Law firms that employ estate agents: danger of riding two horses
MAIN IMAGE: Robert Krautkramer, director with Miltons Matsemela
May a law firm employ someone to act as an estate agent, under the guise of a law firm, instead of an estate agency?
What is an estate agent?
To answer this question, we first have to answer the question, what is an estate agent? The Estate Agency Affairs Act of 1976 (which is still the governing law, until such time as the Property Practitioner Act commences) defines an estate agent as “any person who for the acquisition of gain … holds himself out as a person who … on the instructions of … any other person … sells or purchases or publicly exhibits for sale immovable property …” or “lets or hires or publicly exhibits for hire immovable property … or negotiates in connection therewith or canvasses or undertakes or offers to canvass a lessee or lessor therefor”.
However, section 16 then states that “[E]very estate agent … excluding an estate agent [who is employed by an attorney firm] … shall apply … for a fidelity fund certificate…”. An estate agent [employed by an attorney firm] shall … apply to the board for a registration certificate …”
So yes. A law firm may employ estate agents to trade as such and they will then fall under the attorney firm’s FFC – but – they must still register as estate agents with the Estate Agency Affairs Board (EAAB) and they will then be subject to their Code of Conduct and the regulations under the Act.
Unbiased advice a potential problem?
The question which arises along with this, is whether, and at what point, the attorneys in charge of such “divisions” become guilty of unprofessional conduct due to “touting”; “soliciting” or “buying of work”. One must remember that in order to practise as an attorney, you have to be a “fit and proper person”. This means you must possess, amongst many other honourable traits, objectivity. This means, the ability to advise; guide and counsel, without any undue influence – is that not what you pay an attorney for, after all? Unbiased advice.
Recently we saw the advent of the Legal Practice Act which replaced the Attorneys Act, which, like its predecessor, seeks to enhance ethical conduct of attorneys. And here is where it becomes potentially problematic for any attorney firm, which seeks to ride two horses – one as a conveyancing practise, and one, whereby it employs people to go out there, and trade as estate agents.
The reason we say this as because section 18 of the Code of Conduct that now regulates attorneys, provides that “[a]n attorney will be regarded as being guilty of touting for professional work if he or she either personally or through the agency of another, procures or seeks to procure, or solicits for, professional work in an improper or unprofessional manner or by unfair or unethical means”, and this includes “the payment of money, or the offering of any financial reward or other inducement of any kind whatsoever, directly or indirectly, to any person in return for the referral of professional work; or directly or indirectly participating in an arrangement or scheme of operation resulting in, or calculated to result in, the attorney’s securing professional work solicited by a third party.” The primary reason why attorneys should never “pay” someone to secure work (let’s called it what it is – a bribe) is because the attorney can then never act objectively.
So, now we ask the burning question – Why would a law firm employ people to act as estate agents? Purely to share in commission, or to try and get the transfer as well? Obviously, both. And this is where the problem arises: The Code of Conduct for estate agents (section 7) clearly states that no agent may recommend an attorney without good and sufficient cause. What does that mean? It can only mean one thing – because the firm gives great service. It cannot possibly include undue influence; higher rate of commission split; bonuses and the like. And let no one tell me, that these attorneys do not exercise undue influence! Of course they do, that’s why they employ agents. To get the transfers as well. And right there, the attorney breaks the law.
Property Practitioner Act
As a final point, the Property Practitioner Act also now covers this issue. Even though it has not yet commenced, it has been signed into law. Soon enough, a property practitioner will be barred (by law and in express terms under section 58 of the Act) from entering into any arrangement with an attorney whereby a consumer is encouraged to use that attorney’s services. This means any arrangement and obviously includes any financial incentive. And if you are found to have breached this section you are not entitled to commission.
As a final point of departure, the current draft regulations of the new Property Practitioner Act, also prohibits an attorney from providing conveyancing services where the deal was brokered by a property practitioner in which such attorney or any member of such attorney’s practice or any person related to such attorney or to a member of an attorney’s practice has an interest, at all. So, if the attorney employs an agent, he won’t be allowed to accept the transfer instruction.
It is abundantly clear that there is a concerted effort by the legislator to ensure, that attorneys should be attorneys, and estate agents should be estate agents. When the two mix, the potential for undue influence is quite obvious. It potentially offends the most important facet of being an attorney – objectivity. Can you imagine the chaos if a seller, who was encouraged to appoint “SMITH INC”, solely because the agent is employed by them, wants to refuse commission because of a dispute? Who is the attorney going to look after? And this is the risk the law tries to guard against – it seeks to protect the consumer.
In closing, one must remember that a conveyancer’s first loyalty should lie to the seller, being the person who instructs him to do the transfer after all. The only reason a conveyancer should ever be recommended, is because of good service. Nothing, and absolutely nothing, else should be allowed to influence the agent.
About the author: Robert Krautkramer has been a partner at Miltons Matsemela Inc since 2011, a boutique law firm that focusses almost exclusively on property law. He has 23 years’ experience all in all as an admitted attorney and regularly presents seminars to estate agents on contract law; the Estate Agent’s Code of Conduct and new relevant legislation, such as the PPA; the Expropriation Bill; and FICA.