Gauteng Business News

Send  Share  RSS  Twitter  15 Sep 2014

PROPERTY: Agreements Between Agents and HOA’s Legal Under Certain Conditions


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"Under certain conditions the conclusion of marketing agreements between estate agencies and homeowners associations (HOA's) are lawful,” says Jan le Roux, CE of Real Estate Business Owners of SA (REBOSA).

The issue at hand

Since February this year, HOA's have come under attack for what has been deemed an unfair and unlawful practice. The practice of requiring estate agents to pay "accreditation" fees in return for the exclusive marketing of properties situated within the HOA’s, has long been a highly controversial subject. Matters came to a head at the end of February this year when the EAAB (Estate Agency Affairs Board) issued a notice to stakeholders to prohibit unlawful practices and promote acceptable standards of conduct i.e. the entering into agreements between estate agencies and HOA's.

REBOSA’s Chief Executive, Jan le Roux, said he welcomed the decision taken by the board to interrogate this practice. “REBOSA’s primary objective is to look after the interests of real estate business owners and therefore this is a matter that affects them directly.”

Since the EAAB Notice of 28 February was published, several of REBOSA’s members came forward raising concerns, as did the Association of Residential Communities (ARC), especially since the practice was labelled "unlawful ".

The problem with HOA’s

Home Owners' Associations are established as non-profit companies or as common law associations, created to manage particular communities, often "gated" and operated separately from the surrounding properties.

While HOA fees help maintain the quality of life for the community's residents and purportedly protect property values for all owners, the rights of its members to participate in the free market economy in respect of property transactions also needs to be guaranteed. These rights seem to be marginalised when owners are forced to engage only with accredited agents who may not be their choice and, furthermore, who do not promote the public interest generally.

It is being argued that the law is less than crystal clear. It has become common practice for Home Owners Associations to engage with estate agencies which they then accredit upon such terms and conditions as may be acceptable to the parties. It is the norm for these accredited agents to pay a monthly and/ or annual accreditation fee, and a fixed and/ or other fee in respect of sales concluded, to the HOA. This income is used by the HOA for the benefit, either directly or indirectly, of all the home owners. Needless to say, this flow of income into the estate is one of the reasons that home owners are prepared to propose, accept and consent to a restriction of their rights to appoint an agent of their own individual choice.

EAAB issues a new practice code

The EAAB obtained further legal advice and consulted with REBOSA , ARC and others and on Friday 5 September 2014 issued a new Practice Notice stating that, notwithstanding every home-owner’s freedom of choice to appoint his/her estate agent of choice for the marketing, selling or letting of his/her property, entering into marketing arrangements by Home-owners Associations with estate agents who choose to do so is permissible on condition that any fees payable constitute a reasonable cost recovery for services rendered by the HOA for, inter alia, but not limited to:

· Supply of security access cards;
· Supply/erection of advertising boards;
· Supply of maps/directions to properties; or
· Branding opportunities

The legal guidelines as issued by the EAAB proclaim that; “An estate agent acting in any way in contravention of the ethical provisions of the Code of Conduct may be subjected to a disciplinary process which may result in him/her being sanctioned, upon a guilty finding, by a Committee of Enquiry of the EAAB”.

Jan le Roux says the Practice of paying fee’s to HOA’s can be justified if fair and equitable in relation to the services being rendered, and as now stipulated by the EAAB. REBOSA however does not support the exclusion of all other estate agencies to carry out business within HOA’s.

"We operate in a free market system and therefore, no seller or buyer should be refused permission to use an estate agent of their choice. Preventing other estate agencies from effectively entering and competing within HOA’s goes against our industry ethos and could have long term detrimental effects on our sector. We therefore welcomed the revised notice and continue to cooperate with the board and other industry stakeholders. Although not perfect the latest notice brings more clarity. "

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