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Property Practitioners Bill Commentary - 4

28 February 2019

Application for a Fidelity Fund Certificate (FFC)
Every Property Practitioner must apply to the PPRA, and pay the fee, for an FFC. These applications do however only have to be made every three years. It would appear, therefore, that the FFC will be valid for a period of three years! From an administrative point of view this is to be welcomed, as it will reduce the burden on the PPRA. I suspect, however, that the cost of the FFC will increase.

If the Property Practitioner is a trust, it gets special treatment. It also has to apply for a registration certificate. Precisely what this registration certificate will look like is unknown. There is no further explanation of a registration certificate in the rest of the Act.

Once the application for the FFC has been received, and provided it complies with all requirements and the applicant is not disqualified from trading as a Property Practitioner, the PPRA must issue a certificate and the certificate must be valid “until 31 December of the year to which such application relates”. The wording here does not seem to acknowledge that the FFC will be valid for a period of three years, but I ascribe this to sloppy draughtsmanship.

If you apply late or if your application is not accompanied by the fee, you will be liable for a penalty and you will not receive your FFC until the penalty has been paid.

You are not entitled to use or display a lapsed FFC and you must produce your FFC to any person who requests it. If your contact details change during the period of validity of your FFC, you must notify PPRA within 14 days. Failure to do so is an offence.

Mandatory time periods for issuing FFC’s
The PPRA is given deadlines within which it has to issue a FFC. It has to consider an application within 30 working days, subject to a 20 working day extension if there are special circumstances. If the PPRA does not issue the FFC within this period, the application for the FFC is deemed to have been approved and the FFC must issue the relevant certificate within 10 working days of written request.

Prohibition on rendering services without an FFC
You’re not entitled to act as a Property Practitioner unless you have a FFC. All employees who act as Property Practitioners must also have FFC’s and so must every director of a company, every member of a close corporation, every trustee of a trust and every partner of a partnership. Trading without an FFC is an offence.

In the previous Act, an estate agent was unable to enforce a claim for payment of commission if their FFC was not in order. If the commission had been paid however, the estate agent was able to keep the money. This is no longer the case. The new Act now provides that if you acted as a Property Practitioner without an FFC, you must refund any amount received in respect of a transaction (entered into) during such contravention. Once again, the drafting here leaves a lot to be desired, but the intention is clear. If the seller finds out at a later stage that you did not have an FFC during the period of the transaction, that seller will be able to reclaim the commission.

If you do not repay this commission, you will be guilty of an offence in terms of the Act and liable to a fine or a prison sentence of up to 10 years. This section therefore substantially increases the risks of trading without a FFC.

Disqualification from issue of an FFC
Not everyone is entitled to be issued with an FFC. One of the newly disqualified categories of people are those who are “not a South African citizen and do not lawfully reside in the Republic.”.

Other categories of people who are disqualified from holding FFC’s are people who have been found guilty of contravening the Property Practitioners Act or the Estate Agency Affairs Act, people who have been found guilty of offences containing an element of fraud or dishonesty, unrehabilitated insolvents and anybody who has been found guilty of an offence relating to discrimination.

In addition, an applicant for an FFC will have to have a Tax Clearance Certificate, and if they are a juristic person, a valid Black Economic Empowerment Certificate, confirming their compliance with the current BEE legislation.

The PPRA also reserve the right to amend the particulars of a FFC after it has been issued. Precisely what is intended by this section is a mystery to me.

If a person or a juristic entity becomes disqualified from holding an FFC at any stage, the PPRA have the right to withdraw the FFC.

Display of FFC
A holder of an FFC has to display it at their place of business. They also have to make reference to it on their letterheads and on their marketing material. Any agreement relating to a property transaction which the Property Practitioner concludes must also contain a prescribed clause in which the validity of the Property Practitioners FFC is guaranteed. Precisely what this prescribed clause will say is still to be determined.

Failure to comply with these duties will constitute an offence.

Trust Accounts
Like the old Act, the new Act makes provision for Property Practitioners to run one or more separate trust banking accounts, into which money held on behalf of clients must be deposited. The Property Practitioner must furnish the PPRA with full details of these accounts and the details of the auditor who has been appointed by the Property Practitioner to audit the accounts.

Money that is not immediately required may be deposited into an interest-bearing account where the interest will accrue to the client. This account must contain a reference to Section 54 (2) of the Act.

The trust accounts must be balanced on a monthly basis and the trust and business accounts of the Property Practitioner must be audited within six months of the Property Practitioner’s financial year end. These audit reports must be sent to the PPRA.

To assist smaller businesses, Property Practitioners whose annual turnover is less than R2,5 million will not need to have their trust account audited. Instead of paying for an auditor the trust account can be independently reviewed by a registered accountant. This independent review will be cheaper than an audit.

Trust money received by a Property Practitioner will never form part of the Property Practitioner’s deceased or insolvent estate. This is regardless of which account the money might have been paid into.

Property Practitioners not entitled to remuneration
Just like the old Act, the new Act prevents a Property Practitioner from claiming remuneration arising out of the performance of any act as a Property Practitioner if, at the time that the act was performed, the Property Practitioner (and if the Property Practitioner is a company, close corporation or trust, all directors, members, or trustees) is/are in possession of valid FFCs. Trusts also have to have a registration certificate. Property Practitioners who receive payments to which they are not entitled, are obliged to pay these amounts to the Fidelity Fund and if these amounts are not re-claimed within three years. The money will accrue to the Fidelity Fund.

Conveyancers are prohibited from paying out commission unless the Property Practitioner has provided the conveyancer with a certified copy of their FFC valid during the period or on the date of the transaction to which such payment relates, and on the date of such payment. It seems therefore that the FFC has to remain valid from the date of first offer, until registration of transfer.

Mandatory Indemnity Insurance
The Minister (of Human Settlements) may now also prescribe indemnity insurance which a Property Practitioner must take out to provide redress for persons affected as a result of a Property Practitioner breaching the code of conduct or committing some other offence in terms of the Act.

In the next part of this series, I will be continuing with the sections dealing with Property Practitioners and I will be finishing off with the sections relating to consumer protection. The next part of the series will be the final part.

Deon Welz
Miltons Matsemela

Republished with permission

Reader Comments: 1
Amanda Laubscher-Holtzhausen 08/03/2019:

Thank you, very helpful. How will this be dealt with in the case of Sole Proprietors? "Trust money received by a Property Practitioner will never form part of the Property Practitioner’s deceased or insolvent estate. This is regardless of which account the money might have been paid into."

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