10 Jul Code of Conduct – Part 7
Posted at 03:24h
in Blogs
We will complete our discussion of the Code of Conduct and Regulation 34.6, which deals with remuneration, which is obviously very important for every property practitioner (PP).
A summary of the last part of Regulation (Reg) 34.6 follows below:
- Reg 34.6.5 – a PP may not include a clause in a contract of sale or lease that allows the PP to deduct their commission from any money that is held by the PP. In simple terms, an example of this prohibition, would be that the PP would not be allowed to deduct their commission from the deposit that is paid by the purchaser of a property. Reg 34.6.5 does allow the PP to deduct their commission when the PP pays the money over to the party entitled to the money. In the normal course of events, any deposit paid by the purchaser would be paid over to the seller of the property when the property is transferred from the seller to the purchaser. It would obviously not make sense that the PP needs to pay over the money received from the purchaser to the seller, that the PP is holding in trust, when the property is transferred and then claim their commission back from the seller. In terms of this Regulation, the PP can deduct their commission from the money held in trust and pay the difference over to the seller. A practical tip for all PPs, would be to ensure that you include a clause in your OTP, whereby the parties authorise you as the PP, to make such deduction.
- Reg 34.6.6 – in terms of this Regulation, a PP may not include a clause in an agreement of sale, that allows the PP to pay over to the seller any money that the PP is holding in trust, before registration of transfer of the property into the purchaser’s name. There are two important things to be aware of in terms of this Regulation. Firstly, the seller can only be paid any money that the PP is holding in trust, when the property is transferred to the purchaser. Secondly, given what has been mentioned about Reg 34.6.5 above, a PP would not be able to have a clause in the agreement of sale that allows the payment of any monies being held in trust, prior to the property being transferred to the purchaser, in order to ensure that they get paid their commission as soon as possible (being prior to transfer). Reg 34.6.6 does allow for early payment of money held in trust, if good cause exists, the purchaser agrees in writing to this early payment and the document that the purchaser signs authorising the early payment, contains an explanation of the risks for the purchaser of this early payment. As an example, if the transaction were to fall through, the seller has already received some money from the purchaser before the transfer has taken place and now the purchaser will have to recover these funds from the seller.
- Reg 34.6.7 – if a PP has a trust account, it must be operated in compliance with the Property Practitioners Act and the Regulations to the Act.
You are welcome to email me on graeme@cpmd.co.za.
Next week we will discuss Regulation 35 dealing with undesirable business practices.
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