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No commission no fidelity fund certificate not always the case

commission

PICTURE: Romy Tarboton, principal Signature Real Estate; Johan Muller, director Snyman De Jager.

Estate agents are now entitled to commission if they are forced to trade without a valid Fidelity Fund Certificate (FFC) due to negligence or reluctance to comply on the side of the Estate Agency Affairs Board (EAAB) rules Supreme Court of Appeal.

It is eighteen months and an estimated R400 000 in legal fees later but the tenacity of Signature Real Estate and their legal team has paid off. The Supreme Court of Appeal in Bloemfontein on 10 June 2020 upheld their appeal against the previous so-called ‘No FFC no commission’ ruling of the Cape Town High Court.

The Cape Town High Court ruled in December 2018 that an agent or agency is not entitled to claim commission if they are not in possession of a valid FFC on the date and time when the transaction was concluded and commission was deemed to be earned.

The said court case followed after another estate agency, Atlantic Seaboard Realty, had refused to pay Signature its 50% commission share from a lease agreement jointly facilitated by both agencies. Atlantic argued that Signature was not entitled to said commission since the latter was not in possession of a valid FFC at the time of the conclusion of the agreement.

Background: In January 2017 Hidicol CC, which has traded as Signature Real Estate CC, was converted into a company and they informed the EAAB of this conversion. Signature argued in court that it had complied with all the Board’s requirements in relation to changes in entities and that they had requested amended FFC’s to be issued to its directors and its agents. However, the EAAB had erroneously issued certificates in the name of Hidicol CC instead of Signature on 1 January 2018. After the Board was made aware of these errors, they reissued the certificates to Signature on 8 May 2018 and later replaced them with backdated certificates, dated 1 January 2018.

Judge Diane Davis in the aforementioned High Court ruling, however, ruled that the backdated FFC was not in compliance with Section 34 of the Estate Agency Affairs Act (EAAA), requiring that the agent had to be in possession of a valid FFC when the commission is earned. Signature was granted leave to appeal by Judge Davis and in November 2019 a crowdfunding campaign was launched to raise funds to cover legal costs.

Also read: ’No FFC no commission’ to be resolved by Supreme Court

Now the battle fought has been won. The Supreme Court of Appeal found in favour of Signature’s appeal in a unanimous decision by the presiding judges.

“We are naturally thrilled,” says principal Romy Tarboton. The Court of Appeal also ordered Atlantic Seaboard Realty to pay Signature its share of the commission together with interest and costs.

What does the ruling mean?

As mentioned, Judge Davis ruled that a backdated FFC did not meet the requirements of said legislation. However, during the appeal Signature stated that it had complied with all the formalities and was entitled in terms of the provision of the Act to be issued with the proper certificates in its converted name. Johan Muller, director of legal firm Snyman De Jager, explains as follows the function of the Estate Agency Affairs Act and the legal implications of the ruling by the Supreme Court of Appeal:

The function of Section 26 and 34A of the EAAA is not only to ensure that the estate agents have met the requirements of the Act to practice as such, but also that the estate agents can demonstrate proof to any interested party of compliance with the requirements of the Act. Part of the function of a FFC is to serve as public proof of an estate agent’s status.

In the judgement of the appeal it was found that the purpose of the Act was served and that the public would have been protected, if for example a member of the public had suffered loss due to misappropriation by an estate agent involved in the agreement in question, the Board, would have been hard-pressed to argue that a claim against the Fidelity Fund should not succeed because a certificate had not physically been issued to the wrong-doer at the time of the conclusion of the agreement and that such an outcome would be contrary to the purpose of the legislation.

Based on the aforementioned the Court of Appeal found that Judge Davis and the Court a quo (legal term meaning the court in which the matter was first heard) should have found in Signature’s favor and the appeal therefore must succeed.

In conclusion, although the EAAA has clear directives with regards to FFC’s and the provisions in terms of Section 26 and 34A are preemptory, it is now apparent that once proven that an agent that complied with all the formalities to be issued with a proper FFC and the Board being negligent or reluctant to comply, will entitle such agent to claim commission irrespective of the absence of such correct certificate.

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