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Liability: Prevention is Better than Cure

Liability insurance is a necessity for workers in the property industry. Still, the adage that prevention is better than cure holds true. By hiring the right people and training them carefully, you can protect yourself against the sorts of mistakes and misunderstandings that could result in legal proceedings.


The 10 most common claims made against real estate agents are:

1. fraud

2. breach of duty

3. breach of contract

4. negligence

5. property damage

6. misrepresentation

7. Consumer Protection Act

8. escrow money disputes

9. misrepresentation regarding flooding and leaks

10. misrepresentation regarding the value of the property.


Says Jan Davel, MD of RealNet Property Group: “The biggest risk is that disgruntled purchasers or tenants could use the Consumer Protection Act (CPA) and/or its forums to hold an agent liable for any damages or defects, rather than the seller or the landlord of the property. In the appropriate circumstances – probably 95% of the time – neither of the parties to the real estate contract have any liability in terms of the CPA. For example, the purchaser is the consumer or the protected party, while the seller is not by definition a supplier but the estate agent’s consumer in terms of the mandate.

“On the other hand, the estate agent will always meet the definition of a ‘supplier’ for purposes of the CPA and so can be held liable for services rendered and advice given to both parties, while the parties themselves are protected. It can be very difficult and confusing to determine whether the CPA applies. For example, the doctrine of latent and patent defects still applies in cases where the CPA does not apply, but most agents haven’t got a clue when what applies. From the consumers’ point of view, one must remember that the EAAB Fidelity Fund only covers them against fraud and theft (dishonesty in the agency). Errors in regard to defects, yields, safety, zoning rights and servitudes are not covered, so they will naturally look to recover any damages they have suffered in a different way. That is why agents and agencies need professional liability insurance. But there is still the danger that if the insurance company can prove negligence rather than genuine error by the agent, it will repudiate the claim.”

What can you, as an estate agent / agency, do to combat this and ensure that you are covered? Davel advises: “We make sure we understand the CPA and CPA-compliant documentation that contains the necessary acknowledgements by the parties. We also use contracts (mandates, offers to purchase, property condition reports) that are not aimed at pleasing either one of the parties, but rather at protecting the estate agency and the agent. The bottom line for agents is: join a reputable real estate franchisor that provides the necessary training and documentation. Prevention is always better than cure. Agents must get their houses in order and avoid the possibility of a claim. They need to remember that CPA complaint mechanisms are free and easy and that once a complaint has been lodged, they will have to respond. In other words, at that stage it will be too late.”

Brand damage is always a real concern when complaints from the public are at play. This is where training and the employment process are crucial. When looking for staff, it is imperative to check and double-check their references and track records. Each person who is employed by the company and who deals with members of the public is the face of your business, and they are the people who can cost your brand and company the most.

Says Berry Everitt, MD of Chas Everitt International Property Group: “We have professional indemnity insurance in addition to the Fidelity Fund coverage provided by the EAAB. We provide ongoing training for our agents and franchisees, working with experts and professionals to ensure that the consumer-centric culture of our business is reinforced at all levels and that everyone’s actions are aligned with our core values. My advice is to listen very carefully and make sure that everything is clearly recorded and documented, especially when it comes to defect disclosure by property sellers.”

Richard Gray, CEO of Harcourts Real Estate agrees: “Our agents are highly trained and regularly reminded of their obligations. Good estate agencies have plenty of checks and balances built into their processes. These include segregation of duties and strong administration.

“Know your obligations,” Gray urges. “You are integral to one of the biggest financial transactions that people make in their lives, and you are obliged to ensure that you give the best advice and professional service you can. Always work with a good conveyancer who can advise the buyers and sellers on the more complex aspects of the transaction.”

Annette Evans is regional general manager at IEASA Western Cape. She says: “It is imperative that the practitioner representing the client ensures that they are well-versed in the legal implications of representing the client in any potential property transaction, be it a sale or a purchase. They need not be a lawyer, but they must have access to sound legal advice. The contract covering the pending transaction needs to balance the rights and obligations of both parties, buyer and seller. That, coupled by a full disclosure form on which the seller discloses all known defects of the property.

“Practical experience in the industry, learnt from its faults and frailties, will be a good guide at all times for any potential buyer/seller. Above all, a good, solid, ethical and well-trained realtor is key to any successful transaction. Based on all the calls I receive from the members of the public, I would stress that buyers need to be made aware of the costs it takes to transact, including the transfer duty, bond registration fees and attorney conveyancing costs. Time needs to be spent with clients, especially those who are not familiar with the processes involved, such as first-time homeowners.”

Andrew Golding, CEO of Pam Golding Property Group (PGP), has a full plan in place to mitigate the risks of liability, including complying with the regulatory requirements affecting the property industry. But it’s their training and agent assistance that work effectively against liability. Says Golding: “We have a dedicated training academy that keeps abreast of the applicable training standards and professional qualifications required by agents and which ensures that our agents receive the necessary training and updates to enable them to do their jobs within the applicable regulatory framework. We also have a dedicated in-house legal and compliance function to assist the business in this process.

“The PGP Group exco monitors business risks and identifies appropriate strategies to manage, mitigate and / or minimise relevant risks. The most effective protection against legal disputes arising and misconduct claims being lodged against estate agents is to ensure that our agent force carries out their responsibilities in full compliance with the regulatory requirements and our own internal policies and values so that we have satisfied clients at the end of the transaction process. In the case of our franchisees, they are contractually required to also adhere strictly to the regulatory framework in every aspect of running their businesses and are governed by terms and conditions that require them to deliver a professional service to their clients that upholds the PGP brand values and reputation. Where disputes arise, as they inevitably do, despite the best efforts of the agent, and where it is appropriate to do so, we get involved as early as possible with the objective of assisting in resolving disputes in the best interests of all concerned.”

Says Rebosa CE Jan le Roux: “Liability insurance is essential, as is adequate training. The real safeguard, though, is employing the right people. Principals are advised to clamp down on the smallest indication of unethical or unprofessional behaviour. Insurance will cover one legally but will never undo the damage to one’s brand.”


The IEASA’s 10 Steps to Avoiding Liability

1: Make absolutely certain that the person signing as seller is in fact the lawful owner or has the required consent if acting for a CC/PTY/trust/deceased estate and so on. Do a WinDeed / CMA search or get a copy of the title deed.

2: When taking a mandate from a CC/PTY, make sure that it has not been deregistered, because as long as it is deregistered it no longer exists – all its assets belong to the State and it cannot trade. Any agreements of sale concluded by members acting on behalf of deregistered entities are void.

3: Always obtain a copy of the conduct and management rules of a sectional scheme or constitution if the property falls within a homeowners’ association (HOA). Ensure that the buyer has had a chance to study it and make sure that in the offer it is recorded that the buyer has read it or has had a chance to read it. It is your duty to draw the attention of the buyer to the existence of these documents because not all buyers are aware of the implications of buying into an HOA or sectional scheme.

4: Always obtain the latest financial statements of a body corporate and make these available to the buyer, as it should form part of the buyer’s education.

5: In the case of a body corporate, always ask the seller whether any special levies have been discussed in any recent trustee meetings or AGMs. If the possibility of a special levy has been raised, this must be disclosed to any potential buyers. Failure to do this could be seen as a latent defect should a special levy be passed after transfer.

6: Whatever handwritten additions or changes are made must be initialled and perfectly legible and convey the exact intention of the parties. Do not use half sentences, as these can be ambiguous. Look out for contradictions. And if the sale is subject to a buyer selling first, check the guarantee clause and manner of payment. Can the buyer set a guarantee within 14 days of demand, for example, if he must first sell his house?

7: If an irrevocable offer that expires at a certain time and date is made, make sure that when the seller receives it, he initials in the margin next to this clause and adds the words, “I accept this benefit”, and then send that page as proof of acceptance of the benefit, to the buyer. Once this is done, the offer is truly irrevocable. If you don’t do this, you are taking the chance that a court may hold that it is not actually irrevocable. In South Africa we have two decisions that conflict 180-degrees with one another on this topic and on whether one needs to do this to make it truly irrevocable. Rather err on the side of caution and follow the stricter judgment.

8: Never answer a question about the property unless you are 100% certain of the answer, namely, interpretation of title deed conditions; whether improvements are in accordance with plans; whether one could get business rights and so on. The code of conduct prohibits any negligent or intentional misrepresentations, so be careful of this. As agent for the seller, you are his spokesperson and your mistaken representation could be negligent and result in damages claims.

9: Do a Fica check on your seller when you take a mandate and on your buyer when an offer is accepted. Do not rely on the attorney to send you the Fica documents – this is illegal and can result in a fine that runs into the millions of rand.

10: If it is agreed that the buyer will pay commission, warn the buyer that transfer duty will have to be added to that because it forms part of the purchase price.

(Source: Institute of Estate Agents of South Africa)


Words: Angelique Redmond


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