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Consumer Protection Act: How does it affect property transactions?

By Anneli van Heerden, LL.B; LL.M; Candidate Attorney at Friedman Scheckter - Apr 18, 2019
Consumer Protection Act: How does it affect property transactions?

Consumer Protection Act so far has limited applications to the sale of immovable property

Port Elizabeth - The Consumer Protection Act (CPA) came into force in March of 2011, and has been widely praised for the protection afforded to consumers, who are often in a weak position when transacting with large corporations.

The CPA, however, finds very limited application to the sale of immovable property, largely due to the fact that it applies only where the seller is a person who sells property in the ordinary course and scope of his business, and most property transactions are concluded between two private individuals.

That is not to say that all transactions for the sale of immovable property are excluded. Where the seller is, for instance, a property developer that sells houses in the ordinary course and scope of his business and the purchaser is a private individual, the CPA will apply.

The provisions of the CPA furthermore apply to estate agents, since estate agents market properties in the ordinary course and scope of business. Contracting parties should therefore know what protection is afforded to them by the CPA.

  1. Arguably the most far-reaching effect of the CPA on property transactions is how it interrelates with the voetstoots clause. The voetstootsclause is a term generally included in most offers to purchase that absolves the seller from any liability for defects that the purchaser may discover after taking transfer of the property. The property is therefore sold “as is”, and the seller will not have recourse against the purchaser should he later find that there are defects to the property that he did not know of at the time of signing the contract.

The CPA, however, provides that a supplier (in the present circumstances the seller) must supply goods that are suitable for the purpose for which it was bought, and goods which are of good quality and free of defects, unless the purchaser was specifically made aware that the goods were offered in a certain condition. If the purchased property has a defect of which the purchaser was unaware, he may return the goods to the seller within six months and claim back any money he has already paid without the risk of a penalty being imposed. The purchaser will be entitled to choose whether the seller should repair the defect at the seller’s expense, or whether the seller should refund the purchaser for the defective property. This provision therefore has the effect of invalidating any voetstootsclause that may be included in the contract.

  1. The CPA also has an interesting effect on the caveat subscriptorprinciple. This principle means that once a contract is signed, both parties will be held to the terms thereof – even the ones that they did not read and of which they were completely unaware. Caveat subscriptoroften works to the detriment of a purchaser who did not clearly understand all the terms of an agreement at the time of signing it. Where the CPA applies, however, the seller is under an obligation to make sure that the agreement is in plain and understandable language. If the agreement is reduced to writing (as is required in the case of the sale of immovable property), it must also include a breakdown of the purchaser’s financial obligations. Therefore, the burden is shifted to the seller who is under the obligation to make sure that the purchaser understands exactly what the contract entails. This softens the effect the caveat subscriptor principle ordinarily has on contracts.
  1. The CPA furthermore has an effect on the time when the risk of damage or destruction will pass to the purchaser. At common law, the risk passes once an agreement is perfected. That is to say, once the subject matter of the sale and the purchase price are determined. The property does not have to be registered in the name of the purchaser for risk to pass. The purchaser therefore bears the risk of any damage to the property as soon as the contract is signed, even though he is not yet the owner of the property. Should a severe storm, for instance, completely destroy the property before registration, it is the purchaser that carries the loss, even though he is not yet the owner of the property.

The CPA now provides that the risk will remain with the seller until such a time as the good are delivered. In property terms, this means that the seller remains liable for any damage to the property until such time as the property has been transferred to the purchaser.

  1. In terms of the CPA, all purchasers are entitled to a five-day cooling off period where the transaction resulted from direct marketing. This means that the purchaser may, within five business days of taking transfer of the property, cancel the contract and claim back any money that has already been paid. If the purchaser chooses to exercise his cooling-off right and cancel the contract, he need only send written notice to the seller, and does not have to explain to the seller what his reasons are for cancelling. The cooling-off right provided for in the Alienation of Land Act is somewhat different in that it is limited to property transactions where the purchase price is R250,000.00 or less and the five-day count starts when the contract is concluded, not when the property is transferred. The CPA therefore extends the cooling-off right quite significantly.

In summary, the CPA invalidates the voetstootsclause, it reverses the effect of the caveat subscriptorprinciple, it changes the time when risk will pass to the purchaser, and it affords the purchaser a cooling-off period when his decision to purchase was as a result of direct marketing.

The CPA is therefore a very powerful tool that can be wielded by a contracting party if it applies to the transaction in question.

For more inforation contact Friedman Scheckter Attorneys at friedmanscheckter.co.za or visit 75 2nd Avenue, Newton Park, Port Elizabeth.

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