Consumer Protection Act - New Laws Clamp Down On Sellers

Property developers and real estate agents have little over two months to get used to dramatic changes South Africa's new Consumer Protection Act will bring to the property industry. Starting at end March, developers will be bound to watertight contracts, and real estate agencies can face hefty fines for using ambiguous terms such as "cosy" and "immaculate" in their advertising. The maximum penalties for transgressions prescribed by the Act should serve as a huge deterrent to sellers marketing or selling property of shoddy quality, although it serves to protect buyers, its requirements will be tough transition for unscrupulous developers and estate agents.

The Act will protect house buyers in a similar way to other consumes and at first glance looks very much like a wish list from any homowner who has ever had to deal with builders. One of the biggest changes the Act brings to the property sales sector is the stipulation the 'voetstoot' clauses that breach a consumer's right to property which is fit for its  purpose and in good working order are prohibited by the Act. If the transaction results from direct marketing the consumer is also entitled to a cooling-off period of five days after the property has been registered at the Deeds Office. Property buyers will be able to cancel such a contract without penalty and without giving a reason.

The CPA may have some expensive surprises for real-estate agents and developers. Starting at the end of March, developers will be bound to watertight contracts and estate agencies can face hefty fines for using ambiguous terms like 'cosy, and imaculate' in advertising.

Another possible blow to especially the smaller estate agencies is the stipulation that if a property is of inferior quality or there are major defects, such as broken plumbing, the buyer has the right for six months after transfer to return the property to the seller without penalty and at the seller's expense and risk. Banks will also need to be more critical of what developers deem will be their "bankable sales" when they look at their risk, as buyers have the right to cancel a sale agreement and return the property to the seller.

Estate agents will no longer be able to insert a clause that has the effect that the buyer forfeits his deposit if the sale is cancelled for any reason outside his control. If the deed of sale doesn't specify the buyer is liable for the costs, the risk of transfer takes place at the seller's cost and risk. The buyer has the right to cancel the agreement without penalty if the seller's conveyancer tenders transfer at a different time (either earlier or later), than specified in the deed of sale. An individual who buys a property "off plan" may at anytime cancel the transaction. The developer may charge a reasonable cancellation fee. Off plan properties and designs need to conform exactly to their show houses or specifications as presented to buyers. A property may not be displayed without a buying price, whether on the "for Sale" sign or in the estate agency's brochure.

Business owners are also going to have to adopt a more responsible approach to marketing their businesses when the New Consumer Protection Act (CPA) comes into effect this year. While technology such as bulk email, SMS and affiliate marketing make it easier for small businesses to compete with bigger players, this has also led to abuse which, the CPA aims to curb.

To ensure customers opt into communications and then stay opted in, companies will have to come up with creative ways to provide value to consumers and engage with them in a real conversation. Those already using SMS marketing will need to ensure that their customer communications systems are in order, or risk not being able to contact a customer legally. Affiliate marketing, which sees third party agents acting as sales and lead generators are also likely to come under increasing scrutiny. The quest for increased numbers of leads, however, has led to agents misleading would-be clients about who they represent. Under the CPA, agents will need to clearly indicate who the leads are being generated for and what will be done with that information, especially on email lists.

Marketers who spoke to Fin24 said that one of their chief gripes was the concept of what constituted an 'optin'? In South Africa the approach appeared to be that an email address could be added to a list and it is the consumer's responsibility to opt out if he/she so wishes.

Real estate owners and developers should brush up on their understanding of the act. At this stage the act has not been interpreted or tested by a court, so it is unclear how it will be interpreted.

Source: Marc Ashton; Leani Wessels

Courtesy: Agent – The Official Publication of the Estate Agency Affairs Board

“Redressing the Past, Building the Future and Guiding the Real Estate Business towards Professionalism”

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