Picture: Tony Clarke, new Rebosa chairman; Mamodupi Mohlala, CEO EAAB
It was recently confirmed that the professional indemnity cover, that the Estate Agency Affairs Board (EAAB) arranged for all estate agents in 2017, lapsed about a year ago and wasn’t renewed without the regulator informing the industry of this yet.
The sale of a home or even concluding a rental agreement has become a highly regulated business. Estate agents these days must be careful to ensure everything they do (direct marketing, managing client data, client interaction, property transactions etc) meet with all the relevant current legal requirements. This is a tall order even for the most diligent of estate agents as new laws with direct impact on the property sector such as the POPI Act are passed almost on a yearly basis.
Working in such a highly regulated environment poses the very real risk that an estate agents or any other property practitioners could intentionally or unintentionally wrong a consumer through unprofessional conduct or negligence. The primary function of the EAAB is regulate the real estate industry in such a manner as to protect consumers.
The EAAB’s PI cover policy
Consequently in 2017 the EAAB saw the need to provide some form of protection to property professionals “against wrong advice or unprofessional services that they may have provided to consumers in the course and scope of rendering estate agency services” (quote from the EAAB’s notice issued in 2017). The regulator thus arranged for professional indemnity cover for all registered estate agents through Aon South Africa limited to claims arising from negligence or delict (claims for fraud or criminal acts were excluded). The intention of the policy was to provide protection for the consumer and the estate agent.
In August 2017 the EAAB officially informed the real estate industry that such a policy was now in place. Since then there has been no communication about possibly discontinuing the policy which left the industry firmly under the impression that the professional indemnity cover was still there. This is not the case.
Industry body Rebosa recently confirmed with Aon that the indemnity cover policy lapsed in June 2019 and was not renewed since. This had Rebosa concerned that a situation now existed where thousands of estate agents were unwittingly without a proper PI cover. Rebosa chairman Tony Clarke says he knows of principals that cancelled their own PI policies in 2017 when they were informed of the EAAB’s cover and the current situation is placing the public at risk should an agent act in a negligent manner. “I feel that it was irresponsible for the board to allow this policy to lapse without informing industry (with sufficient notice) so that industry could organise it’s own cover. I further feel the EAAB should seriously consider reinstating such policy as it will protect the fund,” he says.
There are some estate agencies that have their own professional indemnity cover for their agents, but others were blissfully unaware that they could not rely any longer on the PI cover arranged by the EAAB. The Seeff Property Group is one of them. Their national compliance officer, Mark Jaftha, says they now have to look to their own insurers in terms of addressing the risk and finding a solution for PI top-up cover for their agents. “This is an important insurance to protect consumers,” he says. The PI cover from the EAAB was up to R 1 million.
When asked for comment on the matter, the EAAB’s CEO Mamodupi Mohlala acknowledged that the EAAB had, as she put it, “in the past exercised its discretion by arranging indemnity insurance to cover estate agents’ liability to members of the public on the ground of malpractice”. However in light of the newly promulgated Property Practitioners Act, which she says gives the Minister discretion to prescribe indemnity insurance which a property practitioner must take out and maintain, the EAAB “sought [sic] it necessary that estate agents take out indemnity insurance of their choice and approach any professional broker of their choice to ensure adequate protection for their risk exposure”. She said a formal communication will be send to all estate agents to notify them that the EAAB resolved not to renew the indemnity insurance, but didn’t offer any indication as to when this will happen.
“Ms Mohlala does not only not explain why nor apologise for not having advised the industry of this decision and choosing to leave agents under the impression that the cover does exist. The cancellation decision in June last year was taken under the auspices of the current Act which is still in place today and Section 40 of the new Property Practitioners Act gives the new Authority the same power to arrange this insurance. It is hard to understand why Ms Mohlala approves of a decision to cancel the insurance when it could have been and still can be arranged for around R 250,000 pa, payable from a R600 million Fidelity Fund, and ensure the protection of consumers and agents alike,” says Jan le Roux, CEO of Rebosa.
Why is PI cover important?
According to Clarissa Rizzo, manager: Professional Risks unit at Aon South Africa, many estate agents are skeptical about the merit of having professional indemnity cover, assuming that only careless professionals have to worry about a claim being lodged against them. “This is not always the case, and even if an agent has acted in full accordance with the law and professional standards, if a claim is lodged against them they will need to defend their position and actions in a legal process, the defense costs of which can be onerous.
“Considering that a day in a high court could be in excess of R150k per day and that claims are typically long tailed by nature, taking years and huge legal costs before being finalised, the need for PI insurance to protect your reputation and ability to work as a professional is crucial,” explains Rizzo.
Property professionals operate today in an environment of ever-increasing requirements for better transparency, disclosure, accountability and governance. Professional indemnity (PI) cover in the real-estate world is similar to medical malpractice cover for doctors. While the sale or rental management of a client’s home may not require the precision of a surgeon, even a simple property deal or rental management can potentially be fraught with pitfalls that can land even the most diligent real estate professional in a legal and financial conundrum.
The following PI claims examples illustrate the need for PI cover for estate agents:
- The owner of a property brought a claim against the real estate agency for damages caused by the building contractor that had attended to repairs to the property.
- In another matter, the owner claimed that due to the negligence of the agent, the owner lost out on a prospective tenant.
- An owner made a claim where the agent was supposed to collect the rental and failed to do so.
- Another claim alleges that the agent failed to conduct proper inspections when the tenant vacated.
A practitioner without PI protection would be liable for these costs, facing financial and reputational ruin.