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

17. 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.

The Appellant is the Mount Edgecombe Country Club Estate Management Association II (RF) NPC (“the Association”), a non-profit company and an association of homeowners. In terms of the Association’s Memorandum of Incorporation (“MOI”), membership of the Association is obligatory for all owners of residential property situated within the Mount Edgecombe Country Club Estate Two (“the Estate”). The First Respondent, Mr N Singh, and the Second Respondent, Mr MM Ramandh, are residents and property owners within the Estate.

Clause 20.1 of the MOI sets the speed limit on the roads within the Estate at 40km/h. The First Respondent’s daughter was issued with three contravention notices for exceeding the speed limit, imposing a penalty of R1,500.00 for each contravention. The amounts were deemed by the conduct rules to be part of the levy due by the owner and were debited to the First Respondent’s account accordingly. The Association deactivated the access cards and biometric access of the First Respondent and members of his household after he refused to pay.

Upon application by the First Respondent for urgent spoliatory relief, the High Court of KwaZulu Natal issued a rule nisi, directing the Association to reactivate the First Respondent’s access cards and the biometric access of his family. The full court declared the Association’s rules regulating the speed limit within the Estate invalid and unlawful. The Association appealed the order of the full court to the Supreme Court of Appeal (“SCA”). The appeal was concerned with the lawfulness of rules 7.1.2 and 7.3.2. Those rules provide that:

“7.1.2   The speed limit throughout [the estate] is 40 km/h. Any person found driving in excess of 40 km/h, will be subject to a penalty. The presence of children and pedestrians as well as many undomesticated animals such as buck, monkeys, mongoose, leguans and wild birds means that drivers need to exercise additional caution when using the roads.

7.3.2     Operating any vehicle in contravention of the National Road Traffic Act within [the estate] is prohibited.”

The SCA had to decide whether the Estate roads are public roads for purposes of the National Road Traffic Act 93 of 1996 (“the Act”). A public road is defined in Section 1 of the Act as:

“any road, street or thoroughfare or any other place (whether a thoroughfare or not) which is commonly used by the public or any section thereof or to which the public or any section thereof has a right of access….”

Applying the test of whether a section of the public at least commonly uses the area or has a right of access thereto, the SCA held that the roads within the Estate are not public roads. This was based on the fact that the Estate is enclosed by a high fence topped with electrified security wiring and access to the Estate is strictly controlled. The general public therefore does not have access to the roads within the Estate.

The court regarded the relationship between the Association and the Respondents as contractual in nature. The Respondents became members of the Association by purchasing property within the Estate and agreed to be bound by its rules. Third parties can only gain access to the Estate with prior consent of the owner concerned. In terms of clause 21.2 of the MOI the owner will be responsible for any breach of the conduct rules by the invitee of that owner. Clause 21.2 of the MOI provides that:

“In the event of any breach of the conduct rules for residents by any Lessees of Units, guests or invitees, authorised representatives or any other duly authorised person such breach shall be deemed to have been committed by the Member and the Directors shall be entitled to take such action as they may deem fit against the responsible Member.”

No sanction is therefore imposed on the third party, because the rules are only enforceable between the contracting parties and not on the public at large. The SCA therefore set aside the judgment of the full court of the High Court of KwaZulu Natal, holding that the rules are private and the Association is not usurping the functions of the recognised authorities or contravening the provisions of the Act. The Association did not have to seek and obtain permission from the MEC or the local municipality to enforce the rules regulating the speed limit within the Estate. The appeal therefore succeeded.

The effect of this SCA judgment is that the home owners’ association of a private residential estates can legally enforce rules regulating the speed limit within the estate against its members, also where a third party as guest or invitee of a member contravened the rules, and not the member itself.