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Home Owners’ Association Constitutions naming Preferred Service Providers by Alden Klaasen

The practice of naming preferred service providers – like estate agents or conveyancing attorneys – in the constitutions of Home Owners’ Associations or Sectional Title Schemes, raises legal and ethical questions.

Estate Agents

In Atlantic Beach Homeowners Association and others v The Estate Agency Affairs Board (978/2018 ZASCA 112), the Estate Agency Affairs Board brought charges against the Atlantic Beach Homeowners Association (the “ABHOA”), their CEO, a franchise of Pam Golding Properties (“PGP”) and the Principal of the franchise, arising from a “Property Partnership Agreement” between the ABHOA and PGP granting PGP preferential marketing rights on the ABHOA Golf Estate. The ABHOA would in turn receive a percentage of the purchase price of any property sold pursuant to the agreement.

On appeal the outcome was, briefly stated, that estate agencies may enter into preferential marketing/partnership agreements with home owners’ associations for joint marketing and joint advertising purposes, provided that the association does not hold itself out to the public as estate agents and provided that the estate agents are named as preferred and not exclusive service providers. An agreement on exclusivity may be anticompetitive conduct in contravention of competition law, as shown below.

Conveyancing attorneys

 

The Property Practitioners Act 22 of 2019 (to which conveyancing attorneys are subject) provides as follows in section 58:

 “58.   Limitation on relationships with other property market service providers –

 A property practitioner may not –

 

  •  (a) practice in association with any person which or who is prohibited by any law, any professional code of conduct, any code of ethics or protocol, report or charter on corporate governance, from doing so; or
  •  (b) enter into any arrangement, formally or informally, whereby a consumer is obliged or encouraged to use a particular service provider including an attorney to render any service or ancillary services in respect of any transaction of which that property practitioner was the effective cause.” [own emphasis]

 

The professional Code of Conduct applicable to all legal practitioners under the Legal Practice Act 28 of 2014 contains the following rules:

“3.       Legal practitioners, candidate legal practitioners and juristic entities shall –

 3.9        retain the independence necessary to enable them to give their clients or employers unbiased advice.

and

12.1      An Attorney or a firm shall not, directly or indirectly, enter into any express or tacit agreement, arrangement or scheme of operation or any partnership (express, tacit or implied), the result or potential result whereof is to secure for him or her or it the benefit of professional work, solicited by a person who is not an attorney, for reward, whether in money or in kind; but this prohibition shall not in any way limit bona fide and proper marketing activities.

and

  1. An attorney may not act in terms of a deed of sale or alienation of immovable property in which the attorney’s name or the name of the attorney’s firm has been pre-printed or duplicated as the transferring attorney. This prohibition will not, however apply if a separate written instruction is given to the attorney prior to the signature of the deed of sale or alienation or to an agreement prepared by the attorney on instruction from the client.

and

 An attorney shall –

 18.9      not act in association with any organization or person whose business or part of whose business it is to solicit instructions for the attorney;

 18.10    not buy instructions in matters from a third party and may not, directly or indirectly, pay or reward a third party, or give any consideration for the referral of clients other than an allowance on fees to an attorney for the referral work;

 18.22    not tout for professional work. An attorney will be regarded as being guilty of touting for professional work if he or she either personally or through the agency of another, procures or seeks to procure, or solicits for, professional work in an improper or unprofessional manner or by unfair or unethical means, all of which for purposes of this rule will include, but not be limited to –

 18.22.1    the payment of money, or the offering of any financial reward or other inducement of any kind whatsoever, directly or indirectly, to any person in return for the referral of professional work; or

 18.22.2    directly or indirectly participating in an arrangement or scheme of operation resulting in, or calculated to result in, the attorney’s securing professional work solicited by a third party.”

Competition Law

Under the Competition Act 89 of 1998 agreements or arrangements concerning exclusive service providers may amount to anticompetitive conduct:

“Section 5. Restrictive vertical relationships –

 An agreement between parties in a vertical relationship is prohibited if it has the effect of substantially preventing or lessening competition in a market, unless a party to the agreement can prove that any technological, efficiency or other pro-competitive, gain resulting from that agreement outweighs that effect.

An example of such a prohibited restrictive agreement in a property transaction is that of “tying”: the upstream party (seller of property) makes the sale of the property subject to adherence by the purchaser to the Home Owners’ Association Constitution, which provides that the purchaser shall make use of the services of a particular estate agent or conveyancing attorney for any future sale of the property.

Conclusions

The constitution of a Home Owners’ Association or Sectional Title Scheme may name an estate agent as preferred service provider for future transactions involving property within the association or scheme, but not as the exclusive service provider. Conveyancing attorneys may not be party to any express or tacit agreement, arrangement or scheme of operation, if the result or potential result is to secure for him or her the benefit of professional work, solicited by a person who is not an attorney. This prohibits the naming of a conveyancing attorney as preferred or exclusive service provider in the constitution of a Home Owners’ Association or Sectional Title Scheme, for the purpose of future transactions involving property within the association or scheme.

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