- Remuneration
No property practitioner shall:
Code:
8.1 stipulate for, demand, or receive directly or indirectly any remuneration, commission, benefit or gain arising from or connected with any completed, pending, or proposed contract of sale or lease which is subject to –
8.1.1 a suspensive condition, until that condition has been fulfilled; or
8.1.2 a resolutive condition, during the time that the transaction may fall away as a result of the operation of the said resolutive condition:
Provided that the foregoing shall not apply if
(aa) good cause exists; and
(bb) the party liable for the payment of remuneration, commission, benefit or gain has expressly consented in a written document executed independently of the contract in question, to such payment at any time, although the said contract is subject to a suspensive or resolutive condition, as the case may be; and
(cc) such document contains an explanation of the implications and financial risks for such party of such payment; and
(dd) such document is signed by such party and the property practitioner in question.
Discussion:
At common law, a property practitioner is entitled to payment of commission on a transaction only once a binding agreement has been concluded. In this context, an agreement is binding only if all suspensive conditions have been fulfilled. It is clearly not in the interests of the seller to be placed in a position where they are liable to pay commission whether or not suspensive conditions have been fulfilled, since that would mean they are liable to pay commission whether or not a sale actually materialises.
Examples of suspensive conditions normally found in an agreement of sale are that the purchaser is to obtain a loan to cover the balance of the purchase price from a financial institution, or that they are to sell their own house, before or on a certain date.
If a contract of sale is subject to a resolutive condition, the contract is binding on signature thereof by both parties but terminates upon fulfilment of the resolutive condition. A typical example of a resolutive condition would be a stipulation in an agreement of sale of a proposed sectional title unit that the sale will terminate should the sectional title register not be opened before or on a certain date. In such a case, it would obviously not be in the interests of the seller to bind themselves to pay commission on the signature of the agreement, as that sale may eventually fall through.
Clause 8.1 prohibits the inclusion of clauses in sale or lease agreements stipulating that commission is payable on the signature of the agreement, whether or not a particular suspensive or resolutive condition in the contract has been fulfilled. There may, however, be instances where payment of commission in such circumstances can be justified, for example, when there is an extraordinarily long period between the date of signature of the agreement and the date specified for the fulfilment of the suspensive condition.
If the party responsible for payment of commission agrees to pay commission before fulfilment of suspensive conditions, a written document separate from the agreement of sale or lease must be drawn up. Such document must set out the implications and financial risks for the party concerned of such payment. The document must then be signed by such a party and the property practitioner in question.
Code:
8.2 convey to their client or any other party to a completed or proposed transaction in which they acted or act as a property practitioner, that they are precluded by law from charging less than a particular commission or fee, or that such commission or fee is prescribed by law, the PPRA or any institute or association of property practitioners or any other body;
Discussion:
The purpose of this clause is to avoid misrepresentation on the part of a property practitioner regarding the amount of commission that they may charge.
There is no prescribed commission tariff for property practitioners, although the Institute of Property Practitioners of South Africa has a recommended tariff for its members.
The Code does not prohibit a property practitioner from advertising their commission rate. It is not, however, permissible to advertise that the property practitioner guarantees to undercut any other property practitioner’s rate or that their tariff is lower than that of their competitor’s. To do so would be misleading since a property practitioner’s commission is usually linked to the services offered by them.
Code:
8.3 introduce a prospective purchaser or lessee to any immovable property or the seller or lessor thereof, if they know, or have reason to believe, that such person has already been introduced to such property or the seller or lessor thereof by another property practitioner and that there is a likelihood that their client may have to pay commission to such other, or more than one, property practitioner should the sale or lease be concluded through their intervention:
Provided that the foregoing shall not apply if the property practitioner has informed their client of such likelihood and obtained written consent to introduce such party to the property or the seller or lessor thereof;
Discussion:
The purpose of this clause is to avoid double commission disputes.
Code:
8.4 include, or cause to be included, or accept the benefit of, any clause in a mandate or a contract of sale or lease of immovable property, providing for payment to them by the seller or lessor of immovable property, of any remuneration, commission, benefit or gain arising from or connected with a contract of sale or lease, regardless of the fact whether the purchaser or lessee is financially able to fulfil their obligations in terms of the said contract:
Provided that the foregoing shall not apply if
(aa) good cause exists; and
(bb) the seller or lessor has, before their signature of the contract or mandate (as the case may be), consented in writing in a document executed independently of the said mandate and contract, to such payment; and
(cc) such document contains an explanation of the implications and financial risks for the seller or lessor of such payment; and
(dd) such document is signed by both the property practitioner and the seller or lessor.
Discussion:
A common law requirement for the earning of commission on a sale is that a property practitioner must introduce a purchaser who is legally and financially able to implement the transaction. A commission clause in a sale agreement providing that the seller is to pay commission whether or not the purchaser is financially able to implement the sale is obviously not in the seller’s interest, and the inclusion of such a clause is prohibited by clause 8.4 of the Code of Conduct.
In the unlikely event that a seller is willing to pay the commission whether or not the purchaser is financially able to fulfil their contractual obligations, a separate document must be prepared. This document must contain an explanation of the implications and financial risks for the seller arising from such payment and must be signed by both the property practitioner and the seller.
Agreements of sale concluded subject to the condition that the purchaser is to obtain a loan on or before a certain date often provide that should the purchaser fail to apply for the loan and provide false information in their application solely to avoid fulfilment of the suspensive condition, they (the purchaser) will become liable for payment of a commission. The inclusion of such a clause is not prohibited by clause 8.4.
Code:
8.5 include, or cause to be included, or accept the benefit of, any clause in a contract of sale or lease of immovable property negotiated by them, entitling them to deduct from any money entrusted to them in terms of the contract, any remuneration, commission, benefit or gain arising from or connected with such contract: Provided that the foregoing shall not be so construed to prohibit a property practitioner from making such a deduction when such money is actually paid over by them to the party entitled thereto and such party is in terms of the said contract liable for the payment of such remuneration, commission, benefit or gain.
Discussion:
This clause prohibits a property practitioner from including provisions in agreements that entitle them to deduct their commission from deposits held by them in trust. Such a deduction can only be made when the deposit is actually paid over by the property practitioner to the party entitled thereto and provided that such party is in terms of the relevant agreement responsible for the payment of a commission. For example, in the case of a sale where the seller is liable to pay commission, the property practitioner may not deduct their commission from the purchaser’s deposit held by the property practitioner in trust.
The commission may, however, be deducted when the deposit is paid over to the seller or their representative. (If the agreement of sale authorises the conveyancer appointed by the seller to receive the purchase price on behalf of the seller, the conveyancer acts as the seller’s representative; accordingly, the property practitioner will be entitled to deduct commission when handing over the deposit to the conveyancer.)
Clause 8.5 must be read in conjunction with clause 9.4 of the Code, which is dealt with below. The latter clause regulates the inclusion of a clause in a sale providing for the payment of a deposit to the seller before registration of transfer of the property in the purchaser’s name. Clause 8.5 and 9.4 read together mean that, as a general rule, a property practitioner may only pay out a deposit to a seller (or their representative) on the registration of transfer of the property sold, and only then may the property practitioner deduct their commission from the deposit.
Clause 9.4 does, however, provide that if good cause exists, the purchaser can consent to payment of the deposit to the seller before registration of the transfer, in which event such consent must be embodied in a separate document containing an explanation of the implications and financial risks of such payment for the purchaser. The seller, the purchaser, and the property practitioner in question must sign the relevant document.
Once the document has been signed, the property practitioner is entitled to pay the deposit to the seller before registration of transfer and may then deduct their commission from such payment.
The Code does not prohibit a property practitioner who has performed their mandate from demanding immediate payment of commission from the party responsible for such payment. This can be done at any stage after fulfilment of the mandate, even before registration of transfer. Moreover, although the commission is usually payable by the seller, the Code does not prohibit the inclusion of a clause in an agreement of sale providing that commission is payable by the purchaser. It does, however, prohibit a property practitioner from deducting their commission from the purchaser’s deposit held in trust by them.
Is this provision of the Code contravened where an agreement of sale provides:
- that the practitioner must pay the stipulated deposit over to an attorney;
- the attorney is in turn instructed by the parties to deduct the property practitioner’s commission from the deposit and to pay such commission to the property practitioner after fulfilment of all suspensive conditions (i.e., before registration of transfer)?
While the inclusion of such a clause is not specifically prohibited by the Code, a property practitioner must remember that they are obliged in terms of clause 6.2.1 of the Code to explain to the purchaser, before signing the agreement, the meaning and the consequences of the clause. If the property practitioner is unable to explain the clause, they must refer the purchaser to a person who can do so.
The purchaser’s attention must be specifically drawn to the implications of the relevant instruction contained in the agreement of sale. It must be explained to the purchaser that if they cancel the agreement of sale as a result of non-performance by the seller of their obligations, the purchaser will not be entitled to a full refund of the deposit entrusted to the attorney but only to a refund after the deduction of the property practitioner’s commission.
