Before the shock of the fraud and corruption currently reported in the media concerning real estate agency powerhouse ”Wendy Machanik Properties” and other estate agencies wears off, consumers should take this opportunity to understand their rights when handing large sums of money to estate agents and legal practitioners.
The purpose of this article is twofold: the first is to emphasise the importance of reading legal documents before signing same and the second is to advise consumers on how trust monies are held and protected by relevant legislation and what recourse they have should their money be misappropriated. For the purposes of this article we limit our discussion on legal documents to property sale agreements.
The acquisition of property is usually a milestone in one’s life and it all starts with the offer to purchase. This document will usually be prepared by the estate agent responsible for the sale. More often than not, agreements drafted by estate agents will stipulate that the initial deposit by the purchaser be paid to the estate agent’s trust account. This condition however is not a legal requirement, and while all estate agents should not be tarred with the same brush, consumers should realize that they can insist that the deposit be placed with the transferring attorney. It may also be possible to negotiate the provision of a guarantee rather than a cash deposit depending on the particular transaction and the extent to which the seller is prepared to accept this as an alternative.
It is also of vital importance that the offer to purchase reflects for what purpose the deposit may be used and at what point the deposit is to be paid over to the seller. The purchase price is only normally payable to the seller on registration of transfer and therefore until transfer takes place, the trust monies still belong to the purchaser. Some agreements may also contain a “rowukoop” clause, in terms of which the deposit paid is forfeited to the seller, should the agreement fail and the failure can be directly attributed to the purchaser.
In order to make an informed decision, we highlight some of the salient features of a trust account.
Both attorneys and estate agents are governed by legislation and both are required to maintain separate trust accounts for monies received by their clients. More importantly the manner in which these trust accounts are to be managed and the funds therein invested is governed by the Attorneys Act of 1979 for attorneys and the Estate Agency Affairs Act of 1976 for estate agents.
Monies invested with an attorney or estate agent may be invested either in an account where interest accrues to the Attorneys Fidelity Fund or the Estate Agents Fidelity Fund. Alternatively, the consumer can direct in writing that the funds paid over be invested in an interest bearing account, in which case the interest is earned for the benefit of the owner of the funds unless otherwise agreed. The offer to purchase signed by the parties should reflect this election, so that regardless of whether the funds are invested with an estate agent or attorney, interest accrues for the benefit of the purchaser.
Before signing a deed of sale or offer to purchase, prospective purchasers should seek legal advice so as to ensure that they are aware of their options not only in regard to the payment of deposits but also in regard to the contract as a whole.