Special Reports

Wholesale changes needed in industry

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The commission that deliberated on the role and mandate of the Estate Agency Affairs Board attracted robust debate and discussion.

Bryan Chaplog, chief financial officer of Estate Agency Affairs Board with Karen Crowson, president of the Association of Real Estate License Law Officials. (Lisa Skinner, M&G)

The debate centred on the legislative framework that is being revised to better reflect the specific roles of both the board and the industry, specifically in the context of the Department of Human Settlements' mandate. The legislative review will no doubt introduce changes, although their extent is still being formalised.

"When we engage in legislative reform, one of the most important fundamental principles is consultation," said Khwezi Ngwenya, legal adviser to the department, in his report on the commission's deliberations.

"The minister has said that you will have an opportunity to deal with the legislative reform and review. Our commitment today is that there will be meaningful consultation with you," he told the summit audience.

One of the challenges would be to harmonise the proposed new Property Act with existing legislation such as the Consumer Protection Act, the National Credit Act, the Rental Housing Act, the Financial Intelligence Centre Act, the Promotion of Administrative Justice Act and the Promotion of Access to Information Act.

The most desirable structure and composition of the board were debated, specifically the efficacy of having 15 members, as required under the current Estate Agency Affairs Act. The commission members suggested two courses of action. The first was to retain the current number, but to include other industry role players such as professional organisations and auctioneers. The second was to reduce the number of board members and limit them to individuals with specific expertise.

An addendum to this second proposal — that these individuals suspend or relinquish their business activities while serving on the board — met with some opposition from delegates, who pointed out that this would not be financially viable.

Ngwenya said that this concern was valid, but that a mechanism was needed to avoid conflicts of interest if board members were still active in the industry.

The commission also tackled the thorny issue of onerous financial and fiduciary responsibilities, which are recognised as both essential to the industry's credibility and a significant barrier to entry for newcomers.

This discussion focused on the holding and management of trust accounts, which, as in the case of Wendy Machanik Properties, have been open to abuse.

The commission suggested that either the status quo be maintained to ensure the highest level of protection for consumers, or that exemptions be provided for smaller enterprises.

Exactly how this would be applied was not discussed and will surely be a key debate once the final proposals are opened for public comment.

Allied to the fiduciary duties is the question of the Estate Agents Fidelity Fund. This fund provides consumer education and information and pays damages claims to consumers who have suffered from dealing with unscrupulous property practitioners.

One of the main bugbears for delegates was the payment from the fund of damages incurred by non-members, which undermined bona fide members' contributions and efforts.

Proposals to overcome this subversion of the system included a levy payable to the Deeds Office on each property transfer, which would then be transferred to the fund. A similar proposal was that all transfers lodged with the Deeds Office be accompanied by a valid fidelity fund certificate, which would ensure that only registered agents operate in the industry.

It was also suggested that the fund should do more to educate consumers, which would reduce unnecessary claims against this kitty. Other suggestions included capping damages payments, expediting the claims process and providing better clarity on the progress of such claims.

Additional measures that could be introduced to mitigate the impact on the fund would be to broaden the definition of "estate agent" in the Act to include intermediaries, auctioneers and the like, and also possibly providing additional protection to estate agents through professional indemnity insurance cover paid for from the fund.

Ngwenya acknowledged that no provisions aimed at protecting consumers and the industry would be worth anything unless the new law had sufficient punitive powers to identify and prosecute illegal practices.

"We will have a look at various other pieces of legislation as to how that particular enforcement mechanism was applied," he said.

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