Picture: Maryna Botha, director STBB
It is not illegal to pay a spotter a fee for their services as long as they don’t hold themselves out to be estate agents, but in some instances it can be difficult to differentiate between the two.
The Estate Agency Affairs Act
In broad terms, the Estate Agency Affairs Act (‘the Act’) holds that a person is considered an estate agent if she, for gain, holds herself out as someone who sells or purchases property on behalf of or on the instruction of another person.
One of the consequences of the law “branding” her as an estate agent, is that she must, amongst other things, be in possession of a valid Fidelity Fund certificate to claim commission in respect of a successful transaction.
There is generally a distinct difference between the activities of an estate agent, as these are defined in the Act, and that of a spotter. In the real estate industry, the latter refers to persons who from time to time refer a potential client to an estate agent and which referral then results in the estate agent concluding a sale or tenancy. For example, Mrs X learns that her neighbour wishes to relocate and purchase a home in a security estate in the area. Mrs X is acquainted with Agent Y and aware that Y is mandated to sell properties in the new security estate that is being erected nearby. Mrs X makes sure to bring Y and her neighbour in contact with each other and the neighbour subsequently signs an agreement to purchase a unit in the new development. Y pays a finder’s fee to Mrs X.
Such payments are not illegal, as long as Mrs X does not “hold herself out” as an estate agent. Were she to hold herself out as an estate agent by performing the functions listed in the definition of “estate agent” in the Act, she must be in possession of a valid Fidelity Fund certificate before she may claim remuneration for her services.
Legal dispute ends up in court
In some instances, it can be difficult to determine whether the activities of the spotter are indeed distinct from those that an estate agent traditionally performs. This is illustrated by the facts in the 2015 judgment in Haigh Farming (Pty) Ltd v E.G Elliot Estate CC. Mr Haigh of Haigh Farming (Pty) Ltd (Haigh Farming) had entered into an oral agreement with E.G. Elliot Real Estate CC (the estate agency). In terms thereof, Haigh Farming would provide consultancy services in respect of various agricultural properties that had been listed with the agency and the agency would pay it a consultancy fee for these services. The agency would also pay a “spotting” or “listing” fee in respect of properties that Haigh Farming referred to it and in respect of which a successful sale had been concluded. The agreement came about as Haigh had always been involved in various agricultural activities, and as a result, the agency sought to use his expertise in the sale of agricultural properties. In practice, Haigh would assist whoever was interested in purchasing agricultural properties, often commercial in nature, and establish the viability of the property in question, liaised with Eskom or the municipalities in regulating the potential buyer’s business and assisted the latter in getting the necessary finance. Having done all this, he would refer the potential buyers to the agency for processing of the sale. In such instances, it becomes a factual enquiry whether these services are those of an estate agent, as listed in the Act, or not.
The Property Practitioners Act
The Property Practitioners Act 22 of 2019 (the new Act) which is expected to come into force soon, seems to retain this state of affairs. In other words, were someone to perform the activities listed in the new Act, she will be branded a property practitioner and must be in possession of a Fidelity Fund certificate to claim commission. If she is not so categorised by virtue of the activities that she performs, she may receive remuneration in respect of her services without the requirement to be in possession of a Fidelity Fund certificate. The new Act repeats the description of an estate agent (now called a property practitioner) referred to above in part, i.e., being a person who holds herself out as (amongst other things) someone who for gain and on the instructions of another, sells or purchases property.
However, the definition in the new Act is extended also to include someone “who holds himself out as a person who, directly or indirectly”, on the instructions of or on behalf of any other person “in any way acts or provides services as an intermediary or facilitator with the primary purpose …” to effect the conclusion of an agreement of sale or letting.
Can it be said that a spotter is perhaps such a facilitator or intermediary? These terms are not given a specific meaning in the new Act. According to the Oxford Advanced Learner’s Dictionary (‘the Oxford’), a facilitator is a person who makes an action or process happen more easily. A spotter appears not to fall strictly within this meaning as he or she usually would assist in introducing a potential party to an agent who would be the one to facilitate the conclusion of the transaction. However, it is not unlikely that some permutations of the arrangements between practitioners and spotters could make the differentiation obscure. Practitioners should be mindful to obtain advice from their conveyancers in this regard. Similarly, an intermediary is defined in the Oxford as someone who acts as a link or helps to make an agreement between two or more persons. This is also not generally what the spotter holds herself out to be: A spotter is defined in the Oxford as a person who looks for a specified type of thing or person as a hobby or job. The primary aim therefore is the searching for that person, not the facilitation or conclusion of a transaction.
Agents tread carefully
One must remember that the requirement for the person performing the functions of an estate agent or property practitioner to be in possession of a valid Fidelity Fund certificate, is to protect the public under penalty of criminal and/or disciplinary sanction, because the law does not want people to hold onto deposits without Fidelity Fund protection. An agreement to pay someone, who clearly does not hold out to be an agent, a finder’s fee would not militate against this.
In conclusion, it appears that the new Act does not prohibit paying of spotter’s fees. However, the new definitions are much wider than before and practitioners should remain careful when engaging with spotters to make sure that the distinction between their activities remains such that the spotter clearly does not perform functions associated with the property practitioner profession.
About the author: Maryna Botha is an admitted attorney, notary and conveyancer and the marketing director of national law firm, STBB. She currently specializes in all aspects of property law and conveyancing, as well consumer and credit law. She lectures widely on these topics and publishes regularly on all aspects related to property law.