairs – [email protected] .
Best regards,
Dereck du Toit
IEASA North Ethical Director