Section 4.1.1 of the Code of Conduct + CPA = Questions about the appropriateness of the “Voetstoots” clause = the “birth” of the “Property Condition Report”
- Introduction
Section 4.1.1 of the Property Practitioners Code of Conduct provides that a Property Practitioner who has a mandate to sell a property shall:
“convey to a purchaser …. all facts concerning such property as are, or should reasonably in the circumstances be, within his personal knowledge and which are or could be material to a prospective purchaser.”
Add to this the Consumer Protection Act, and the confusion it has caused to some players in the marketplace regarding the extent of its application, and the result is doubt about the validity of the inclusion of a ‘voetstoots’ clause in a sale agreement, and the birth of a “Property Condition Report”.
The “Property Condition Report” – How practical and appropriate is it to obtain one? What reliance should be placed on it?
Some Property Practitioners have gone so far as to have sellers forfeit their right to sell their property ‘voetstoots’ and are attaching a copy of the “Property Condition Report” as a disclosure of the defects in the property, including a warranty by the seller to the effect that these are, in fact, the only defects in the property.
- What does a Property Practitioner do?
Before attempting to answer this question, several issues require consideration; these are:
– Who is the Property Practitioner’s client?
– Who does the Consumer Protection Act affect?
– What is the meaning of ‘voetstoots’?
– What are latent and patent defects?
– How and when does the ‘voetstoots’ clause protect a seller in respect of latent and patent defects?
– What are the obligations of a Property Practitioner to the Seller, the Purchaser, and his profession?
- Who is the Property Practitioner’s client?
The Property Practitioners Code of Conduct defines the Property Practitioner’s client as – “a person who has given a Property Practitioner a mandate….”
A Property Practitioner can be given a mandate by either a seller or purchaser, but generally, the mandate is given to the Property Practitioner by the seller, and this article will limit itself to such sellers’ mandates.
Assuming it is the seller of a property who gives a Property Practitioner a mandate, then the Seller is the principal of that Property Practitioner. It is to the seller that the Property Practitioner owes the utmost duty of care.
It is the seller that employs the Property Practitioner and pays the Property Practitioner his commission.
There ought to be no confusion for a Property Practitioner as to who his client is.
Any confusion that exists is caused by section 4.1.1 of the Code of Conduct.
Section 4.1.1 of the Code of Conduct imposes upon the Property Practitioner a duty to disclose facts concerning the property that he may or should have personal knowledge of and which could be material to a purchaser. That is, a Property Practitioner cannot withhold the information he is aware of from the purchaser if he believes that that information is, or could be regarded as, material by the purchaser.
There is, however, no obligation on a Property Practitioner to carry out an investigation in respect of a property to place himself in a position to make representations regarding that property or to carry the burden of inspecting the property for patent defects which can easily be, and which should be, ascertained by the purchaser for himself.
The obligation to convey facts concerning the property that are or should reasonably in the circumstances be within the personal knowledge of the Property Practitioner does not mean that the purchaser becomes the client of the Property Practitioner. What it means is that the Property Practitioner cannot withhold information that he has, or should have knowledge of, to the detriment of the purchaser. That is, the practitioner has to conduct himself honestly and openly in his dealings with the Purchaser.
- Application of the Consumer Protection Act
It is now accepted and understood (hopefully!) that the Consumer Protection Act does not apply to the once-off private transaction between a seller and the purchaser of a property, irrespective of whether or not the services of a Property Practitioner are engaged by the seller in procuring the purchaser.
Where the services of a Property Practitioner are utilised, the Consumer Protection Act applies to:
- The Mandate Agreement between the seller and Property Practitioner; and
- The marketing service that the Property Practitioner supplies to the purchaser, which means that there must be:
– Responsible marketing.
– Honest dealings.
– Equality and privacy.
– Full disclosure of information.
However, this is nothing new to Property Practitioners – all these requirements have always been imposed on Property Practitioners by their Code of Conduct.
So why the confusion? Why the perceived need by some Property Practitioners to limit their client, the seller’s right, to avail himself of the protection of selling his property ‘voetstoots’?
- The meaning of “Voetstoots”
‘Voetstoots’ is a Roman-Dutch term used to describe, in one simple word, the action of buying something “as is,” as it now stands, and in whatever condition it is.
It is essential that all sales of properties purchased second hand, which properties are expected to have deteriorated through normal wear and tear, or which may be defective to some extent as a result of constant use, or through natural decay over a period of time, be sold “as is”.
The basic purpose of the ‘voetstoots’ clause is to shield the seller from any action by the purchaser on discovering any defects he was not aware of when purchasing the property and from doing anything that will jeopardise the transaction. The ‘voetstoots’ clause also draws a line in the sand as to when the seller’s responsibility for the property terminates.
The ‘voetstoots’ clause completely absolves the seller from any patent defects. However, the exemption is not absolute in respect of latent defects.
- What are latent and patent defects?
A patent defect is a defect that is clearly visible on a normal inspection of the property.
It is a purchaser’s duty to acquaint himself with the general condition of the property on purchasing it as he cannot later claim that he did not see such defects.
A latent defect is a defect that cannot be seen or ascertained upon a normal inspection of the property.
- What protection does the “voetstoots” clause provide?
The ‘voetstoots’ clause protects the seller from all patent defects as well as latent defects of which he, the seller himself, was not aware at the time of the sale.
If the seller knowingly conceals or does not disclose a latent defect of which he is aware, the seller will be liable to the purchaser for the repair of that latent defect, provided the seller can be said to have believed that disclosure of the defect could affect the purchaser’s perception of the property negatively.
- The Seller, Purchaser & Property Practitioner’s Obligations
So, would a “Property Condition Report” setting out what the seller knows about the property not be an ideal solution?
Such a report would “remind” a Seller to disclose all he knows about the property; assist the purchaser in ascertaining the condition of the property; and absolve the Property Practitioner from any allegation of non-compliance with Section 4.1.1 of the Code of Conduct. The seller can, after all, still avail himself of the protection of the ‘voetstoots’ clause in respect of any other defect that he does not disclose because he is not aware of it, right? NO!
The “Property Condition Report” is generally obtained at the time the mandate is granted. The average time it takes to sell a property is reported to be just over 105 days. A lot can happen to property between the grant of the mandate and the sale. The list could very well be inaccurate by the time of sale, and any reliance placed thereupon would be ill-placed.
Furthermore, what if the Property Practitioner who obtained the mandate is given authority or instruction to appoint sub-practitioners or to multi-list the property with a multi-listing organisation? What happens if the sub-practitioner does not pass the information or the details on the report to the purchaser, or if the condition of the property has changed since the report was made, or the sub-practitioner fails to make any reference thereto in the Sale Agreement? After all, the seller has disclosed and given such a list to the listing practitioner and would be entitled to expect his listing practitioner to assume responsibility for passing this information on.
If any sub-practitioner of the listing practitioner does not do his job properly, the listing practitioner will be answerable to his client, the seller.
Why would a Property Practitioner take on the seller’s duty to disclose any latent defects he may be aware of?
To avoid any arguments between the seller and the listing practitioner after the conclusion of a sale regarding what was and was not disclosed by the seller to the Property Practitioner, we would suggest that it be recorded in your mandate agreements that the seller accepts and acknowledges that it is his duty and responsibility to disclose any latent defects that he is aware of, and/or any issue regarding the property which may be of relevance to the Purchaser in any sale agreement that he may conclude, and that the Seller, therefore, absolves the Property Practitioner from any liability arising from any claim wherein it is alleged that there was a duty on the Property Practitioner to disclose such defects to the eventual purchaser of the property.
Most, if not all, sale agreements contain an acknowledgment by the purchaser to the effect that the purchaser has inspected the property and accepts it together with its fixtures and fittings in the condition that he saw them at the time of conclusion of the agreement – that is a voetstoots clause.
We suggest that purchasers be asked to place their initials next to this section of the sale agreement, i.e. the clause that refers to the fact that the purchaser is buying the property in the condition that he saw it, and where he acknowledges having inspected the property and its fixtures and fittings.
Having clearly advised the Seller of his obligations (by the inclusion of our suggested clause in the mandate agreement) and the purchaser of his acknowledgements with regard to the condition of the property (emphasised by the purchaser initialling the acknowledgements and ‘voetstoots’ clauses in the agreement), the Property Practitioner will have taken adequate care of both parties and ensured that they know exactly what their rights and obligations are.
What about the Property Practitioner taking care of himself by ensuring that he has at all times complied with Section 4.1.1 of the Code of Conduct?
The Property Practitioner would have inspected the property for the purposes of listing it and advising the seller as to what purchase price the property should be marketed at.
In making his assessment, the Property Practitioner would have noted the existence of any patent defects which would have affected the valuation of the property, and in all likelihood, the Property Practitioner would have, or should have, enquired of the seller whether there is anything about the property that could possibly affect its nature or value which is not readily visible.
The Property Practitioner can then use these notes taken at the time of the inspection of the property to disclose any facts that could be material to a prospective purchaser. There is, however, no need for the Property Practitioner to take over the seller’s obligation to disclose these facts himself to the purchaser or to create an impression to the purchaser that a thorough inspection of the property is unnecessary as the seller has signed a “Property Condition Report”.
If the Property Practitioner takes on the obligation of disclosure from the seller, then the Property Practitioner bears the responsibility for the disclosure to the purchaser. And if the Property Practitioner makes any representations about the property and its condition to the purchaser, the Property Practitioner runs the risk of the purchaser not inspecting the property properly and placing reliance on the Property Practitioner – excluding or limiting the operation of the voetstoots clause and opening a can of worms.
Furthermore, issues can also arise regarding the defect disclosed and the extent of it. If the practitioner is going to take on the responsibility of disclosing defects, he will need to be adequately informed of the nature and extent of the defect, for rest assured, having taken on the responsibility of disclosing a defect from the seller and having passed on the information regarding the defect to the purchaser, arguments will arise regarding representations made as to the severity or extent of the defect at a later date.
- Summary
So, to recap:
– The Property Practitioner’s client is the seller. The Property Practitioner’s mandate is to procure a willing and able buyer. There is no need for the Property Practitioner to take on the responsibility from the seller of disclosing defects in the property.
– The Consumer Protection Act does not apply to sales of property where the seller’s ordinary course of business is not that of selling property.
– The ‘voetstoots’ clause has a relevant part to play in the sale of “second hand” property, and any practitioner that removes it from the Sale Agreement is doing his client, the seller, a disservice.
– The seller is the party with the best knowledge about the nature and condition of the property. The Property Practitioner should not take over the responsibility of disclosing any patent or latent defects which are known to the seller.
– Similarly, the Property Practitioner should not take on the purchaser’s duty to inspect the property. The purchaser must view the property and inspect it and must then either buy the property, warts and all, or not at all.
– If the Property Practitioner has any personal knowledge about any fact concerning the property that could be material to the purchaser, he is required to disclose it in order to comply with Section 4.1.1 of the Code of Conduct. Remember, a cracked tile in the bathroom, a broken hinge in a cupboard door, etc., are not material facts. Those are patent defects that are easily discoverable by a simple inspection of the property by the purchaser. However, if you know that half of the property is subject to any municipal bylaws or rezoning etc., you need to disclose this to the purchaser as you have knowledge of it, and it would be deemed by any reasonable person as being material to the purchaser.
– Be honest and truthful in your dealings with the Seller and the Purchaser – but do not take on their duties and obligations.
