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Disclosure certificates and voetstoots clauses

Estate agents and attorneys who negotiate property sales are bound by the Consumer Protection Act in terms of their services. Does this mean that they are obliged to use disclosure certificates where their sellers disclose the condition of their properties, confirm whether they are in possession of plans for their buildings, and whether these actually comply with the approved plans? John Gilchrist, director of Property Law Publications, explains further in this second article in his series on the Consumer Protection Act.

Disclosure certificates are not mandatory

Although the Estate Agency Affairs Board (EAAB) has advised all agencies that disclosure certificates must now be obtained from sellers at the time an offer to purchase is accepted, this is going beyond the provisions of the Act, what is called ultra vires – beyond the power of the law. Only sellers who qualify as suppliers (who are selling or letting properties in the normal course of their businesses) are affected by the Act and must disclose all known defects to their buyers and any other prejudicial factors of which they may be aware.

The EAAB is actually assuming authority over property sellers when it obliges agents to get disclosure certificates from them. It is effectively binding normal sellers to the practice. The Board has no prescriptive powers or jurisdiction over property sellers and if a seller unaffected by the Act refuses to furnish such a certificate, the agent cannot be obliged to get one from him.

Are voetstoots clauses now irrelevant or illegal?

In the February 2011 issue of its magazine Agent the Board said that ‘Óne of the biggest changes the Act brings to the property sales sector is the stipulation that voetstoots 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.’ It went on to say: ‘Ánother possible blow to especially the smaller real 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.’ These statements have been very misleading and the industry is being negatively affected by uncertainty in this area even today.

Only sellers selling properties in the normal course of their businesses, such as developers, are bound by the Act. This applies to all new buildings constructed on properties by developers (not a new building put up by a single property owner). Even in such cases a buyer does not enjoy the draconian rights to cancel its sale at the seller’s expense as the article states. The developer (or other qualifying supplier) is entitled to rectify the defects once these have been brought to his attention. In all cases where the seller does not qualify as a supplier in terms of the Act (and this means the overwhelming majority of normal property sales) the voetstoots clause must be included in the sale agreement to protect the seller against claims for patent defects, etc, and will remain as applicable as it was before the Act came into being.

Should disclosure certificates nonetheless still be obtained?

Many estate agencies are, in any event, opting to employ disclosure certificates in all their sales where sellers are willing to sign them. Should this not be recommended in all cases? It helps to get sellers to repair undisclosed latent defects, obtain house plans (which buyers often request these days), and rectify them where necessary. There is a lot to be said for this practice – it is standard throughout the real estate industry in America – but the choice presently remains with agencies and their sellers in each instance. Some certificates agencies are using go too far and are prejudicial to their sellers, and all agencies are recommended to use only those certificates that cover essential issues that are known to negatively affect sales where such certificates have not been obtained.

This is the second article by John Gilchrist in a series of four on the Consumer Protection Act. In case you missed it, here is the first one, ‘Who are suppliers under the CPA?’.

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