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January 2016

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Property sellers: Just how far does your duty to disclose go?

This article originally appeared in LawDotNews and is reprinted with the authority of DotNews and of Tanners & Associates Attorneys Notaries and Conveyancers, who may be contacted on 011 783 0148 or via email at admin@tanners.co.za

PREVANCE

“Where a seller recklessly tells half-truths or knows the facts, but does not reveal them because he or she has not bothered to consider the significance, this may also amount to fraud” (extract from judgment below)

Firstly, a note on the CPA

What is said below does not pertain to those property sales where the very robust buyer protections in the CPA (Consumer Protection Act) apply. Generally speaking, the CPA applies only where the seller is selling “in the ordinary course of business” (a developer for example), and most private sales will fall outside its ambit. That whole question is, however, a big topic on its own so watch this space for a future article on “Voetstoots v CPA”.

Voetstoots – the limits

You will know how vital it is for property sellers to protect themselves with a corectly-worded “voetstoots” clause in the sale agreement. It effectively provides that the property is sold “as is”, so the buyer carries the risk of there being any “latent” defects (i.e. those “not visible or discoverable upon an inspection”), and the seller is only responsible for them if the buyer is able to prove that the seller –

1. Knew of the latent defect at the time of the sale, and

2. Did not disclose it, and

3. Deliberately concealed it with the intention to defraud

In other words as a seller, if you know of a defect you must disclose it to the buyer. Record any disclosure/s in a written and signed annexure to the deed of sale. In real life, of course, there are often grey areas around exactly what is or is not “a defect” and when you will or will not be taken to have acted fraudulently in not disclosing it. But as a recent High Court case illustrates, it is probably best to err on the side of caution here –

A most unlevel house

  • The foundational wooden structures of a timber house had decayed, causing the house to subside on the one side, with the result that the floors were no longer level.
  • To remedy this, the owners had put a cement screed over the wooden floors and covered them with carpeting. So too the ceilings were levelled by means of a false ceiling.
  • The subsequent buyers only found out about these problems when they tried to effect renovations. They sued for cancellation of the sale, damages and / or a reduction in the purchase price.
  • The sellers, relying on a voetstoots clause, denied all knowledge of the decayed foundations, denied that the unlevel floors and ceilings were “defects”, and claimed to have remedied them purely for aesthetic reasons and without intending to conceal anything.
  • Finding the buyers, the Court noted that a “defect” is “any material imperfection preventing or hindering the ordinary or common use of the [property]”, and held that the unlevel floors and ceilings were clearly latent defects – the buyers would not have brought the house if they had known of them.
  • Moreover, the sellers should have disclosed these defects because, although they “never considered the significance” of doing so, our law is that: “Where a seller recklessly tells half-truths or knows the facts, but does not reveal them because he or she has not bothered to consider the significance, this may also amount to fraud”.
  • In any event, said the Court, a seller has a duty to disclose any “unusual or abnormal qualities” in a house, and the uneven floors were such an unusual feature that they should have been revealed.

Buyers – be warned 

Be warned that depriving a seller of the protection of a voetstoots clause is never going to be easy, particularly since you will need to prove that the seller intended to defraud you by concealing a defect. Rather be sure of the condition of the house and property before you buy – consider for example using a trustworthy home inspection service to check everything out for you.

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Estate Agents Commission

Selling a home is one of the biggest financial decisions a person can make and an estate agent, to whom commission will be payable, is usually involved in this process.

A problem that frequently occurs in practice and which is not easy to solve is whether an agent was in fact instrumental in bringing about the sale of the property. It could happen that an agent introduces a prospective buyer, that negotiations for the sale do not succeed and that another agent succeeds in concluding the agreement. It is common practice for more than one agent to be instructed to find a purchaser. It could even happen that a seller is held responsible for paying commission to two agents.

An estate agent is not an agent in the strict sense of the word.  His “mandate” is normally to find a suitable purchaser for the seller’s property and not to sell on behalf of the seller. This is, however, not a contract in the usual sense where parties undertake reciprocal obligations. In fact, the agent is not obliged to perform his mandate. An estate agent will only be entitled to commission if he has a mandate from the seller; without the mandate he is not entitled to commission, even though he might have been the effective cause of the transaction.

An estate agent will be considered to be the effective cause of the transaction when:

  • he has introduced a willing and financially able buyer to the seller;
  • a binding contract has been concluded between the parties; and
  • the transaction takes place at the stipulated price or at a price acceptable to the seller.

When several estate agents are involved in introducing the buyer to the seller it might be difficult for the court to determine which agent was the effective cause. For instance, when estate agent A introduces the buyer to the seller but the buyer later purchases the property through estate agent B after B has persuaded the seller to drop the price. Or estate agent A may have a sole mandate, but estate agent B introduced a willing and able buyer. The seller could then be liable for both estate agents’ commission. A sole mandate usually stipulates that the agent is entitled to commission if the property is sold during the currency of the agreement, even if another agent introduced the buyer.

In another matter a prospective buyer was introduced and the house was inspected. The price was considered too high. A few months later the purchaser noticed that the house was still in the market. He then bought the property without intervention from the agent at a slightly lower price than the earlier rejected price. The estate agent was held to be entitled to his commission.

How much commission is an estate agent entitled to? The average commission ranges up to 7.5%, but there are no regulations as to how much commission an estate agent should be paid per sale. The commission should be discussed by the parties when negotiating the mandate.

Sole mandates that are given to estate agents are regulated by the Consumer Protection Act. The duration of theagreement may not exceed 24 months. The seller has the right to cancel the agreement by giving 20 business days’ notice in writing. If the mandate is not terminated by the seller on the expiry date it will automatically continue on a month-to-month basis.

Seller, be wary of these pitfalls when selling your property – they could be very costly.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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