Can residential estates lawfully require property practitioners to pay accreditation fees before allowing them to market or sell property in such developments? A recent High Court ruling has placed this controversial practice under the spotlight, illustrating the contours of the protection afforded to real estate agents and agencies by the Property Practitioners Act.
The legal dispute: Residential estates, accreditation fees, and the PPRA
In Residential Communities Council and Others v Minister of Human Settlements, the Johannesburg High Court considered whether homeowners’ associations (‘HOAs’), governing bodies, and bodies corporate may impose accreditation fees on property practitioners as a condition of marketing or selling properties within residential estates.
The applicants sought a declaratory order that such conduct does not constitute an undesirable business practice under Regulation 35 of the Regulations promulgated under the Property Practitioners Act (‘the PPA Regulations’) read with section 63 of the Property Practitioners Act (‘the PPA’).
Opposing the application, the Property Practitioners Regulatory Authority (‘the PPRA’) contended that compulsory accreditation fees could unfairly restrict market access, disadvantage property practitioners, and undermine the transformative objectives of the PPA.
Regulating undesirable business practices under the Property Practitioners Act
Section 63(1) of the PPA empowers the Minister of Human Settlements, after consultation with the Board, to declare certain business practices in the property market ‘undesirable and consequently prohibited’. While the Act does not define an ‘undesirable business practice’, section 63(2) requires the Minister and the Board to assess whether the impugned practice may directly or indirectly damage the relations between property practitioners and consumers or the general public, unreasonably prejudice consumers, deceive consumers, or unfairly impact consumers. In addition, they must consider whether permitting the practice to continue may defeat the objectives of the PPA.
Section 63 is given legislative effect under regulation 35 of the PPA Regulations. For the purposes of the present case, Regulation 35.1.1.2 expressly addresses arrangements involving natural persons or entities controlling or managing residential property developments, including HOAs and bodies corporate.
Read with Regulations 35.1.1.3 to 35.1.1.7, undesirable arrangements include those where a managing organisation:
- Receives payment in exchange for preferential treatment in marketing properties;
- Requires properties to be sold through a designated property practitioner or imposes penalties for failing to do so;
- Provides an advantage to particular property practitioners over others; and
- Effectively excludes or disadvantages property practitioners from providing services within the development.
Per the court, these provisions identify both the relevant managing organisations and the conduct sought to be prohibited.
Are HOAs exempt from the Property Practitioners Act?
A central argument advanced by the applicants was that residential estates do not qualify as property practitioners and therefore fall outside Chapter 9 of the PPA, which regulates the conduct of the profession.
However, the court emphasised the broad statutory definition of a ‘property practitioner’, which extends to certain persons or entities performing property-related activities for gain. Although bodies corporate and HOAs commonly operate without a profit-making purpose, the court thus recognised that their governing arrangements do not necessarily exclude the possibility of managing property for gain.
Importantly, the applicants failed to provide sufficient evidence establishing that their members fell beyond the statutory definition. Indeed, whether the legislation applies to an HOA or body corporate must be assessed against the organisation’s actual functions, governing documents, and specific circumstances.
When could imposing accreditation fees on property practitioners constitute an undesirable business practice?
The court recognised that residential estates may charge fees ostensibly for administration, security, induction, or services associated with the marketing of property.
However, the decisive consideration is the actual nature of the fee, what is provided in exchange, and the circumstances in which payment is demanded. Where payment effectively determines which property practitioners may market or sell properties, those willing or able to pay may receive preferential treatment, while others are excluded.
Naturally, the court acknowledged that this could have several negative consequences, namely:
- Restricting property owners’ freedom to appoint their preferred property practitioners;
- Limiting prospective purchasers’ access to properties;
- Disadvantaging emerging practitioners, particularly those lacking the financial resources to pay compulsory fees; and
- Undermining competition, transformation, and growth within the property sector.
Taken together, the court observed that the effect of such arrangements may constitute precisely the mischief – undesirable business practices – that the PPA and its accompanying Regulations seek to address.
Crucially, however, the court did not conclude that every administration, induction, or accreditation fee is prohibited. Instead, whether an arrangement contravenes Regulation 35 depends on its particular facts, including the fee’s nature and the benefit or service provided in return.
Can property practitioners also face consequences under the Regulations?
The judgment raises an important concern for property practitioners who comply with compulsory payment demands. The court observed that real estate agents paying such fees may themselves fall foul of the prohibited business practices.
Under section 62(3) of the PPA, a property practitioner found guilty of contravening a banned practice may receive a fine, have their Fidelity Fund certificate withdrawn, or be publicly reprimanded.
It is essential to note that this was an observation about potential liability, not a finding that every property practitioner who pays a fee to market a property in a residential estate commits a contravention.
The High Court’s ruling: No blanket exemption for residential estates
Ultimately, the High Court dismissed the application with costs. It held that the applicants had not established a sufficient factual basis for the sweeping declaratory relief sought.
Emphasising that the nature of residential estates, their governing arrangements, and the accreditation fees charged differ, the court could not declare that this contested practice falls outside of Regulation 35 in every instance.
Accordingly, the judgment does not impose a universal prohibition on residential estates’ accreditation fees. Equally, it provides no blanket protection for residential estates that impose them. Instead, the legality of a particular arrangement remains dependent on its facts.
Conclusion: HOAs, governing bodies, and bodies corporate must scrutinise their accreditation fees
Although the ruling is only binding on a single bench of the Johannesburg High Court, it offers a crucial takeaway: Compulsory accreditation or administration fees are not automatically beyond the scrutiny of the PPA. As a result, HOAs, governing bodies, and bodies corporate should carefully evaluate whether their arrangements create preferential treatment, restrict market access, or unfairly disadvantage property practitioners.
Does your residential estate impose accreditation fees, or have you been prevented from marketing or selling property because of non-payment? Speak to a property law attorney today to assess your estate’s rules, fee structures, and compliance with Regulation 35 before a disputed arrangement exposes you to legal consequences.
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