Trouble for homeowners in estates and gated communities in South Africa

 ·19 Feb 2024

Selling a property in a gated or secure community may come with an unpleasant surprise.

Homeowners Associations (HOAs) are responsible for managing such communities, but some are also involved in profit-making practices that could negatively affect the sale of a home.

This is according to Real Estate Business Owners of South Africa (Rebosa) CEO Jan le Roux, who noted the association has been made aware of several instances of such practices.

“There are several cases where the seller’s Rates Clearance Certificate (RCC) was withheld until the agent involved paid the HOA an ‘agreement’ fee – holding up the seller’s transaction to the benefit of the estate,” he said.

Rebosa CEO, Jan le Roux.

Le Roux alleged that this practice is used to raise funds – “no other conclusion can be reached when looking at the facts” – and estates have been charging agents accreditation fees for many years, sometimes called by different names like marketing rights, advertising levies, etc.

The fees are justified by the need for security checks, gate access, training agents on the association’s rules, and marketing within the estate.

Notably, Le Roux highlighted that other service providers, such as plumbers or electricians, aren’t charged these fees.

Agents are also not required to pay such fees when working in sectional title developments, he added.

“This may be because nobody had thought of it before. However, there is no valid argument to suggest that selling a property in an estate is any more complicated than selling a sectional title unit,” Le Roux said.

Why charging estate agents fees is problematic

According to the Property Practitioners Act of 2019 and its regulations, it is considered an undesirable business practice for a HOA to receive any form of payment or reward in exchange for providing preferential treatment to a property practitioner.

Le Roux added that any such arrangement is illegal, and agents are prohibited from engaging in it.

He highlighted that Section 63(1) of the PPA and Regulation 35.1 says that agents can’t pay fees to HOAs if it gives them an advantage over other agents.

“An example is an agent paying an annual marketing/admin fee.

We’ve encountered fees ranging from R5,000 per year or R5,000 per transaction to 1% of the selling price being charged.

“However, an agent entering the market can’t afford this, meaning that the payment of this fee gives the paying agent an advantage, as it limits the number of agents who can access the estate”, Le Roux explained.

The Property Practitioners Regulatory Authority (PPRA) takes this offence very seriously, fining offending agents R5,000 as a first penalty, but should they continue to pay these fees, they face losing their licenses.

How it affects the homeowners

Le Roux noted a few instances where this could impact homeowners and sellers – beginning with commission negotiation.

“Security estates remain insistent on charging these fees and applying all sorts of legal gymnastics to get around the clause to force agents to pay these fees.

This is clearly not in the seller’s interest. Firstly, Le Roux said that when an agent incurs a high fee, they may be less willing to negotiate commission with the seller.

Moreover, if agents who cannot afford the fee or are unwilling to break the law are excluded, then the seller has limited options in choosing their representative.

Le Roux added that this compels them to work with an agent ‘accredited’ by the estate.

“The irony, of course, is that whatever financial benefit is derived by the homeowner’s association in this process, much as it is to the detriment of the seller, the benefits go to the remaining homeowners,” he said.

Le Roux further noted that Rebosa has agents reporting situations where the HOA has refused to release the seller’s Rates Clearance Certificate because the agent hasn’t paid their ‘administration’ fees, thereby holding up the sale’s conclusion, potentially jeopardising it in its entirety.

“This leaves the HOA open to legal action and damages and, at the least, inconvenience to the seller,” he warned.

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