Advice and Opinion

How the Property Practitioners Act will affect property developers

By Wilco du Toit, Associate, Barnard Incorporated Attorneys

Accreditation and compliance dominate the operations of South Africa’s property development industry, ensuring that the necessary certifications are obtained and that all zoning laws are followed.

From the 1st of February 2022, the Property Practitioners Act repeals the Estate Agents Affairs Act and casts a wider candidate net that now includes property developers and their directors, members, or trustees, who act as a facilitator on behalf of another in the sale and letting of immovable property for profit or gain.

Property developers who fall under the definition of a ‘property practitioner’ defined in the Act will, among other legislation and provisions, need to ensure compliance with Chapter 8 of the Property Practitioners Act.

Fidelity Fund Certificates

Sections 47 and 48 of the Act compels property practitioners (including directors, members or trustees, and its employees) to obtain and hold a valid Fidelity Fund Certificate.

No one can act as a property practitioner unless they have a valid certificate in their possession and anyone who fails to obtain a valid Fidelity Fund Certificate, may be required to repay any amounts received in respect of any property transaction(s).

Black Economic Empowerment Certificate

Section 50 of the Property Practitioners Act says that the Property Practitioners Regulatory Authority may not issue a Fidelity Fund Certificate to any person who does not hold a valid B-BBEE certificate. While the Act and regulations do not define which level of BEE certification is required, the current opinion is that property practitioners should at least have a valid BEE certificate.

Mandatory display of a valid Fidelity Fund Certificate

Under Section 53 of the Property Practitioners Act, the holder of a Fidelity Fund Certificate must clearly, and in a legible manner, display it in every place of business from which they operate. The Act also requires the property practitioner to include a prescribed clause in each property transaction, stating that they guarantee they are the holder of a valid certificate. A property practitioner who contravenes this obligation is liable to a fine or imprisonment for a period not exceeding ten years.

Trust Accounts

Every property practitioner must now open and hold one or more Section 54(1)(a) trust accounts with a registered bank and appoint an auditor. Once opened, property practitioners need to provide the Property Practitioners Regulatory Authority with the account details and auditor information.

Section 54 of the Property Practitioners Act also compels property practitioners to deposit all trust money received into the new account until they are entitled to that money or lawfully instructed to transfer the funds.

Property practitioners will be required to have their Section 54(1) trust accounts audited within six months of their financial yearend and submit an audit report to the Property Practitioners Regulatory Authority.

Prescribed service provider

Property practitioners may no longer offer an incentive or encourage customers to use a specific attorney or conveyancer to render ancillary services in respect of any transaction. Any attorney or conveyancer who contravenes this section must repay any remuneration and interest to the consumer within one month of being requested to do so.

Mandatory disclosure forms

Before accepting a mandate from a seller or landlord, every property practitioner must have a mandatory disclosure form completed and signed by the seller or landlord. This form requires the seller or landlord, among others, to confirm whether to their knowledge if there are any defects in the roof of the immovable property, if there are any defects in the electrical systems or in the plumbing system and/or any defects in the structure of the property.

This completed and signed mandatory disclosure form must then be attached to any agreement for the or lease of a property and forms part of the agreement. If the mandatory form is attached to the agreement, it will be deemed that no defects were disclosed to the purchaser or tenant. 

Even though, in terms of Section 4 of the PPA, property developers may apply for an exemption from certain provisions of the new law, the Act aims to tighten up compliance and reduce the increasing incidences of fraud, corruption and dishonesty within the industry.