Who May Act as an Estate Agent in a Community Scheme?

In community schemes such as sectional title schemes and homeowners’ associations (HOAs), no agent or agency may be unfairly favoured when it comes to marketing and access.

A concerned and responsible trustee of a sectional title scheme, had her motion at the scheme’s recent annual general meeting accepted with almost no objection.

The motion was that the body corporate should place a restriction on which estate agencies may put up boards within the scheme and who may market their services inside the scheme. The reasons Sarie gave were that the advertising boards are unsightly and that the coming and going of estate agents poses a security risk — because, “who knows whether the person is really an agent or not, and who the agent brings along to view homes?”

The adopted rule indicated that owners who intend to sell may not use the services of an estate agent who is not “known” to the trustees. An agent must therefore first “register” with the trustees so that they can verify his or her registration as an agent, and determine whether the person has knowledge of sectional title schemes in order to provide the necessary information to both buyers and sellers. After all, this is in the best interests of the scheme and its residents.

Even before the resolution is sent to the Community Ombud for approval (section 10 of the Sectional Titles Schemes Management Act), Jaap, a co-owner, knocks on Sarie’s door and tells her that his daughter is an experienced estate agent; that she and her colleagues work extremely hard in the current competitive market to earn commission; that they have the necessary qualifications to practice; and that a scheme may not deny them free access. That is what the law says, he emphasizes (referring to the Property Practitioners Act 22 of 2019).

The Property Practitioners Act (PPA) came into effect on 1 February 2022 and, as the name indicates, regulates individuals and businesses involved in the property industry. In terms of the PPA’s definitions, an estate agent is a property practitioner, and the Act therefore applies to them. This new law replaced the previous Estate Agency Affairs Act of 1976.

As the name suggests, it does not primarily deal with sectional title schemes or homeowners’ associations. Nevertheless, there are a few provisions that trustees, management teams, and owners in sectional title schemes and/or HOAs should be aware of. In today’s discussion, we refer to one such provision, which directly addresses the scenario described above. It is contained in regulation 35, issued in terms of section 65 of the PPA, where certain practices within community schemes are prohibited because they undermine healthy and fair competition.

The practice of accrediting certain agents or agencies, directly or indirectly, or in any way favouring one agent over another in terms of marketing their services, is prohibited. An agent involved in such an arrangement contravenes the PPA, and there have been many instances where such agents have been fined. A sectional title scheme or HOA should not be part of practices that are prohibited by law.

This is not a new issue.

As early as February 2014, the then Estate Agency Affairs Board issued a practice note to prohibit these “unlawful practices” and to promote an acceptable standard of conduct within community schemes. Despite this notice, many schemes continued the practice.

The practices addressed at the time mainly involved situations where estate agents were required to pay an accreditation fee before they were allowed to advertise their services inside or outside the scheme. Often, the governing body also insisted that a percentage of the agent’s commission be paid to the body corporate or HOA.

Such practices are now clearly prohibited as undesirable practices. The aim is to give effect to the legislature’s intention of enabling agents and agencies to compete on an equal footing.

In short, for purposes of this discussion, the main prohibited practices listed in the PPA are the following:

• When a governing body of a community scheme (such as sectional title schemes, HOAs, share block schemes, and the like) enters into an arrangement that gives an estate agent privileges or priority regarding the marketing of services within the development, directly or indirectly, for reward;

• When there is an arrangement that stipulates that owners may only use the services of certain estate agents; or

• When there is any arrangement that directly or indirectly results in certain agents enjoying more privileges than others in relation to marketing and the provision of their services in the scheme.

  
  

There are many sectional title schemes and HOAs that have entered into such arrangements with agents or agencies in the past, and this continues today. These are often framed as services rendered by the agent to the scheme, because the agent, as an accredited service provider, will explain the scheme’s rules to prospective buyers and tenants on behalf of the management body; and because access preference is granted only to accredited agents for “security purposes”; and/or to limit an excess of agents operating within the scheme in the interest of the residents’ peace and quiet.

These considerations are not unreasonable, but it is very important that community  schemes obtain professional advice on how to deal with this issue.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.