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Developers selling property should also register for FFCs

MAIN IMAGE: Maryna Botha of STBB

Staff Writer

Earlier this year, role players in the real estate industry were caught by surprise when it became apparent that the Property Practitioners Act, which became operational on 1 February 2022, goes further than only regulating estate agents’ practice, as the repealed Estate Agency Affairs Act had done. In fact, the Act brings developers, mortgage originators, managing agents and business brokers, amongst others, under its auspices too.

According to Maryna Botha of STBB, if a business or practitioner falls within the definition of a “property practitioner,” various provisions of the Act must be complied with.

“One such obligation, and due by 31 October this year, is the requirement to apply to the Property Practitioners Regulatory Authority (PPRA) for a Fidelity Fund Certificate (FFC). It is therefore particularly important for developers to make sure what their obligations are under this Act.

“There are three different subsections in the definition that may impact on developers. These are, summarised:

  1. Where the developer (i) holds itself out as a business that, (ii) for gain and (iii) on the instruction of or on behalf of another, sells, purchases or markets property.

(It excludes a developer that employs an estate agent to perform these tasks for it.)  If the developer falls within this category, then:

  • The entity/business must obtain a FFC
  • Its directors/members/trustees (in the case of a developer company/close corporation or trust) must each obtain a FFC. Non-executive directors or directors who have other expertise, e.g., finance, or directors who are not directly concerned with the management or oversight of individual property practitioners within the business, are exempted from the requirement that they should hold a FFC
  • The business’ manager, supervisor, or person in control the day-to-day business operations must have a FFC, and
  • Employees of the developer who perform these functions must hold FFCs. For example, any sales agents who are employed, mandated, or appointed by the developer to market and sell the units in a development, are property practitioners and must have FFCs. An employee who does not directly carry out any activity or function of a property practitioner need not hold a FFC.

Many developer entities will fall outside this category of property practitioner, as they do not act on behalf of another when selling and marketing their own property for sale.

  1. Where the developer sells or markets a part, unit, or section in a property development.

If the developer falls within this definition of a property practitioner, then:

  • Employees who perform functions of property practitioners must obtain FFCs. Any sales agents who are employed, mandated, or appointed by the developer to market and sell the units in a development are property practitioners and must hold FFCs. An employee who does not directly carry out any activity or function of a property practitioner need not register or hold a FFC.
  • A manager, supervisor, or person in control the day-to-day business operations of the developer who falls within this definition, must have a FFC.
  • Directors/members/trustees of the developer (as company, close corporation, or trust) are not required to hold FFCs; however, it appears that they will have to apply for an exemption to this effect.
  1. When a developer manages property

A developer will further be considered to function as a property practitioner if it manages property (i) on behalf of another and (ii) for gain.

Accordingly, the developer that acts as property manager – if performed on behalf of a third party for gain – as well as the staff that perform these functions, must comply with the Act.

Applications

The developer that falls within the definition as described above (and directors/members/trustees and staff, as may be applicable) must, every 3 years, apply to the Authority for a FFC and make payment of the prescribed fees. Such certificate will be valid until 31 December of the year to which it relates. All property practitioners must, upon request from any relevant party, produce a FFC or certified copy thereof. The fact of holding such certificate must also be noted on letterheads, agreements, and marketing material.

Each property practitioner shall be obliged to hold a separate FFC in respect of each different industry in which the property practitioner operates. For example, if an employee works within the estate agency industry as well as within the property management industry, a separate FFC in respect of each industry must be obtained.

The business making application for a FFC need to be in possession of a valid tax clearance certificates and need to have a valid BEE certificate.

Prohibition of services

A business or person that falls within the definition of a property practitioner, may not act as such if they have not been issued with a FFC, and if they employ a property practitioner and that person has not been issued with a FFC.

Any person who contravenes this provision is guilty of an offence and, on receipt of a written request from any relevant party, must repay any amount received in respect of any property transaction. In addition, the failure to comply with such a request constitutes an offence. Any person convicted of any offence in terms of the Act shall be liable for a fine or imprisonment for a period not exceeding 10 (ten) years.

Interim arrangements

“The PPRA is at presently issuing exemptions to developers, as a separate industry sector, from the requirement to comply with sections 47 and 48 of the Act. This means developers are granted, upon application, an exemption from the requirement to hold FFCs and may render their services without falling foul of the Act. This is an interim arrangement only, and the PPRA is confident that they will have specific systems in place (including training obligations) relating to developers from  1 January 2023 onwards,” Botha explained.

  • A panel discussion in which clarity on the requirements imposed on developers by the Property Practitioners Act will be provided will be held by STBB on 27 October. Thursday 27 October 2022 from 12h00 – 13h00.Zoom registration is essential. Register HEREto join. The meeting ID: 830 3087 6580 and meeting Password: 740553

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