R2. Mandates

  1. Mandates

No estate agent shall –

Code:

3.1   offer, purport or attempt to offer any immovable property for sale or to let or negotiate in connection therewith or canvas or undertake or offer to canvass a purchaser or lessee therefore unless he has been given the mandate to do so by the seller or lessor of the property, or his duly authorized agent:

3.2   on behalf of a prospective purchaser or lessee, offer, purport or attempt to offer to purchase or lease an immovable property or negotiate in connection therewith or canvass, or undertake or offer to canvass a seller or lessor therefore unless he has been given a mandate to do so by such prospective purchaser or lessee as the case may be or his duly authorized agent;

Discussion:

The purpose of these two clauses is to protect a seller’s right to privacy of his home and property and also to avoid misinterpretation to a purchaser by an estate agent.

No estate agent shall –

Code:

3.3   accept a sole mandate, or the extension of the period of an existing sole mandate, unless –

3.3.1   all the terms of such mandate (or extension, as the case may be) are in writing and signed by the client;

3.3.2   the expiry date of the mandate (or extension, as the case may be), which shall be expressed as a calendar date, is specifically recorded in the written sole mandate (or extension, as the case may be);

Discussion:

The purpose of this clause is to avoid disputes and uncertainty about the content and duration of sole mandates. The following points should be noted:

  • The Code does not prescribe a time limit in respect of sole mandates. It must be remembered, however, that a sole mandate in effect confers on the sole agent and exclusive right coupled with a moral obligation to market the seller’s property. When negotiating the period of the sole mandate a reasonable time should be allowed within which to implement an appropriate marketing effort. An unduly lengthy period will obviously not be in the interest of the seller (the estate agents client) and when fixing the period of the sole mandate an estate agent must therefore be careful not to contravene clause 2.2 of the code (see the discussion above). What constitutes a reasonable period will depend on the circumstance of each case.
  • All the terms and conditions of the mandate must be in writing and signed by the client. Although it is not expressly required by the code, it is recommended that the estate agent also sign the mandate document.
  • The expiry date of the mandate, expressed as a calendar date, must be stated, for example, 30 July 1992. It is not permissible to state that the mandate will terminate/expire after a certain period from the date of signature thereof. A sole mandate on a property expressed to continue “until sold” is clearly not allowed.

Code:

3.4   accept a sole mandate which contains a provision conferring upon him –

3.4.1   an option to extend the sole mandate for a certain period after expiry of the sole mandate; or

3.4.2   a mandate to continue to render the same estate agency service referred to in the sole mandate, after the expiry of the sole mandate,

Unless –

(aa)     the client has prior to his signature of the sole mandate expressly consented in a written document executed independently of the said sole mandate, to the inclusion of such provision or provisions (as the case may be); and

(bb)     such document contains an explanation of the reasons for and implications of the inclusion of such provision; and

(cc)      such document is signed by both the client and the estate agent in question:

Discussion:

The purpose of this clause is to avoid double commission disputes. Unless the written consent of the client has been obtained, an estate agent is prohibited from including in a sole mandate document provisions which confer upon him –

  • an option to extend the sole mandate for a certain period after expiry of the sole mandate; or
  • an open mandate to render the same estate agency service referred to in the sole mandated after expiry thereof.

The client’s consent may not be contained in the sole mandate document but must be set out in a separate document, which must explain the reasons for, and implications of, the estate agent. The obvious reason for the automatic extension of a sole mandate or the continuation of an open mandate on the expiry of a sole mandate is to enable the agent to continue his marketing effort.

Note that an estate agent is not prohibited, after the expiry of a sole mandate, from negotiating afresh a further mandate (open or sole) in respect of the property in question. If an open mandate is conferred, it can be accepted verbally.

  1. Extension of a sole mandate

In terms of clause 3.4.2 (bb) the implications of a sole mandate containing a clause conferring on an estate agent an option to extend the sole mandate after its expiry must be explained to the client. The implications of conferring such an option on an estate agent are of a legal nature and are as follows:

  • The estate agent may in his sole discretion extend the sole mandate period, in which event the seller will not be able to revoke the mandate unilaterally, nor will he be able to appoint other agents to market his property until the expiry of the extended sole mandate period, unless he is prepared to face a double commission dispute
  • If the seller appoints other agents on expiry of the initial sole mandate period to market his property without first ascertaining from the sole agent whether or not the option to extend the sole mandate period has been exercised, he may expose himself to a double commission dispute.
  1. Continuing open mandate on expiry of a sole mandate

In terms of clause 3.4.2 (bb) the implications of a sole mandate containing a clause conferring on the sole agent an open mandate after the expiry of the sole mandate must be explained to the client. The implications of continuing an open mandate on the expiry of the sole mandate are also of a legal nature and are as follows:

  • The sole agent may continue to market the property until his new open mandate is revoked. On termination of the initial sole mandate, he need not specifically approach the seller for the grant of an open mandate.
  • On termination of the sole mandate, the seller should not confer a sole mandate on another estate agent before revoking the new open mandate. Should he fail to do so he may be in breach of his obligations towards the new sole agent since the first agent now having an open mandate will be marketing the property in competition with the sole agent.

Code:

3.5       accept a sole mandate which also confers upon him a power of attorney to act on behalf of the person conferring the mandate unless the intention and effect of such power of attorney are fully explained in the document embodying the sole mandate:

Discussion:

An estate agent’s mandate does not usually confer a power of attorney on the estate agent. For example, an estate agent has the mandate to sell a property, is usually not empowered or authorized to enter into a contract of sale on behalf of the seller. There may be situations where it is appropriate to confer an authority of this nature on the estate agent, but this happens only in exceptional circumstances.

The clause does not prohibit an estate agent from including a power of attorney in a sole mandate document but imposes a duty on the estate agent in such a case to explain the intention and effect of the power of attorney in the sole mandate document. In other words, it must be made clear to the seller that he is not simply conferring a usual or ordinary mandate on the sole agent but is in fact giving him the right to conduct an agreement on the seller’s behalf without the latter’s knowledge or further consent.

Sole mandate documents used by estate agents headed “Sole Authority to Sell” usually stipulate that the seller authorizes the estate agent to sell the property on the terms and conditions set out in the mandate. In such case, the estate agent is clearly given a power of attorney to conclude the contract on the seller’s behalf and sole mandate documents of this nature must always comply with the requirements of clause 3.5

Code:

3.6       include, or a clause to be included, or accept the benefit of, any clause in a contract of sale or lease of the immovable property negotiated by him, whereby a sole mandate is directly or indirectly conferred upon him to sell or let the said immovable property at any time after the conclusion of the said contract:

Discussion:

This clause prohibits an estate agent from including a clause in an agreement of sale or lease whereby a sole mandate is conferred upon him authorizing him to sell or let the property at any time after the conclusion of such agreement of sale or lease. The reason for this is that a purchaser when entering into an agreement of sale does not normally consider the immediate resale or letting of the property and hence does not apply his mind to the question of whether or not he would wish to confer a sole agency should he ever want to sell or let the property in the future, or even which estate agent he would choose to appoint in such event.

A purchaser should at all times be free to select the estate agent of his choice should he wish to resell or let the property he has bought and should not be deprived of his right of free choice by being bound to an obligation imposed by a reprinted clause in the sale/lease agreement which he had signed. Such freedom of choice promotes free and fair competition amongst estate agents.

The same consideration applies to lease agreements. A lessor who has let his property through a particular estate agent should be free if he wishes to re-let or sell the property in the future, to decide at that stage whether or not to appoint a sole agent to do so.

Is it permitted to include a clause in a lease agreement that entitles the letting agent to a sales commission should the lessee purchase the property during the currency of the lease or within a certain period thereafter? The answer is yes, provided it is clear that the letting agent initially had the mandate to sell and the lease was entered into merely as a bridging or interim arrangement pending the conclusion of the intended sale.

Clause 3.6 does not prohibit the inclusion of clauses in the sale or lease agreements conferring open mandates (i.e. not sole mandates) to sell or let.

Code:

3.7       accept any mandate for instructions of work in respect of immovable property if his interest therein would compete with his obligations towards an existing client in respect of the same immovable property without first disclosing such interest in writing to such client;

Discussion:

An estate agent is expected to use his best endeavours in the performance of his mandate. A prospective purchaser, for instance, is entitled to be informed if the estate agent wishes to accept a competing mandate from someone else.

Code:

3.8       knowingly or negligently make material misrepresentation concerning the likely market value or rental income of an immovable property to a seller or lessor thereof, in order to obtain a mandate in respect of such property:

Discussion:

It is clearly not in a seller’s interest to be induced to confer a mandate (particularly a sole mandate) on an estate agent as a result of misrepresentation concerning the market value of his property. Such dishonest practice on the part of an estate agent not only prejudices the seller but also restricts free and fair competition amongst estate agents.

The following points are relevant –

  • The clause prohibits an estate agent from misrepresenting the likely market value (i.e. selling price) or rental income of a property. Regard should be had to the clear distinction between a seller’s asking price and the likely market value of his property. The clause does not prohibit an estate agent from advising a seller on setting a particular asking price for his property (which may or may not correspond with the likely market value) to test the market. The estate agent must take care not to bring the seller under the impression that the asking price is necessarily also the likely market value.
  • An estate agent will contravene clause 3.8 only if he has made a material representation concerning the likely market value of the property, as done so knowingly or negligently. Since an estate agent is not required or expected to be a registered valuer his is not expected to give an absolute or definitive assessment of the property’s market value. The general tenor of clause 3.8 is that an estate agent must not merely concoct a figure when advising a seller on the market value of this property. His opinion must be based on facts. An estate agent who applies his mind to the matter and bases his opinion on proper and adequate research undertaken by him can never be found guilty of contravening this clause, even should it transpire that his opinion differs markedly from what later proves to be the true market value of the property. Proper research in this context would include a comparative market analysis or the use of some other recognized valuation method.
  • An estate agent who has not researched the value of a property and who does not know what its likely market value is, should not venture an opinion even if the seller should ask him what the likely value is.

Code:

3.9       accept a mandate in respect of any immovable property if the performance of the mandate requires specialized skill or knowledge outside of his field of competence unless he will in the performance of the mandate be assisted by a person who has the required skill or knowledge and this fact is disclosed in writing to the client;

Discussion:

The purpose of this clause is to avoid a situation where members of the public suffer loss through incompetence on the part of estate agents. It will depend on the facts of each individual case whether the performance of a mandate “requires specialized skill or knowledge” and whether such performance falls outside an estate agent’s field of competence.

A practical example would be where an estate agent experienced in the sale of residential properties is approached by the seller of a business to sell that business. If the estate agent has never handled such a transaction before, it is obvious that he cannot have the required practical experience in this field. The estate agent may nevertheless accept the mandate provided that he will in the performance of the mandate be assisted by a person possessing the necessary skill or knowledge required to handle such a transaction and the fact that such assistance is disclosed to the seller.

The person assisting the estate agent could be an attorney, an auditor or any other knowledgeable or experienced person (for example, another estate agent). The manner in which such person must assist the estate agent is not prescribed but generally, it will be expected of such person to advise the estate agent of the pitfalls in the scale of a business and how the transaction should ideally be structured. It is advisable that such a person also scrutinize the contract of sale prior to its signature by the purchaser or seller.

There may be instances where the performance of a mandate does not require specialized skill or knowledge on the part of an estate agent, even though the mandate concerns a transaction of a technical nature and the estate agent has never before undertaken a mandate of that nature.

Code:

3.10     accept a sole mandate to sell or let immovable property unless he has explained in writing to the client –

3.10.1  the legal implications should the client during the currency of the sole mandate or thereafter sell or let the property without the assistance of the estate agent, through the intervention of another estate agent; and

3.10.2  what specific obligations in respect of the marketing of the property will be assumed by the estate agent in his endeavour to perform the mandate:

Provided at such explanations, if contained in a standard pre-printed or typed sole mandate document, shall be in lettering no smaller than that generally used in the remainder of the document.

Discussion:

Consumers who confer sole mandate are often not aware of the commission implications arising out of sole mandates and what specific marketing effort can reasonably be expected of the estate agent during the sole mandate period. The purpose of this clause is to specify and clarify all commission implications between and estate agent and the client as well as the responsibilities to be undertaken by the agent in the performance of the mandate. The following aspects are important:

  • In the terms of clause 3.10.1, an estate agent must explain to the client the commission implications should the client sell or let the property himself (or through the intervention of another estate agent) during the currency of the sole mandate, and if he sells it after the termination of a sole mandate to a person introduced to the property by the sole agent during the currency of the sole agency. The nature of the implications will, in the first place, depend on the express terms of the sole mandate. Some sole mandates prohibit a seller from marketing the property himself during the same mandate period while others contain no such restriction. Furthermore, sole mandate provides that should the seller sell his property after the expiry of the sole mandate, he (the seller) remains liable for payment of the commission whether or not the estate agent is the effective cause of such a sale.

Clauses of this nature are often rather technically worded, making it very difficult for the layman to grasp the significance. Clause 3.10, therefore, requires that an estate agent give a clear and easily understandable written explanation of the commission implications of the sole mandate. The explanation can be contained in a letter, fax, telegram, the sole mandate document itself, or any other document. The following is suggested as being a suitable explanation:

  1. Explanation of mandate:
  • During the currency of this sole mandate, you (the seller) may not sell the property yourself or through the intervention of any other estate agent. Should you do so you will be liable to pay the full commission to me (the estate agent named in this mandate) in addition to any other commission payable to any other agent.
  • You (the seller) may not appoint any other estate agent during the currency of the sole mandate to market the property. Should you do so, I (the estate agent) may cancel my sole mandate and claim damages from you in an amount equal to the commission stipulated in the mandate.
  • For a period of … weeks after the expiry of this mandate, you may not sell your property (either by yourself or through the intervention of another estate agent) to any purchaser introduced by me (the estate agent) or any other estate agent during the currency of the sole mandate. Should you do so you will be liable to pay me (the estate agent) the full commission stipulated in the sole mandate, in addition to whatever obligations you may have in respect to any other estate agent.

In terms of clause 3.10.2 an estate agent must specify the obligations, he will assume in the performance of the mandate. The clause does not prescribe any specific obligations but leaves this matter to be negotiated with the seller. As stated earlier, a sole mandate to sell a property confers on an estate agent the exclusive right to market the property and it is reasonable in these circumstances to expect that the estate agent should assume marketing obligations commensurate with the discharge of the mandate. Accordingly, for the purpose of compliance with this clause an estate agent must record at least some specific obligations that will be assumed by him pursuant to the sole mandate. Examples of some of these obligations are:

  1. The holding of a show-house-day on specified dates:
  2. The placing of advertisements in specified newspapers on a minimum number of occasions:
  • The maintenance of ongoing contact with the seller during the mandate period and reporting back to him on progress made in the marketing of his property on a regular basis.

The obligations undertaken by the estate agent must be recorded in writing, either in the sole mandate itself or in a separate document.

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