How does the consumer protection act affect homeowners’ associations?

Would you be surprised to learn that Homeowners’ Associations (HOAs) are subject to certain provisions of the Consumer Protection Act, No. 68 of 2008? HOAs fall within the definition of ‘suppliers’ in terms of the CPA, and are liable to uphold various identified ‘Fundamental Consumer Rights’. Failure to adhere to the relevant sections may even lead to legal grounds for not paying levies imposed by an HOA. It is worth noting that the CPA not only applies to the contracting parties, but also other users of the services like tenants and guests.

Protection against discriminatory marketing

In terms of Section 8 of the CPA, a supplier of goods or services (including HOAs) may not unfairly exclude any person or category of persons from accessing any goods or services offered by the supplier, or target particular communities, populations or market segments for the exclusive supply of any goods or services, on the basis of one or more grounds of unfair discrimination (e.g. race or gender).

This means that certain provisions in HOA documents may need to be revised to expressly state that no marketing may be of a discriminatory nature and, as such, in contravention of the Act. For instance, a proviso stating It is specifically recorded that the HOA may not refuse consent on the basis of any grounds of discrimination contemplated in sec 9 of the Constitution of South Africa (the Bill of Rights) or Chapter 2 of the Promotion of Equality and Prevention of Unfair Discrimination Act may need to be added to certain clauses of documents.

The Act presumes that any differential treatment is unfair discrimination and a contravention of the Act. The onus is on the supplier, that is, the HOA, to prove that this is not the case.

Consumer’s right to choose

Certain sections of Part C of the Act should be considered as they are relevant to the consumer’s right to choose.

Section 13 speaks to the consumer’s right to select suppliers and may have an impact on estate agency mandates. A supplier (or HOA) may not make it a condition of sale that the consumer (the seller or buyer) can only sell through or buy from a designated third party. Plainly speaking, conditions that require the use of only accredited estate agencies to trade properties may be in breach of the consumer’s right to choose and a contravention of the Act.

There are however exceptions to the rule, but the developer or HOA must be able to show that:

• the convenience to the consumer of having these goods or services bundled together outweighs the limitation of the consumer’s right to choose;
• that the bundling of those goods or services results in economic benefit for consumers; or
• that the supplier offers bundled goods or services separately and at individual prices (so that it is not a pre-condition to the sale or supply of services).

HOAs may suggest a list of preferred agencies and insist that any agency complies with reasonable security arrangements as imposed by the HOA and consistently and consistently applied to all estate agencies. The sale of a property within an estate often entails a certain amount of expertise and know-how of the manner in which the estate operates and its rules. HOAs may reasonably require agents to undergo basic training (at a fee) as a pre-requisite to trading properties within the estate.

These provisions would also apply to the choice of architects, builders, landscapers and conveyancers.

The consumer’s right to cooling-off period after direct marketing is stipulated in Section 16 of the Act. Any consumer may cancel an agreement which resulted from direct marketing within five business days of the conclusion of such an agreement. No reason needs to be given for the decision and the contract would then be void ab initio. In this case, direct marketing means to approach a person, either in person or by mail (electronic or otherwise) for the direct or indirect purpose of promoting or offering to supply goods or services. ‘Goods’ would include the sale of land or an interest in land.

Section 19 explains the consumer’s rights with respect to delivery of goods and the supply of service. This means that property sold remains at the developer or seller’s risk until the registration of transfer. In other words, a provision of a contract in terms of which risk passes to the purchaser on early occupation (before transfer) is in contravention of the Act.

The consumer’s right to information in plain and understandable language (Section 21 of the Act) is also known as the ‘plain language’ rule. If a homeowner, tenant, guest, buyer or seller does not understand a document because it is not in a language they understand, or is not in plain and understandable language regardless of which language it may be, the agreement may be set aside by the court. This also applies to any HOA conduct rules or notices an HOA may wish to display. Should these not be in clear and understandable language, it may be raised as a defence to the non-payment of levies.

Section 40 of the Act deals with the right to fair and honest dealing. While they may choose to not involve themselves with such matters, a court of law now has the power to adjust purchase prices, levies or order an award for damages. This could happen if a supplier, or their agent, makes themselves guilty of unconscionable conduct in relation to the marketing or conclusion of any agreement or the supply of services or goods.

Unfair, unreasonable, or unjust contract terms as stipulated under Section 48 allows the court to intervene and adjust a contract term – and even the price – where such term or price is unfair, unreasonable, or unjust. This is applicable to terms that are excessively one-sided in favour of any person other than the consumer, or where the consumer relied upon a false, misleading, or deceptive representation to his detriment. Common to many agreements, non- representation clauses are in contravention of the Act and the court has the power to evaluate negotiations and representations made leading up to the conclusion of a contract.

As per Section 49, any clauses that affect the limitation of risk and indemnities of the supplier or another person, contains an indemnity, or is an acknowledgment of any fact by a consumer must be brought to the attention of the consumer. The consumer must sign or initial next to any such limitation to show that he/she has assented to such provision. Any indemnity or assumption of risk must also be stated in clear and simple language.

The CPA is a much-needed law that establishes and protects the rights of all South African consumers. It does, however, have unexpected effects on a number of industries. Contact us should you like to find out more about how the CPA impacts the normal running of an HOA.