Collusion warning for estates and complexes in South Africa
Undesirable business practices have been a notable concern for estates and complexes, and now there are concerns regarding collusion tactics within sectional title schemes.
Earlier this year, the Real Estate Business Owners of South Africa (Rebosa) expressed concerns about profit-making practices by Homeowners’ Associations (HOAs) that negatively impact homeowners and estate agents.
Rebosa CEO Jan le Roux highlighted cases where sellers’ Rates Clearance Certificates were withheld until agents paid an ‘agreement’ fee, delaying transactions to benefit the estate.
These fees range from R5,000 to 1% of the selling price and are justified by security checks and agent training.
Le Roux emphasised that such practices are illegal and hurt sellers by limiting their choice of agents and reducing agents’ willingness to negotiate commissions.
He also said that while unlawful profit-making practices could technically impact sectional titles, no cases have been brought to Rebosa’s attention yet.
However, this may no longer be the case, as other profit-making practices are now being flagged within sectional title complexes.
BusintessTech received a complaint alleging collusion between managing agents, trustees, estate managers, and service providers within these complexes in the Gauteng area.
The concerned party noted that this ensures a tight circling of supplies and services to complexes by fixing pricing and giving maintenance contracts for a fee.
They added that many of the service providers are supposedly partly owned by the estate managers themselves, relatives, or friends.
The complaint alleges that this results in high increases and special levies impacting the buying and selling of sectional title units.
Commenting on this collusion, Le Roux and Tony Clarke, the managing director of Rawson Property Group, told BusinessTech that while these tactics haven’t passed their desks yet, they are not unheard of or surprising.
“I have not been made aware of these specific tactics within sectional title complexes. However, I can imagine that our industry, like many others, might be susceptible to such practices,” said Clarke.
“If such practices do exist, and the pricing of such services are higher than what one would receive for the same quality from another service provider, they can have a markedly negative influence on property prices within those schemes, as buyers certainly take into consideration the total levies payable when making an investment,” he added.
He stressed that such practices should not be allowed to occur unchallenged, and those who are party to such collusionary acts should be removed from their posts to protect the integrity of the property market and the interests of all stakeholders.
Clarke also noted that these relationships can exist if they are formally declared at the AGM and that such relationships benefit the scheme (with market-related pricing).
If this is transpiring in a particular scheme, Clarke advised that the person brings it up formally with the trustees or at the next AGM.
“Transparency is key, and ensuring that all stakeholders are aware of potential conflicts of interest is vital to maintaining trust within the community.”
Le Roux warned that these types of profit-making acts contravene section 58 of the Property Practitioners Act of 2019 in South Africa.
Collusion by management authorities of sectional titles with service providers contravenes Section 58 of the Property Practitioners Act because it introduces conflicts of interest, involves non-disclosure of benefits, undermines competition, and breaches the fiduciary duty that these authorities owe to sectional title owners.
“If the matter is severe, it might also be worth considering legal advice or consulting with the Ombud for Community Schemes to ensure that all practices are compliant with the relevant regulations,” Clarke added.
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