Opinion Piece - Home Owners Association (HOA) VS Property Practitioners Regulatory Authority (PPRA)

As lawyers we’re called upon to assist our clients in various scenarios. Our expertise are not only used to service our clients requests for assistance within the boundaries of the South African legal system, but allow us to ‘promote the governing laws of our legal system.

A realm within which we are not only passionate but also offer years of experience is the property sector, and more specifically the topics of Conveyancing and Real Estate.

Our focus was recently brought to the attention of a scenario between a Home Owners Association (HOA) and the Property Practitioners Regulatory Authority (PPRA) with respect to barriers of entry having been instituted by the former body on Estate Agents, and the legality of these barriers.

We took on the task of assisting our client in this case, making special reference to the Property Practitioners Act 22 of 2019 which aims to regulate the conduct of property practitioners, promoting professionalism and transparency within the property sector, and ensuring overall consumer protection.

As a matter of reference to the guidelines associated with the Property Practitioners Act 22 of 2019 we will first briefly touch base on a summary of the key provisions and regulations made available via the act:

1. Definition of Property Practitioners: The act defines property practitioners as individuals who facilitate the sale, purchase, letting, or rental of immovable property, including estate agents, rental agents, property managers, and property developers.
    
2. Registration Requirements: Property practitioners are required to register with the newly established regulatory authority, the Property Practitioners Regulatory Authority (PPRA). Registration involves meeting certain educational and competency requirements, as well as compliance with prescribed codes of conduct.
    
3. Code of Conduct: The act sets out a comprehensive code of conduct that property practitioners must adhere to, including requirements related to honesty, integrity, confidentiality, and fair dealing with clients.
    
4. Consumer Protection: The act includes provisions aimed at protecting consumers, such as requiring property practitioners to disclose all material facts related to a property transaction and to maintain fidelity fund certificates to protect clients against financial loss due to fraud or negligence.
    
5. Complaints and Disciplinary Procedures: The act establishes procedures for handling complaints against property practitioners, including investigations and disciplinary hearings conducted by the PPRA.
    
6. Regulations: The act is supplemented by regulations that provide further detail and clarity on various aspects, such as the qualifications and training required for registration, the fees payable to the PPRA, and the procedures for resolving disputes between property practitioners and their clients.

Overall, the Property Practitioners Act and its regulations seek to professionalize the property sector in South Africa, protect consumers, and ensure ethical conduct among stakeholders. Compliance with the act is essential for all individuals and entities involved in property transactions within the country.

With the above in mind we share this case with you as a matter of reference and informative reading for interested parties to the relevant property market references.

LEGAL OPINION: PENALTIES IMPOSED ON APPROVED AGENTS - XXXXXXXXX HOME OWNERS ASSOCIATION

1. INTRODUCTION

We have been tasked to formulate an opinion and provide possible solutions on the issues relating to the penalties imposed on the approved property practitioners (hereinafter “the agents”) of the XXXXXXXXX Home Owners Association (“the HOA”) by the Property Practitioners Regulatory Authority.

This document serves to guide the HOA in finding a compliant and lawful arrangement with agents who wish to conduct business within the estate. The aim is further to explore the legality and purview of the restriction of certain agents to conduct business within the estate through the lens of the Property Practioner Act 22 of 2019 (“the Act”) and its regulations (“the regulations”).

Before these issues are discussed extensively, it is necessary to mention that there have recently been numerous discussions and debates between high level representatives of the PPRA and property professionals concerning the ‘accreditation fees’ which agents are required to pay certain HOAs.

The PPRA have however remained firmly of the view that the accreditation fees, or whatever HOAs prefer to call it, are contentious, unnecessary and detrimental to transformation¹. It seems the PPRA has made up its mind when confronted on the implications of the regulations and restrictions on agents to pay accreditation fees.

2. THE STATUS QUO

The HOA currently only permits approved agents to enter and conduct property related services in the estate. These agents, who conclude a so-called ‘Approved Agent Agreement’, are approved by the board of directors of the HOA upon application and are then obliged to pay a once-off non-refundable Approved Agent Fee of R6 000- 00 as well as an annual non-refundable Approved Agent Fee towards the HOA.

Whilst it is not entirely clear what the requirements and criteria for the approval of agents by the directors of the HOA are, it can only be assumed that the directors ultimately have a discretion to approve or refuse certain agents, whilst taking certain requirements into account. The provisions pertaining to the requirements and approval of agents are envisaged in Rule 12 of the Rules of the HOA. The purpose of this rule is to ensure that agents who work in the estate comply with the rules of the estate. It further provides for a mechanism to restrict the number of agents working in the estate as well as to avoid unscrupulous dealings by illegal practitioners.

The HOA is allowed to enforce its rules and regulations on agents who wish to practice in the estate by creating a contractual obligation on the agents to do so. The HOA is a registered Non-profit Company in terms of Section 21 of the Companies Act with a separate legal personality. This means that it is entitled to conclude agreements with natural persons or other legal entities. It is needless to say that these agreements should be lawful and accord with the statutes of South Africa.

Gated communities are permitted to restrict access to property². It is our view that it is in fact imperative to regulate the flow and access of agents to an estate for inter alia security purposes. The problem is however that the agents are now being sanctioned for misconduct.

In summary, what Rule 12 provides is that for an agent to conduct business in the estate it should:

• -  Sign an agreement with the HOA;
• -  Abide by the rules of the HOA;
• -  Adhere to the requirements in the agreement;

3. GOVERNING LEGISLATION AND REGULATIONS

In a Guidance Note Published by the PPRA on 23 March 2023 and pursuant thereto again in September 2023, the following business practices have been declared 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 anybody 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 form 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 in relation to 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 in relation to properties in such property development.”

The Notice emphasises the provisions of Regulation 35(1) and effectively prohibits agents from concluding any arrangement with a body or person in terms of which it shall receive money in exchange for a benefit, advantage or other form of preferential treatment in respect of the marketing of properties within a development.

The Regulation goes further to prohibit agents from entering into arrangements with any person and/or party which effectively excludes or disadvantages an agent from being able to provide services in relation to properties within a

development (this does not make sense). It is needless to say that these Regulations are a result of poor drafting which renders same ambiguous and vague for the most part.

In circumstances such as this, it is however important to explore the possible intention and motive of the author of these regulations which can only be perceived to have been to prohibit arrangements which could potentially disadvantage or exclude certain groups of agents. The author repeats the words advantage, benefit and preferential treatment, which suggests that agents should be afforded equal opportunities to market and/or conduct their business at a development of their choice and should not be unfairly restrained from doing so.

It is our view that the enforceability of these regulations remains to be challenged, specifically regulation 35.1.1.7 which could be interpreted extremely broadly and could even suggest that an agent may not be restricted to practice at all. This could potentially impede with the basic human rights of other persons and entities and we doubt whether this regulation shall withstand proper constitutional scrutiny.

Notwithstanding the fact that this regulation is extremely unreasonable, prohibiting gated communities to implement restrictions on the number of agents allowed to practice at a property is also extremely prejudicial to gated communities. As previously indicated, gated communities are in fact allowed to restrict access to their property and this should be interpreted to extend to agents, but the regulations seem to imply the contrary.

4. APPROVED AGENT AGREEMENT

The current Approved Agent Agreement used by the HOA in terms of Rule 12 constitutes a direct contravention of Regulation 35.1.1.3 as it expressly indicates that once an agent is approved by the HOA, certain benefits will accrue to the agent/agency. This is exactly what the author of the regulations

attempts to prohibit i.e. arrangements where certain exclusive benefits are received by agents in exchange for payment.

Although outdated, the agreement further imposes certain contractual obligations and rules on an approved agent, which, as already indicated, the HOA is entitled to do. We are also of the view that these contractual obligations and undertakings by the agent to adhere to the rules of the HOA do not necessarily go against the Regulations.

The title of the agreement also suggests that the HOA has a discretion to “approve” certain agents to conduct business in the estate, this does not conform to the Regulations. An HOA is entitled to restrict access to its property but cannot prohibit certain agents/agencies from conducting its business in the estate. The fact that the HOA has a discretion to approve these agents suggest that it is entitled reject certain applications for approval at its own discretion. The HOA is only entitled to refuse access should an agent refuse to sign the agreement or refuse to undertake to keep to the HOA’s rules but does not have a discretion to approve an agent or not. Once the formal requirements have been met and payments have been made by an agent, the HOA should allow the agent to conduct business in the estate.

Whether or not the HOA shall be entitled to disallow an agent access to the estate pursuant to a transgression or breach of its obligations in the agreement or the rules of the estate is perhaps a more complex question. It is important to test whether such a rule shall disadvantage any property practitioner from being able to provide services in relation to properties, which it clearly does. This means that from a strict interpretation of Regulation 13.1.1.7 it is not lawful to disallow any agent from practicing in any development, even in the event of the agent’s breach of the rules or contractual obligations.

As it stands, and considering the wording and formulation of the current Approved Agents Agreement, the agents who have signed the agreement are guilty of a sanctionable conduct and the fines imposed on them are justified if the regulations are strictly applied. The question now is whether or not it is

possible to formulate the Rules and Agent Agreement in such a manner as to align them with the Regulations and to avoid these fines being imposed on the agents, or at the very least to render any further fines contestable.

5. SUGGESTIONS

As I have already indicated, it is important that the HOA regulates agent access to the Estate. It is entitled to do so. This is not only important for the safety and security of the current members and residents but could potentially benefit the agents themselves.

What we accordingly suggest is the following:

1. Review and amendment of Rule 12: This should include, but is not limited to, the following:

• -  Introduction of an obligation on prospective agents to register with the HOA before being allowed to conduct their business in the estate. The HOA shall not have a discretion to approve agents, but it shall be mandatory for an agent to register. This does not pose a disadvantage to any agent but serves as a security mechanism and shall allow the estate to properly vet prospective agents.
• -  Only agents with valid Fidelity Fund Certificates and who have been mandated by an owner shall be allowed to practice in the estate.
• -  The remainder of the Rules insofar as it refers to Rule 12 should also be amended.
• -  The title of this Rule should also be changed to “Registered Agents”.

2. Review and amendment of the Approved Agent Agreement: This should

include, but is not limited to, the following:

- Amendment of title of Agreement to “Registration Form” and attach a set of terms and conditions regulating the conduct of the agents. Agents shall be contractually bound to these terms and conditions and shall undertake to adhere to the Rules of the estate;

The agents shall further be prohibited from practicing in the estate should they breach any of the terms and conditions or Rules of the HOA. The HOA shall not disadvantage or exclude any practitioner from providing services in the estate, but the agent shall merely agree to refrain from practicing in the estate once it has breached the Rules or terms of the agreement.

Agents should pay an annual registration and/or admin fee for access tags and/or to utilise the biometric access system of the HOA. This fee could also be justified as a contribution towards the costs of using the estate’s roads, common property as well as towards other administration costs the HOA shall be forced to incur by virtue of the agent’s registration and practice in the estate.

Refusal to pay cannot result in a refusal to allow the agent to practice but the agent shall not receive access tags or be able to use the biometric access control and shall be required to sign in to gain access to the estate. The HOA does not receive money in exchange for a benefit or advantage but merely requires the agent to contribute towards the actual costs of using the property of the HOA as the other members and residents are required to pay levies.

6. CONCLUSION

Considering the fact that agents are currently forced to pay the HOA for specific benefits, the fines imposed on the agents cannot, at this stage, be disputed. The proposed amendments to the Rules and the Approved Agent Agreement shall at least afford the agents an opportunity and basis to challenge any fines imposed on them. It is not guaranteed that these suggestions shall completely avoid agents being fined but shall certainly present them with an opportunity to dispute the fines on reasonable grounds. Perhaps it is prudent to approach the PPRA for directives and advice on whether these changes shall be permitted

and do in fact conform to the regulations. We accordingly suggest that the changes are drafted and presented to the PPRA for approval.

Disclaimer: The content hereof exclusively constitutes the opinion and views of the author and is by no means legally binding or enforceable upon any party and or authority. The author shall further not be liable for any losses or damages suffered by any person as a result of the implementation of the advice or suggestions made herein.

Please feel free to contact us anytime should you have any further questions.

Yours Faithfully,

EW Serfontein & Associates Inc.

References

1. Rebosa opposes HOA fees for agents under any guise - Property Professional

2. Mount Edgecombe Country Club Estate Management Association II (RF) NPC v Singh and Others (323/2018) [2019] ZASCA 30; 2019 (4) SA 471 (SCA) (28 March 2019)

Kindly note that this article is compiled by E. W. Serfontein & Associates Inc. for general public information use only and does not constitute legal advice in any way, shape or form. For legal advice on Municipal Disputes and other legal topics please contact us as we require dealing with each matter on a case-by-case basis. Thank you.