An Update on The Property Practitioners Act

The release date of the Estate Agency Affairs Act 112 of 1976 (EAAA) clearly indicates that it is outdated. A lot has changed in the last 43 years and so should this Act. The Property Practitioners Act 22 of 2019 (PPA), which replaced and repealed the EAAA, was promulgated in the Government Gazette on 3 October 2019.
 
Application of The Act
 
The biggest change between the old and new Act is the scope thereof. Where the EAAA was only applicable to Estate Agents, the PPA applies to everyone that meets the definition of a “property practitioner”. This definition is much broader and covers numerous parties that were previously unaffected by the old Act.
 
In short, the definition includes all natural or juristic persons directly or indirectly involved in the selling, purchasing, letting, renting, financing, managing and marketing of property on the instruction of any person or on their behalf.
 
This may seem simple, but when you look at the definition in more detail, you will note that even property valuers, people doing home inspections for purchasers before the sale, property managers, agents involved in the sale of timeshare as well as digital portals exhibiting properties such as Property24 are included within the ambit of the Act. Basically, if you are in any way involved in the selling or letting of property, you may fall within the scope of the Act.
 
Exclusion from The Act
 
As the definition states, that it must be on the instruction of another person or on their behalf, natural persons selling their own property are excluded from complying with this Act. Other exclusions relate to a person who carries on any of these services not in the ordinary course of their business as well as attorneys, candidate attorneys and sheriffs of the court.
 
Transformation And B-BBEE Implications
 
In order to facilitate transformation in the property sector, the Act now includes an entire chapter on transformation. In accordance with this Chapter, the Practitioners Regulatory Authority (previously the Estate Agency Affairs Board) must establish a Property Sector Transformation Fund which will be applied toward black economic empowerment programmes. All property practitioners, except for those with an annual turnover of less than R2.5 million, are required to obtain a B-BBEE certificate.
 
Other Significant Changes

In order to Act as a property practitioner and to enforce collection of remuneration, the entity as well as all employees of the entity that acts as a property practitioner must have a valid Fidelity Fund Certificate (FFC). Failure to comply with this, could result in the practitioner being required to refund the remuneration received while they did not have an FFC. To ease the administration burden on both the Property Regulatory Authority as well as the practitioners, the PPA makes provision that the FFC will now be valid for a period of three years. The FFC may, however, be withdrawn if the Practitioners Regulatory Authority sees fit. In addition to the FCC, a property practitioner is now also required to have a valid tax clearance certificate, as well as a B-BBEE certificate.
 
Although not always enforced, it was common practice amongst estate agents to include a clause in the sale contract stating that should the sale be cancelled for whatever reason, the commission is still payable to the agency. In terms of the PPA, this is no longer allowed. Commission is only allowed to be collected upon the registration of the property.
 
The responsibility of the seller of a property to disclose all the property defects has now been enacted. Although it was best practice to disclose these in the past, it was not a legal requirement.
 
As previously required in terms of the EAAA, all property practitioners are required to open a trust account and to have it, as well as the business financial statements audited annually. With the definition of a property practitioner being expanded, this will have a significant impact on the accounting, corporate governance and compliance of parties that did not fall within the scope of the old Act. The Act does, however, make provision for certain property practitioners to be exempt from keeping trust accounts. No such dispensations have been published as yet.
 
A little relief, however, was built into the PPA for small entities. The Act allows Property practitioners with an annual turnover of less than R2.5 million to select an independent review on their business’ financial statements, instead of an audit. Although the wording of the Act is open to interpretation, it is commonly understood that the trust account will, however, still have to be audited.
 
Compliance with the Act will be monitored by inspectors with wide ranging powers of search and seizure. They will be able to enter business premises without search warrants and to demand access to business records. Where needed, they can enlist the assistance of the SAPS who can use force to overcome resistance or gain entry. A search warrant is, however, required when the inspector wants access to the private residence of the property practitioner. Practitioners found to have breached the Act, can be liable for a fine of up to R200 000 or a maximum sentence of ten years imprisonment.
 
The expansion of the definition of a property practitioner, as well as the additional powers of the Practitioners Regulatory Authority, may cause many people sleepless nights. If you work in the property industry and were not previously required to comply with the EAAA, chances are that you will now have to comply with the PPA.
 
If you are unsure about the impact of the new Act on you or your business, contact your local Moore firm for guidance and assistance. We also have a full service real estate and construction team available to assist with your real estate requirements.