Buying a house is a costly journey and one that few people attempt to embark on without an experienced guide to show them the way. That guide, for most, comes in the form of an estate agent. But how do you know you’re getting an experienced guide and not being led astray? The answer is simple: a Fidelity Fund Certificate (FFC).
Why do estate agents need a Fidelity Fund Certificate?
An FFC is a certificate that is issued by the Estate Agency Affairs Board (EAAB) to prove that an estate agent is adequately registered with their regulatory board and whose conduct will adhere to the EAAB’s standards.
The Estate Agency Affairs Act (112 of 1976) states that all estate agents must be registered with the EAAB, and must be in possession of a valid FFC in order to operate as an agent. The Property Practitioners Act (22 of 2019), which will replace the Estate Agency Affairs Act, has not come into force yet, but contains the same requirements regarding the obtaining of FCCs. An FFC is only valid for a one-year period and must be renewed annually, something that should be done before the certificate expires to avoid the possibility of operating without a valid FFC.
What happens if an estate agent does not have an FFC?
According to the Act, it is illegal for an agent to operate without a valid FFC, and an agent may also not claim a commission for services rendered during a time when their FFC had expired. In most cases, this is a clear-cut scenario — if an agent does not have an FFC, they may not operate and may not claim a commission — but what if it is not the estate agent’s fault that their registration is not up to date?
As with any registration process, there may be delays in the processing of applications and renewals (even when the agent sent in their renewal documents and payments in on time). In such a case, the estate agent may operate legally and claim their commission as long as they can prove that they submitted their application or renewal documents on time.
In other scenarios, this may not be the case. For instance, this might happen when an estate agent relied on their principal to complete the necessary application or renewal process, even paying the necessary amounts to them, but the principal failed complete the necessary registration. In such a case, it unfortunately remains the agent’s responsibility to follow up with their principal. When this happens, the agent should cease their services for the time-being and may not collect any commission for services rendered until they obtain their FFC or the necessary proof that the application or renewal is in process.
Must the estate agent’s FFC be verified before services are rendered?
Since it is not a legal obligation to verify an agent’s FFC or obtain a copy thereof beforehand, many agents do continue operating as usual even without a valid certificate. Even the conveyancing agent (a.k.a. transfer attorney), who is responsible for paying the estate agent’s commission, is not bound by law to obtain proof of the agent’s FFC before paying the commission. However, if any party to the sale becomes aware of the fact that the agent is not in possession of a valid FFC during the property transfer, the conveyancer is bound by law to refuse the agent their commission and must pay it into the Estate Agents Fidelity Fund.
What recourse do estate agents have when they lose out on their commission?
In a case where an estate agent loses out on their commission because of a lack of a valid FFC, where the fault is not their own, the agent will have the right to take the case to court. They will not, however, be claiming against the purchaser or conveyancer, but rather against their principal/agency or possibly even the EAAB itself, whichever caused the delay in FFC issuing or renewal.
The use of Fidelity Fund Certificates and agents’ obligation to be registered with the Estate Agency Affairs Board are steps that ensure a safer business environment for property practitioners, purchasers, and sellers. When events such as this occur, it puts the estate agent in an uncomfortable position of having to fight for their ability to go on operating within their field. In such a situation, make sure that you get the best legal representation and guidance possible.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).