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FFC delays and split commissions: a double-edged sword

Steven Fisher

MAIN IMAGE: Steven Fisher, a director of Fluxmans Attorneys

Senior writer

The Background

In 2019, a court decision created some turmoil relative to Sections 26 and 34A of the then Estate Agency Affairs Act (EAAB).

At the time, Section 26 of the Act, as read with Section 34A, states: “In terms of Section 26, it is a distinct and separate condition for performing the acts of an estate agent that a valid fidelity fund certificate should have been issued to the person concerned. The consequence of contravening that Section is that the person concerned is not entitled to remuneration from the performance of the act, and he or she also commits an offence in terms of section 34.”

Agency A had agreed to a split commission in a lease deal with Agent B, but because the former did not have a valid FFC at the time, agency B refused to pay agency A its commission. In this, the law was clear: No FFC, no commission! However, extenuating circumstances proved that Agent A had, in fact, applied for the FFC, and delays and errors at the EAAB prevented it from being compliant, resulting in a reversal of the original decision by the Cape Town High Court in 2020. Agent A was then legally entitled to be paid a commission.

The New Act

That was then, and, as Steven Fisher, a director of Fluxmans Attorneys specialising in various aspects of property law and conveyancing, points out, this case was determined in terms of the now repealed Estate Agents Affairs Act, “and some of the issues that the appeal court ruled on would possibly be decided differently under the new Act.”

Currently, according to the Property Practitioners Act (“the Act”), a person who falls under one of the categories of the definition of “property practitioner in Section 1” is not entitled to payment or remuneration unless, at the time of performance of the Act, that person was in possession of a registration certificate.

The Act also prohibits a conveyancer from paying any money to a property practitioner unless the property practitioner has provided the conveyancer with a certified copy of the relevant fidelity fund certificate, which must have been valid during the period or on the date of the transaction to which the payment relates, as well as on the date of such payment.

Legalese can often confound, which is why Fisher provides a more simplified interpretation: “If in terms of the sale agreement, the commission to both agents is to be paid by the conveyancer directly, and one of the property practitioners did not comply with the requirements in terms of the Act relating to fidelity fund certificates, the Act clearly states that the conveyancer would be prohibited from paying such property practitioner any amount.

“As far as I am aware, the Act does not specifically deal with a situation where one property practitioner agrees to pay the other an agreed amount, but my view would be that there would be a legal basis for the one property practitioner refusing to pay the other unless such property practitioner can provide a copy of the relevant fidelity fund certificate.”

Fisher is aware of the delays in issuing fidelity fund certificates, and although the PPRA has not updated its website report from two years ago on this issue, one assumes that it is still applicable. In that statement, the PPRA says that “due to the constant load shedding and IT issues …. renewal applications to the PPRA may experience a delay of eight weeks …”  Further, the report also states that “all renewal FFCs issued are valid from 01 January 2023 to 31 December 2025.”

Precautionary action

To overcome potential delays and consequent issues relating to the payment of a commission, Fisher highly recommends that agents’ applications for renewal of their certificates must be made well before the existing one expires. “There is a provision in the Act which deems an application for a fidelity fund certificate has been approved, but only if the original application was not considered within 30 working days of submission. In such a case, the relevant authority is obliged to issue the certificate within 10 days of a written request by the applicant.

“There is, however, no clarity in the Act as to what date the certificate would be valid, which could be problematic in certain circumstances. Property practitioners who are parties to a split commission arrangement must ensure that the agreed details are clearly documented, either in the sale agreement or in a separate written agreement between the property practitioners,” says Fisher.

His advice is sound, as is his pointing out that … “A property practitioner is prohibited in terms of the Act from accepting a mandate to sell a property unless a fully completed and signed mandatory disclosure form has been completed by a prospective seller. The Act does not, however, obligate a property practitioner to have a written and signed mandate before commencing with the marketing of a property, and the absence of a signed mandate agreement between the prospective seller and the property practitioner can sometimes lead to uncertainty with regard to a number of material issues, including, who is entitled to commission when there is more than one property practitioner involved or there has been a substantial lapse of time between an initial introduction of a purchaser to a property and the conclusion of a sale agreement.”

Commission disputes

Understanding that mandate agreements are often but not always sole mandates, even if there is a written document governing the relationship between the parties, there are instances where two property practitioners claim full commission from the seller of a property or a dispute arises as to whether a property practitioner is entitled to payment of commission at all.

“Disputes between sellers and property practitioners are unfortunately not uncommon and often result in litigation. In some cases, new causes intervene, and the original introduction of a purchaser to a property is not what ultimately results in the purchase of the property. In such circumstances, our courts have ruled that the seller is not legally liable for payment of commission to the original agent.

“In the absence of any clear agreement to the contrary, our courts have generally held that once it has been established that a property practitioner was the ‘effective cause’ of a sale, notwithstanding that the sale may have only been finalised long after the property practitioner’s active efforts came to an end, the property practitioner would be entitled to payment of a commission,” concludes Fisher.

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