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Buyer Beware - Consumer Protection Act offers you limited protection when you buy a new home

By Anneli van Heerden, LL.B; LL.M; Candidate Attorney at Friedman Scheckter - Feb 21, 2019
Buyer Beware - Consumer Protection Act offers you limited protection when you buy a new home

The caveat subscriptor is a well-known principle in the South African law of contract. In short, this rule means “let he who signs beware”.

The rule warns parties entering into a contract to be wary of signing a contract that they either did not read, or did not understand at the time of signing, as they will nevertheless remain bound to the terms of the written agreement.

The South African law of contract is now to a large extent governed by the Consumer Protection Act (the CPA). As the name implies, the CPA aims to protect consumers that find themselves in a relatively weak position when signing contracts with suppliers.

The CPA lays down certain rules that these suppliers must comply with to safeguard the interests of the consumer. For instance, suppliers must specifically draw the consumer’s attention to certain important terms in a contract. If this is not done, a court may find that the consumer is simply not bound by those terms.

In other words, a court may rule that the CPA overrides the caveat subscriptorrule.

Parties often rely on the protection afforded by the CPA when signing a contract and assume that the CPA will allow them a way out of the contract should they find, at a later stage, that it does not suit them.

This is also true for parties entering into a contract to purchase immovable property. Very often, either the seller or the purchaser of the property is under severe pressure to accept an offer. In the seller’s case, the seller is often under threat of the buyer walking away if the offer is not accepted immediately.

The buyer, on the other hand, is worried that someone else might snatch the property out from under his nose. Buyers or sellers signing under pressure often labour under the error that the CPA will come to their rescue if they get cold feet after signing a contract in a hurry.

Consumer Protection Act offers you limited protection when you buy a new home

Buying a property is such an expensive purchase, people assume they are protected and find it inconceivable that the CPA might not apply.

But the fact of the matter is that the CPA finds very limited application in the sale and purchase of immovable property, especially residential property. This is due to the limitations imposed by the CPA itself, starting with who the parties to the contract are. The CPA applies only to transactions where the seller sells property in the course and scope of his ordinary business.

The CPA will therefore not apply in most to a sale of where the seller is an individual owner of the property, since he does not sell houses for a living.

The identity of the purchaser can also determine whether the CPA will apply. Contracts where the purchaser is a juristic person, such as a company, whose asset value or annual turnover is above a certain amount are excluded from the application of the CPA.

The threshold is currently set at R2, 000, 000.00. In other words, where the purchaser is a corporation that owns assets worth more than two million Rand, or makes an annual turnover of more than two million Rand, the CPA will not apply.

A few practical examples illustrate how the CPA limitations will impact on contracts for the sale of immovable property:

  1. Mr Joe Soap, a schoolteacher, is the owner of a residential property. He places an advert in the local newspaper to sell his house. The Joneses sign a written offer to purchase, which is accepted by Mr Soap. Since Mr Joe Soap is not in the business of selling houses, the CPA will not apply between Mr Soap and the Joneses to the sale. If however Mr Joe Soap was a property developer, and he develops and sells property as part of his business, the CPA would apply.
  1. Mr Jones, who is a wealthy businessman, purchases property on behalf of the Jones Family Trust. The Trust is already registered as the owner of a house that is valued at over two million Rand. Since the purchaser in this instance is a juristic person with an asset value above the threshold, the CPA will not apply.
  1. Mr Joe Soap is moving to a retirement village and asks an estate agent to market his house. The estate agent manages to find a purchaser who signs the offer to purchase in his personal capacity. Both the seller and the purchaser are private individuals, and, therefore, the CPA will not apply to this transaction.

The last-mentioned of these examples requires further explanation. The estate agent is in the business of selling houses, and one would think that the CPA should therefore apply to the transaction.

The contract of sale is, however, between the seller and purchaser, and both of them are private individuals. The estate agent is not a party to the contract, and the CPA will therefore not apply to the purchase of the property, as between buyer and seller.

It is true, however, that the contract between the estate agent and the seller (the mandate agreement) will be subject to the CPA, and the CPA will provide protection to the seller against the estate agent.

The CPA is still fairly new in South Africa, and certain aspects of it must still be tested in the courts for us to get greater clarity on it. Even the circumstances under which the CPA will apply are not always clear-cut.

Contracting parties are cautioned against assuming that the CPA will afford them protection in circumstances where it does not necessarily apply.

Before signing a contract, it is best to consult a legal professional who will be able to advise you on the legal consequences thereof.

For help or for more information, visit friedmanscheckter.co.za or call 041 395 8400 or find them at 75 2nd Ave, Newton Park, Port Elizabeth.

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