South Africa: The Consumer Protection Act - How Will This Affect Home Owners Associations And Developers?

Last Updated: 3 June 2010
Article by Karien Hunter

Developers and Home Owners Associations fall within the definition of 'suppliers' in terms of the Act and will thus, as of October 2010, be subject to the provisions of the Consumer Protection Act in terms of which various 'Fundamental Consumer Rights' have been identified.

The Act not only applies to contracting parties, for example the purchaser and/or seller of a property on an estate, and the Section 21 company which administers the estate (HOA), but also other 'users' of the services, for example tenants and the guests of the home owners.

Great care should accordingly be taken by the directors of a Home Owners Association and a thorough check of their Conduct Rules and Articles of Association should be undertaken before the Act kicks in.

A failure to adhere to the terms of the Act may even constitute a defence to the payment of levies imposed by the HOA.

Developers may also find that sales that they have regarded as conclusive, are capable of being set aside by the courts simply on the basis that they contain 'unfair contract terms'.

The following provisions of the Act may have specific application:

1. PROTECTION AGAINST DISCRIMINATORY MARKETING

In terms of Section 8 of the Act, a supplier of goods or services (i.e. HOA) must not unfairly exclude any person or category of persons from accessing any goods or services offered by the supplier, or target particular communities, populations or market segments for the exclusive supply of any goods or services, on the basis of one or more grounds of unfair discrimination (e.g. race or gender).

Provisions such as the following may fall foul of this as this can possibly be manipulated to exclude members of a certain race group to buy into an estate and may need to be reworded to expressly state that such grounds may not be of a discriminatory nature and in contravention of the Act:

"The Owner requesting consent (i.e. to purchase into an estate and become a member of the HOA) shall himself determine that the proposed new Owners of Tenants are of suitable standing befitting the Estate and the Club"

To this should be added: "It is specifically recorded that the HOA may not refuse consent on the basis of any grounds of discrimination contemplated in sec 9 of the Constitution of South Africa (the Bill of Rights) or Chapter 2 of the Promotion of Equality and Prevention of Unfair Discrimination Act."

In terms of the Act, there is a presumption that any differential treatment is unfair discrimination, and a contravention of the Act. The onus is thus on the supplier, that is, the HOA, to prove that this is not the case.

2. CONSUMER'S RIGHT TO CHOOSE

2.1 Section 13: Consumer's right to select suppliers - estate agency mandates

A supplier (i.e. HOA) must not require as a condition of supplying or offering to supply goods or services, that the consumer must agree to purchase any particular goods or services from a designated third party.

Provisions in the rules of a HOA that requires a home owner to only use estate agencies accredited to the estate to sell their properties, may well be in breach of the seller's right to choose and thus a contravention of the Act.

It is a defence if the supplier (i.e. the developer or the HOA) can show that:

  • the convenience to the consumer of having these goods or services bundled together outweighs the limitation of the consumer's right to choice;
  • that the bundling of those goods or services results in economic benefit for consumers;
  • or that the supplier offers bundled goods or services separately and at individual prices (i.e. it is not a pre-condition to the sale or supply of services).

It is suggested that HOA rather have a list of preferred agencies, but that sellers would still have the right to appoint their own agency to sell/let their property - provided such agency complies with security arrangements the estate may wish to impose and that are reasonable and which is applied consistently with regard to all estate agencies.

The sale of a property in an estate often entails a certain amount of expertise and know- how with regard to the manner in which the estate operates, and its rules. It would thus not be unreasonable for the HOA to require agents to undergo basic training at a fee as a pre-requisite to selling on a particular estate.

The arbitrary exclusion of estate agencies with no rational basis for doing so would clearly not be allowed.

The same would obviously apply in respect of the choice of architects, builders and conveyancers.

2.2 Section 14: Expiry and renewal of fixed-term agreements - mandates to sell

Should an agent appointed by a developer or a seller obtain a mandate, such mandate would be regarded as a fixed term contract. The seller would be able to terminate such mandate regardless of its duration by giving 20 business days notice of cancellation.

2.3 Section 16: Consumer's right to cooling-off period after direct marketing

Any consumer may cancel an agreement within 5 business days of the conclusion of an agreement which resulted from direct marketing. No reason needs to be given for such decision and the contract would then be void ab initio.

Direct marketing in terms of the Act means to approach a person, either in person or by mail (electronic or otherwise) for the direct or indirect purpose of promoting or offering to supply, goods or services. The 'goods' would include the sale of land or an interest in land.

2.4 Section 19: Consumer's rights with respect to delivery of goods and the supply of service

Goods (i.e. property sold) remains at the supplier's (i.e. developer or seller's) risk until the consumer has accepted delivery thereof. This means that until registration of transfer, the risk in and to the property will vest with the seller and this cannot be changed contractually. This means a provision of a contract in terms of which risk passes to the purchaser on early occupation (before transfer) is outlawed.

2.5 Section 20: Consumer's right to return goods

The consumer may return goods to the supplier, and receive a full refund of any consideration paid for those goods, if the supplier has delivered goods to the consumer (i.e. a property) that the purchaser had not had the opportunity to examine before delivery, and the goods were intended to satisfy a particular purpose communicated to the supplier and the goods have been found to be unsuitable for that purpose.

This means a purchaser can cancel prior to transfer if they had bought 'off-plan' and had not inspected the property and on transfer finds the property does not meet their particular needs.

By way of example, the purchaser bought into a particular estate 'off plan' having communicated to the agent that he wanted to keep pets only to discover he cannot have pets on the estate - this would entitle him to cancel provided he does so within a period of 10 days after delivery - and delivery can mean either occupation or transfer.

2.6 Section 21: Consumer's right to information in plain and understandable language

This is the co-called 'plain language' rule.

If a consumer (i.e. home owner or purchaser of a property) does not understand a document either because it is not in a language they understand, or is not in plain and understandable language regardless of which language it may be, the agreement may be set aside by the court.

This also applies in respect of any notices which the HOA may wish to display, and their conduct rules. Should such rules not be in clear and understandable language it may even be raised as a defence to the payment of levies.

2.7 Section 40: Right to fair and honest dealing

Should a supplier or their agent make themselves guilty of unconscionable conduct in relation to the marketing or conclusion of any agreement, or the supply of services, such agreement or conduct can be set aside by the court and the court may even adjust the purchaser price or make an award for damages.

This means that levies (or a purchase price) may be adjusted by the courts. It is however unlikely that the courts would want to become involved at this level and the courts will not easily make such orders - but the courts now have the power to do so.

2.8 Section 41: False, misleading or deceptive representations

Should a supplier (i.e. developer) in its marketing or supply of immovable property state that the land has characteristics which it does not have, or that it may lawfully be used for a certain purpose that is in fact unlawful or impractical, or has, or is, proximate to any facilities amenities or natural features that it does not have, an agreement emanating from such marketing may be void.

2.9 Section 48: unfair, unreasonable or unjust contract terms

The court has the power to intervene and adjust a contract term and even the price where such term or price is unfair, unreasonable or unjust.

This will encompass terms that are excessively one sided in favour of any person other than the consumer, or where the consumer relied upon a false, misleading or deceptive representation, to his detriment.

Non- representation clauses that are so common in agreements are also outlawed - the court now has the power to look into the negotiations and representations that were made leading up to the conclusion of a contract.

2.10 Section 49: limitation of risk and indemnities

Any clauses that limit in any way the risk or liability of the supplier or another person, contains an indemnity, or is an acknowledgment of any fact by a consumer must be conspicuous and must be drawn to the attention of the consumer, and the consumer must sign or initial next to such limitation to show that he has assented to such provision. Such indemnity or assumption of risk must also be in clear and simple language.

Provisions in a sale agreement relating to for example construction work that will be carried on and which might be risky and in respect of which the developer is indemnified, must be brought specifically to the attention of the purchaser otherwise the entire agreement may be invalidated.

2.11 Section 50: Prohibited contract terms - forfeiture provisions, 'voetstoots' clauses and non-representation clauses

All of the above clauses are common to sale agreements of land. These provisions will be void and the court may even declare the entire agreement void.

Please note that the provisions of the act only apply in respect of 'suppliers' and 'consumers' in the ordinary course of the supplier's business.

The provisions of the act will accordingly not apply to the sale of a property by an individual (e.g. the sale of a family home) provided such sale does not take place in the ordinary course of the seller's business

The provisions also do not generally apply to corporate entities contracting with each other - i.e. where a sale or the supply of a service takes place between a supplier and a consumer whose annual turnover of his business exceeds a minimum which is still to be determined by the minister

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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