The legality of an agreement between a home owners association and an estate agency, conferring upon the estate agency preferential marketing rights in return for payment of a percentage of the sales value of the property, has recently been decided on by the Supreme Court of Appeal.
This decision was handed down on 16 September 2019 in the case of Atlantic Beach Home Owners Association and others v The Estate Agency Affairs Board (978/218 ZASCA 112).
In this matter, the Estate Agency Affairs Board (EAAB) had brought charges against the Atlantic Beach Home Owners Association (ABHO) and their CEO, Mr Harry White, along with a franchise of Pam Golding Properties (PGP) and their principal, Mrs Emarie Campbell, flowing from a “Property Partnership Agreement” that had been entered into between the ABHOA and PGP.
In terms of this agreement PGP were afforded special marketing privileges and marketing assistance on the Atlantic Beach Golf Estate, in return for which the ABHOA received a percentage of the sales value of any property sold.
Rival estate agencies in the area were obviously dissatisfied by this arrangement and complaints were lodged against PGP at the EAAB. Following these complaints, the EAAB instituted disciplinary procedures against PGP and their principal, and instituted criminal charges against the ABHOA and their CEO. These charges were premised on the assumption that the ABHOA was operating as an estate agency without a fidelity fund certificate, and that PGP were complicit.
In their defence, the ABHOA and PGP brought an application in the Cape Town High Court in which they asked the court:
- to declare that the ABHOA and their CEO were not estate agents as defined in the Estate Agency Affairs Act (and therefore did not need fidelity fund certificates); and
- to set aside the decision by the EAAB to institute disciplinary steps against the parties.
The ABHOA and PGP lost the case in the Cape Town High Court on a technical point, but they took the decision on appeal.
At the appeal hearing, the EAAB argued that because the Property Partnership Agreement placed an obligation on the ABHOA to carry out joint marketing and joint advertising initiatives to generate leads for PGP, and because they received a percentage of the purchase price from the sale as payment, the ABHOA fell within the definition of an estate agent and therefore required a fidelity fund certificate.
The court however did not agree. The court found that a person who merely carries out the functions of an estate agent does not automatically become an estate agent for the purposes of the Act unless they also hold themselves out or advertise, “for the acquisition of gain”, that they are doing this work. To put it another way, the ABHOA would only have fallen within the definition of an estate agent if they had, with the intention to make a profit, made it public that they were carrying out the work of an estate agent.
The court interpreted the ABHOA‘s obligations in terms of the Property Partnership Agreement to be nothing more than the provision of marketing benefits and it was in return for these marketing benefits that the ABHOA was to be paid.
The judge therefore upheld the appeal and set aside all the disciplinary charges that the EAAB had initiated against the ABHOA and PGP.
On the basis of this judgement, it would appear that the way is now clear for individual estate agencies to enter into these types of property partnership agreements with home owners’ associations or body corporates.
But please beware, arrangements of this nature may not be exclusive, i.e. they may not deprive other agencies of the right to sell property on the estate. This is because such an exclusive contract would fall foul of our competitions law.
Miltons Matsemela Inc
Republished with permission