The CPA and drafting of agreements relating to Immovable Property

The CPA and drafting of agreements relating to Immovable Property

Authors
Allen West
Allen West
Martin Kotze
Martin Kotze
10 min read
Important considerations Property Law

THE CPA AND DRAFTING OF PROPERTY AGREEMENTS

INTRODUCTIONS

We have seen numerous agreements that contain clauses that are not aligned with the CPA. Usually, in these agreements, the drafter tries to address the Consumer Protection Act, 2008 (the “CPA”) and the application thereof by –
inserting a clause stipulating that it is not the intention of the parties to contravene the CPA and, if the CPA is contravened, the applicable clause must be severed from the Agreement, with the remainder of the Agreement remaining intact.
Inserting a clause as contemplated above may provide a "safety" for the legal practitioner. However, the CPA has now been in force for a number of years and drafting agreements that are at least in line with the basics of the CPA is not that hard and can reasonably be expected from Legal Practitioners.

SCOPE OF ARTICLE

This article is written mainly with property-related agreements (sale of immovable property and rental agreements) in mind.
Rental of immovable property is specifically included under "service" and the sale of immovable property is specifically included under "goods".

APPLICATION OF THE CPA

As a point of departure, one needs to establish whether the CPA will apply to your transaction or not.
Section 5 of the CPA, contains the provisions relating to the applicability of the CPA. 
A key takeaway being:
  • OrdinaryThe CPA does not apply where a Consumer is a juristic person whose asset value or annual turnover is (at the time of the transaction) equal to or exceeds the threshold value.
The threshold value for a juristic person is currently set at R2 000 000.00 (two million Rands). The notice that was published determining the threshold value further provides guidelines on how to determine the threshold value.
The notice can be downloaded here - Threshold value.
Often overlooked is the applicability of the CPA when it comes to fixed-term agreements between juristic persons. Section 14 (1) of the CPA determines that section 14 of the CPA (Expiry and renewal of fixed-term agreements), does not apply to transactions entered into between juristic persons regardless of their asset value or turnover.
The aforementioned means that it is possible for a Landlord to conclude a commercial lease agreement with a tenant (that is a juristic person and whose asset value or turnover is below the threshold), for a period that is in excess of 24 months without worrying about the regulations and the time caps placed on fixed-term agreements.
Also, if the tenant is a juristic person, irrespective of its asset value or turnover, the tenant will not be able to cancel the Agreement by providing 20 business days notice as contemplated in section 14 of the CPA.

ORDINARY COURSE OF BUSINESS

So, the Consumer is not a juristic person as contemplated in the CPA, will the CPA now always apply?
Not exactly. Generally, the CPA limits the applicability of the Act to transactions concluded "in the ordinary course of business for consideration".
Although there is no case law on this specific wording in the CPA, the Appellate Division's interpretation of the phrase "in the ordinary course of business" as it appears in other legislation, sheds some light on the meaning of this phrase for purposes of the CPA.
It was held in Amalgamated Banks of SA v De Goede that when the applicability of a statute is limited to agreements entered into "in the ordinary course of business", reference is being made to an agreement that would be entered into between ordinary business people, regardless of whether the parties are "business" people".
The Court held that the test for determining whether a contract falls within the ordinary course of a particular business is -
  • whether the making of the contract falls within the scope of that business; and
  • whether ordinary business persons would have concluded the contract (i.e. whether the contract is one with terms and conditions that ordinary business persons would use).
It appears that it is irrelevant whether carrying on the business entails making that type of contract on a regular basis.
Notwithstanding the aforementioned, there are contrasting opinions on what exactly constitutes "in the ordinary course of business" in the context of the CPA. To err on the side of caution may currently be the best approach, and if you are unsure whether or not the CPA applies, assume it does as the CPA will be interpreted to favour the Consumer.

TERMS THAT ARE UNFAIR, UNREASONABLE OR UNJUST

Section 48 of the CPA relates to terms that are unfair, unreasonable or unjust. There are no hard and fast rules to determine whether a term or condition is excessively one-sided or that the term is so adverse to the Consumer as to be inequitable.
Regulation 44 of the CPA Regulations contains guidance on whether a term will be presumed unfair and unreasonable. Regulation 44, however, provides more questions than answers.
Regulation 44 appears to only relate to Consumers who are “individual consumers” who enter into the Agreement for purposes wholly or mainly unrelated to his or her business or profession.
"Individual consumer" is not defined in the Act nor the Regulations. What is meant by an agreement that is wholly or mainly unrelated to a consumer’s business or profession, is also unclear. Save to say that Regulation 44 appear to relate to a narrower more specific transaction compared to a transaction contemplated in the CPA, the purpose of this article is not a legislation interpretation exercise.
Regulation 44 (2) (a) makes it clear that at the end of the day it will depend on the specific circumstances relating to the case when determining whether a term can be presumed unfair and unreasonable.
A practical way of addressing the aforementioned may again be to err on the side of caution and to include a recordal in the Agreement –
when it appears that there are terms in the Agreement that may fall within the list stipulated in Regulation 44 (3) (and such a term does not fall within one of the categories stipulated under Regulation 44 (4)), a recordal stipulating the specific circumstances surrounding the transaction that provides the rational basis for the inclusion of the term may be useful.

NOTICE REQUIRED FOR CERTAIN TERMS AND CONDITIONS

Section 49 (1) of the CPA stipulates –
(1) Any notice to consumers or provision of a consumer agreement that purports to—
  • (a) limit in any way the risk or liability of the supplier or any other person;
  • (b) constitute an assumption of risk or liability by the Consumer ;
  • (c) impose an obligation on the Consumer to indemnify the supplier or any other person for any cause; or
  • (d) be an acknowledgement of any fact by the Consumer,
must be drawn to the attention of the Consumer in a manner and form that satisfies the formal requirements of subsections (3) to (5).
We still see agreements that do not comply with section 49 (1) of the CPA. Next time you go through a consumer-facing agreement, see how long it takes you to spot the limitation of liability clause –
it is usually hidden somewhere in the body of a legalese ridden agreement, an 8 font size is used with zero paragraph spacing, and it is not bolded or drawn to your attention in any way.
Remember, even if after evaluating the circumstances of the particular case and it appears that it is reasonable and fair to include a term as contemplated in section 49 (1) of the CPA –
such term will still be deemed unreasonable and unfair if the fact, nature and effect of that term were not drawn to the attention of the Consumer in a manner that satisfied the applicable requirements of section 49.
Section 49 (4) and (5)  of the CPA stipulates –
(4) The fact, nature and effect of the provision or notice contemplated in subsection (1) must be drawn to the attention of the Consumer—
  • (a) in a conspicuous manner and form that is likely to attract the attention of an ordinarily alert consumer, having regard to the circumstances; and
  • (b) before the earlier of the time at which the Consumer—
    • (i) enters into the transaction or Agreement, begins to engage in the activity, or enters or gains
    • access to the facility; or
    • (ii) is required or expected to offer consideration for the transaction or Agreement.
(5) The Consumer must be given an adequate opportunity in the circumstances to receive and comprehend the provision or notice as contemplated in subsection (1).
An option will be to include (as part of your signature clause), a CPA notice that stipulates that –
By signing this Agreement the consumer confirms –
  • he/she had adequate opportunity to comprehend the bolded clauses (those clauses that you need to draw to the attention of the Consumer as contemplated in section 49 (1) of the CPA) and that he/she understands these clauses.

WITH THE SHOVE OF THE FOOT

Much has been written about the inclusion of a voetstoots clause in an agreement where the CPA applies. For purposes of this article, a key takeaway from the various articles that have been written on this subject is -
  • If the CPA is applicable, including a voetstoots clause will likely detract from the Consumer's rights contemplated in section 56 of the CPA (Implied warranty of quality) and will likely not be enforceable.
  • If the CPA is not applicable, it is business as usual, and a voetstoots clause can still be included.
Naturally, if you are acting for a seller that is selling a property in the ordinary course of business, you still would want to include some protection for your client and this is where section 55 (6) of the CPA comes into play. Let's breakdown section 55 and 56 of the CPA -
  1. Section 56 CPA requires that the goods must comply with the requirements of section 55 of the CPA 
  2. Section 55 (2) lists 4 requirements that the goods must comply with -
    • Reasonable suitability for purposes generally intended
    • Good quality, in working order and free of defects
    • Useable and durable for a reasonable period of time
    • Compliant with standards under the Standards Act, 1993.
The first two bullet points (Reasonable suitability for purposes generally intended + Good quality, in working order and free of defects), can be excluded if -
  • The Consumer has been expressly informed that the particular goods were in a specific condition and the Consumer expressly accepts the goods in that condition.

PLAIN LANGUAGE

Remember the plain language requirements of the CPA. If your residential lease starts exceeding 20 pages, you are missing the point of plain-language drafting.
For more information on plain language requirements, have a look at this article - Using plain language in legal documents & letting go of the gobbledygook.

CONCLUSIONS

The CPA was certainly not drafted with due regard to Immovable Property transactions. With that being said, the CPA is still law and you need to ensure your client does not fall foul of the provisions of the CPA.
The above considerations are only the tip of the iceberg but should hopefully get you started on the right foot when drafting property-related agreements to which the CPA applies.
The contracts.tech automated contracts are drafted by experts in their respective fields and with due regard to the CPA. Be sure to give them a try.

Want updates about new articles?

Monthly information regarding new legislation and contract updates.

We care about the protection of your data. Read our Privacy Policy.