Last month I highlighted elements of the code of conduct that came into effect on 1 February 2022 under the Property Practitioners Act of 2019 (the ‘PP Act’). This article is an overview of the PP Act’s provisions that apply to managing agents and paid trustees.
The Property Practitioners Regulatory Authority (the ‘PPRA’) falls under the Department of Human Settlements and has taken over from what was the Estate Agency Affairs Board.
The definition of ‘property practitioners’ in subsection section 1(c) of the PP Act states that the term “includes any person who for remuneration manages a property on behalf of another;”. Subsection 1.22.3 of the PP Act defines a “managing agent” by reference to prescribed management rule 28 under the STSM Act. It also provides that this term includes ”a scheme executive under the Regulations on Community Schemes Ombud Service…” Regulation 1 under the Community Scheme Ombud Service Act defines a “scheme executive” as: “a person who is a trustee, director, or another person who exercises executive control of a community scheme”.
In a sectional title scheme, any managing agent, trustee or other person who ‘exercises executive control’ of the scheme is a managing agent and a property practitioner who must comply with the provisions of the PP Act.
The objects of the PP Act are to provide and promote:
- licensing of property practitioners;
- protection of consumers’ interests;
- a dispute resolution mechanism;
- education, training and development of property practitioners; and
- transformation of the market to achieve meaningful participation by historically disadvantaged individuals
Fidelity Fund Certificates, annual levies and trust accounts
Managing agents must hold and display Property Practitioners Fidelity Fund (‘PPFF’) certificates that expire at the end of each calendar year. Without such a certificate, a managing agent is not entitled to act or be paid. A person defrauded by a managing agent can lodge a compensation claim with the PPFF. The maximum amount that the PPFF may pay a claimant for each cause of action is R2 Million.
From the calendar year 2020, every managing agent must pay the PPRA a levy set at R2 340 for three years. With the PPRA’s permission, a reduced levy of R780 per annum may be paid. Candidate property practitioners pay a reduced levy of R380 per year for their first two years. Each qualifying property practitioner must pay the PPFF R400.
Managing agents must keep a trust account unless exempt from this requirement. Regulation 2.6 provides:
‘A managing agent shall not be required to operate a trust account in respect of a body corporate where the funds of that body corporate are held in a bank account opened in the name of the body corporate concerned in terms of section 21(4)(a) of the Sectional Titles Schemes Management Act….’
Complaints, Inspectors, Mediation and Adjudication
Any person can lodge a complaint against a managing agent. The PPRA can refer the complaint to mediation or adjudication. PPRA inspectors can enter a managing agent’s premises at any reasonable time and without a warrant check that the PP Act is being complied with and inspect records, accounts or documents. Inspectors do not need to give prior written notice of the inspection unless the premises is a private residence. With a court warrant, they can enter private residences to conduct search and seizure operations, extract information, request information, open safes and offices and remove books, documents and computers. For a minor contravention, the PPRA can issue a compliance notice and determine a fine if the person admits the offence.
If complaints referred to mediation are not resolved, they must be referred to adjudication. A person convicted of an offence under the PP Act is liable to a fine or imprisonment for up to ten years. The fines are classified as minor or substantial in regulation 38 and vary from R750 to R40 000 per offence. An adjudicator’s decision can be appealed to an Adjudication Appeal Committee.
Code of Conduct and undesirable business practices
The PPRA intends to develop “industry-specific” codes of conduct for each category of property practitioners after consultation with industry representatives. Regulation 34.2 sets out duties applicable to managing agents, paid trustees and all other property practitioners in the interim. In summary, the current duties are:
- Not to do anything contrary to the integrity of property practitioners in general.
- As best they are able, to protect the interests of their clients at all times, with due regard to the interests of all other parties concerned.
- Not to accept a mandate if its performance requires specialised skill or knowledge falling outside their field of competence.
- Not to willfully or negligently fail to perform any work or duties as carefully and skillfully as reasonably expected of a property practitioner.
- To comply with the PP Act, its regulations and all applicable bylaws.
- Not to do anything indirectly via a third party that they are prohibited from doing under the PP Act.
- Not to influence anyone entitled to trust funds to pay them any interest earned on those funds.
- When instructed to invest a client’s money, do so at the best interest rate available in the circumstances and pay the entire interest accrued to the client.
- Not, without just cause, to divulge any confidential information obtained regarding a client’s affairs to any third party.
Under section 63 read with regulation 35, the PP Act prohibits the following undesirable business practices:
- An arrangement where a franchisor limits franchisees’ rights to manage their own marketing or disposal of their businesses using their own agents, or penalises them for not using the franchisor or its appointees for these purposes.
- Any arrangement under which a person who controls or manages any residential body corporate, homeowners’ association or other community scheme, i.e. the scheme’s management association–
- receives any reward, benefit, advantage or preferential treatment for marketing properties in the scheme;
- requires that a property in the scheme can only be disposed of via the agency of the manager or a property practitioner it designates or penalises an owner for failing to do so;
- requires that property in a scheme can only be disposed of to the management association or a person or entity it designates;
- gives one or a group of property practitioners an advantage over others in providing services to owners in the scheme; or
- excludes or disadvantages one or a group of property practitioners from providing services to properties in the scheme.
Graham Paddock is a specialist community schemes attorney, notary and conveyancer. He has been advising clients and teaching students for over 40 years, and was an adjunct professor at UCT for 10 years.
Article reference: Paddocks Press: Volume 17, Issue 3.
This article is published under the Creative Commons Attribution license.