Why are agents still paying HOA fees?

Why are agents still paying HOA fees?

MAIN IMAGE: Jan le Roux, CE of Rebosa

Editor

A gnarly issue that’s reared its head over the last few years is that of estate agents paying what is often referred to as an ‘accreditation’ fee to HOAs, to operate within these estates/developments. In practice, this has led to agents paying these fees and creating monopolies within the estates they operate in. In March this year, the PPRA issued a statement indicating that agents paying these fees are in contravention of the Property Practitioners Act and would be prosecuted.

HOAs have responded by providing several reasons as to why these fees are deemed necessary, from security to education. This leaves agents wanting to operate in these communities in a bind.

The Property Professional spoke to Jeff Gilmour, president of ARC (Association of Residential Communities) and director of the RCC (Residential Communities Council), and Clarence Catin, executive manager of Investigation and Enforcement at the PPRA about the apparent impasse. 

What does the Act say?

The legalese follows, but in essence, Section 63(1) of the PPA states that arrangements in which an HOA, for example, receives money or another form of reward for providing an advantage to one agent over the other, or to exclude another agent, is an undesirable business practice.

Section 63(1) of the Property Practitioners Act, 22 of 2019 read with Regulation 35.1 provide that, the Minister of Human Settlements declared the following business practices undesirable and therefore prohibited:-

  • 35.1.1.2 “any arrangement in terms of which any party or person that directly or indirectly controls or manages any residential property development, including any body corporate or homeowners’ association (the managing organisation) –
  • 35.1.1.3 receives money or any other reward in exchange for a benefit, advantage, or other forms of preferential treatment in respect of the marketing of properties in such property development;
  • 35.1.1.6 effectively provides an advantage to any one property practitioner or group of property practitioners over and above any other property practitioners, in providing services about properties in such property development; or
  • 35.1.1.7 effectively excludes or disadvantages any property practitioner or group of property practitioners from being able to provide services about properties in such property development”.

The RCC stance: there is a fee, but it’s not about accreditation

According to Gilmour, the issue lies not around the payment of a fee, but a misunderstanding of what the fee is for. In a letter to the PPRA, Gilmour states that the fees are necessary for security reasons (paying for extra security staff on show days), training an estate agent on the rules and guidelines of the community, enabling agents to place adverts on the HOA website, etc.

Training on the estate’s house rules and guidelines is touted as a big reason for the fee charged to agents, and Gilmour shares that in some cases this training can take several hours, the cost of which the HOA wants to recoup. Estate agents are the only service providers required to obtain said training, “Estate agents are required to educate a buyer on the rules of the HOA because they are buying into a scheme. It makes no sense to require the same knowledge of say a builder, electrician, or landscaper”, he believes.

Notably, he argues that payment of the fee provides no benefit or advantage to the agent and that the number of agents who may operate within an estate is uncapped – pay the fee, have a valid FFC and you can work there.

According to Gilmour, the average fee imposed by HOAs is currently R6,000 per year, although this can differ from estate to estate.

The HOA stance is clear, though one might question whether training sessions are truly necessary (surely the body corporate guidelines can be read and studied privately), and if so important, whether it shouldn’t be something the HOAs provide for free, as having an informed buyer is ultimately to its benefit.

Another counterargument can be made about the hiring of security on show days, surely construction work, or even a birthday party with 30 guests can cause a surge in suppliers (and guests) needing to access the estate, making it unfair to only charge estate agents this fee.

Referring to advertising on the estate’s website, surely this fee should be standalone – open to other service providers as well – and not lumped into the general ‘administration’ fee that again, only estate agents are required to pay.

A final question is whether the fact that some agents are in a financial position to pay this fee, and others, notably those just entering the industry, does not provide the paying agent with an unfair advantage – which is not allowed according to the PPA, and stands to hamper transformation.

What happens to agents who engage in these practices?

Caitin says that no specific fine is prescribed in terms of the Act or the Regulations. However, if the Respondent in the matter is charged and the matter is brought before an adjudicator, the adjudicator may, after following due process, impose a fine by section 30(7)(a) of the Act.

He reveals that there are currently eleven active complaints lodged with the PPRA which are still in the investigation phase.

This entails a process of receiving a complaint in the prescribed format, investigating the complaint to determine whether there is sufficient evidence to substantiate the complaint, and, if so, referring the matter to an adjudicator who must set the matter down for hearing. In terms of the Act, the adjudication must be held expeditiously. Upon conclusion of the adjudication, the adjudicator must determine whether the complaint is upheld or not. If the complaint is upheld, the adjudicator must make an order which is appropriate in the circumstances, and such an order will have the same status as an order of a magistrate’s court and must be executed accordingly.

The issue of reporting an agent

It’s unlikely that there are only 11 cases across the country, and the reporting process might be to blame, at least in part. While a whistleblower number is advertised on the PPRA website, it turns out that it’s only available to report internal fraud. Complainants have to find and complete a form, which then needs to be sent to the PPRA, making it impossible to report someone anonymously. It’s also not as simple as making a quick phone call.

The legality of it all

During the course of writing this article, it now appears that the entire issue may soon be moot as ARC recently met with the PPRA to discuss the issue of accreditation versus admin fees amongst other topics, and according to Gilmour, the PPRA has suggested embracing the concept of an admin fee and capping it at a certain amount. This of course would mean that agents can engage in the practice of paying an admin fee, to the disadvantage of those who can’t, and in contravention of the Act – which may lead to further legal wranglings.

The parties are set to meet again on June 15th   after which the Property Professional will share feedback on further developments. 

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