Can Attorneys Sell Property – An Alternate Perspective

LawForSale

There has been concern among some estate agents who have taken issue with lawyers acting as estate agents and engaging as such with the public at large.

There have also been a few articles written fervently defending the rights of attorneys to practice another profession unrestrained. But maybe let’s not try and shoehorn the law to fit the intention and let’s rather approach it more objectively. Let’s maybe ask questions which public interest demands.

Let’s maybe also look at the law and see if it ever was the legislature’s intention to allow attorneys under the jurisdiction of the law society, with no oversight by the real estate regulatory body (the EAAB).

The other issue is that the particular franchise takes a very lawyer centric marketing campaign which completely disregards the tremendous value added by real estate professionals and the modern technological advances in the industry and the tremendous effect of curated training programs. Yes, a lot has changed since those early days.

But in all such matters it is always better to start with: What does the law say?

SO WHAT DOES THE ESTATE AGENT’S ACT SAY?

The Act makes it very clear that only an estate agent can perform the full spectrum of services and functions laid out in the Act, under the supervision of the regulator, the EAAB.

To do so the estate must hold a valid Fidelity Fund Certificate (FFC) through the EAAB. It is only if these conditions are met that a person may legally be entitled to receive a commission from selling the property, for example.

The Act states:

a) means any person who for the acquisition of gain on his own account or in  partnership, in any manner holds himself out as a person who, or directly or
indirectly advertises that he, on the instructions of or on behalf of any other
person–
i) sells or purchases or publicly exhibits for sale immovable property or
any business undertaking or negotiates in connection therewith or
canvasses or undertakes or offers to canvass a seller or purchaser
therefor; or
ii) lets or hires or publicly exhibits for hire immovable property or any
business undertaking or negotiates in connection therewith or canvasses
or undertakes or offers to canvass a lessee or lessor therefor; or
iii) collects or receives any moneys payable on account of a lease of
immovable property or any business undertaking; or
iv) renders any such other service as the Minister on the recommendation

In the definition of “estate agent” in the Estate Agency Affairs Act 1976 (as amended) (hereafter referred to as the Act) states that the exclusion:

does not include an attorney who, on his own account or as partner in a firm of attorneys or as member of a professional company, as defined in section 1 of the Attorneys Act, 1979 (Act No. 53 of 1979), or an articled clerk as defined in the said section of that Act, who performs any act referred to in paragraph (a), in the course of and in the name of and from the premises of such attorney’s or professional company’s practice[My underlining]

It is in terms of this exception to the rule, that some lawyers believe that they can sell property. However I would like to posit that this is a very limited exception and that carrying on the full real estate functions of an estate agent, exceeds the ambit of the exception and as a result, their actions may well be a violation of the Act.

We need to unpack the meaning attached to these words to truly understand when an attorney is correctly acting within the parameters of the exception.

“does not include an attorney who, on his own account or as partner in a firm of attorneys or as member of a professional company”

This section addresses the various practice forms of attorneys such as sole practitioner, a partnership or as part of a professional company. It may be submitted that this comprehensive listing of the potential practice possibilities was inserted specifically to ensure that all possible permutations were covered, specifically so as not to allow for any uncertainty.

It may be held by some that by taking “on his own account” alone and out of the context will allow an attorney to, in his (or her) own name to practice as an estate agent. It is submitted that seen in context it is clear that the legislature merely listed the possible trading forms and it was never the intention of the legislature to by this wording allow an attorney to practice as a real estate agent.

“IN THE COURSE AND SCOPE…OF SUCH ATTORNEY’S OR PROFESSIONAL COMPANY’S PRACTICE”

in the course of… such attorney’s or professional company’s practice” related to acting in the course of the attorneys practice as an attorney, not as an estate agent. As a matter of common sense, it was never intended that an attorney should be able to practice as an estate agent in the normal course of his practice.

WHY DID THE LAWMAKERS CREATE SUCH AN APPARENT GLARING EXCEPTION FOR LAWYERS?

We would like to think that the legislature must have had some very compelling reason?

The eventuality being considered is for a situation where the attorney is acting as an executor in a deceased estate or a liquidator in an insolvent estate. In these cases, the legislature considered that it would be expedient to make this exception to allow the attorney to perform the function of selling a property which fell within an estate being administered by the attorney.

But why then do so few attorneys sell properties when there are so many acting in these capacities? Some reasons may be:

  • Financial Viability – To be effective in the sales function, requires marketing platforms, which are not economically viable in limited numbers;
  • Specialisation – The professionalization and natural increase in the ability of estate agents has made operating in a limited scope, outside your normal field of practice, a very unwise decision;
  • Time constraints – An attorney’s practice is busy and time is in short supply, so the lawyer is very often office-bound or in court (if they have a general practice), whereas an estate agent needs to be out of the office performing the functions required of the real estate profession, which likewise demands a sizeable commitment of time;
  • Fees vs Commission – Financially, a lawyer makes their money in the office and being out of the office would result in lost fees;
  • Complexity – Over the last few years the role of the estate agent has evolved and so has the knowledge required to be an estate agent. Lawyers are not that arrogant as to believe that they know everything that an agent knows, nor do they have the sales-based network required to be as effective;
  • Market Knowledge – Despite lawyer’s extensive legal knowledge, that is only part of the estate agent’s function. Area knowledge, valuation ability et cetera are vitally important in achieving optimal sales in optimal time. It may be interesting to see how a lawyer (even in a small practice) can manage a practice, keep up to date on their legal professional knowledge, as well as maintain the same work rate as estate agent while keeping abreast of the market;
  • Training – The law society overseas training to attorneys as attorneys, the fact is that when you practice as estate agents while being an attorney you simply being trained in that function. When I practiced as a lawyer for well over a decade, the one gap in lawyer’s training is marketing and sales, which is an integral of the estate agent profession.
  • Risk – An astute lawyer knows that risk needs to be managed and ring-fenced. It is very difficult when you have removed the biggest defense against risk by in housing the agent function, within the legal function, effectively doing away with an additional level of controls.
  • Maintenance of professional independence – A lawyer can never be said to be in the pocket of an estate agent while they are independent, at worst keeping a separation prevents a conflict of interest and allows the estate agent to choose the conveyancer whom the agent knows to be the conveyancer who get’s the best results. It does not follow that the “agents” boss in a legal office is the best conveyancer but this employee would be in a very compromised position.
  • Underestimating the contribution of estate agents – An astute lawyer knows that in any profession there are lazy members, who ignore detail, and fly by the seat of their pants. But they also realise that there are also highly trained, professional, and efficient members of that profession and these members do a lot of work that never gets seen but makes their deals go through without a glitch, not because it worked out that way it was because they addressed issues before they became issues. This also takes time, which makes the lawyer more efficient and profitable at their specialty, as they do not have to deal with picking up the pieces afterward.
  • Fee determinations – Most fields where lawyers can sell in the course of their practice are deceased estates but here the lawyer is the executor and the work done falls into the 3.5% executors fee, which means that they would be doing more work for the same money, which in the time-constrained, high-pressure reality of today does not make financial sense.

WAS IT EVER THE LAWMAKERS’ INTENTION TO MAKE LAWYERS ALSO ESTATE AGENTS?

It would be a far stretch of reasonable interpretation (or common sense for that matter) to say that the legislature intended that attorneys should be allowed to operate in an unfettered manner, as estate agents, when the provision was created. It also makes more sense that had this been the intention that the Act would have specifically stated this but it does not.

One needs not be a senior counsel to appreciate the fact that no reasonable person would ever expect the practice of real estate brokerage to be in the course and scope of a lawyer and nor do the law societies otherwise surely they would be providing sales training, training in marketing of homes, staging, objection handling, and how to deal with the minefield of possible conflicts of interest. It may be submitted that the law societies have not been remiss in the duty to educate their members in this field because it was not conceived that their members should be practicing in this field, as estate agents.

The university syllabus at university does not cover nearly sufficiently the required knowledge areas, save law and the training and experience which an attorney gets in the office is legal practice driven, not what is required for training an effective estate agent.

If anything, a client could be excused for asking the question: As a busy lawyer how do you possibly get the time to be a full-time estate agent?

The law society may also have questions about supervision of articled clerks working off premises or supervision of the practice of the attorney if said attorney is off doing property viewings. If I was a client I would be very concerned if my lawyers were off selling instead of attending to matters in the office.

In addition, the law societies would not easily wish to interpret the scope of practice of legal practitioner this widely because it results in effectively creating multidisciplinary practices, which create a minefield of possible conflict of interest situations.

In addition, it would make defending the work of conveyancing tenuous when, say for example, estate agents decide to do conveyancing in-house, which possibility will increase, as we move to electronic deeds system.

But if it was the intention of the legislature to curtail the scope of what an attorney can do as an estate agent, surely there would be further limiters on what the attorney can do, which brings us to the words.

“and”

In legal interpretation, every word is important and essential to fully understand the intention of the legislation. This little word and is very important in the interpretation of the sentence. It means that not only must the operations in terms of the Act, by an attorney be within his “), in the course …and from the premises of such attorney’s or professional company’s practice” but must also simultaneously be:

and from the premises of such attorney’s or professional company’s practice

This is a very specific statement. The attorney must sell the property (being sold in the attorney’s course and scope” in the name of and from the premises of such attorney.

It can be made no clearer than that.

ITS ALL IN THE NAME

It has become a phenomenon that a certain franchise operates under a banner, such as Super Cheap (hypothetical name), for example.

The lawyers who are members then simply say they are Black & White Inc trading as Super Cheap.

Let’s start with the legal practice.

They practice under the Attorneys Act and are issued with a Fidelity Fund Certificate which allows them to trade as such, which stipulates under which name they can practice, just like estate agents.

In simple terms, an attorney who is acting under the jurisdiction of a law society cannot as an attorney trade under any other trading name as what is allowed by the law society, which allowed names are indicated on the said attorney’s fidelity fund certificate. It goes without saying that trading (as an attorney) under any other trading name is irregular, and should be addressed by the law society having jurisdiction over the said attorney.

The names of legal practices are highly regulated and any deviation from the names of the partners has to be approved by the applicable law society and will appear on their fidelity fund certificate, which makes sense.

But what of our hypothetical firm of Black & White Incorporated?

As attorneys, their company has one name and their practice or trading name is stipulated at Black & White Inc t/a Black & White Inc, on their Fidelity Fund Certificate.

They decide they would like to grow their conveyancing practice by having in-house estate agents. None of the partners have passed through the estate agent training, internship, or professional accreditation. They also don’t want to do the internship and write two sets of designation exams. But what to do?

It is not uncommon for attorneys to sometimes have the impression that all agents do is the contract, which incidentally is what lawyers do – so that’s it we can do this.

So, they buy a franchise, which in this case is the hypothetical Super Cheap franchise.

Now, they don’t want to practice as agents under their name, so they practice as Super Cheap. After all, they have a trust account, which does not get audited to the same extent as an estate agency, they don’t have to audit their business account (which agencies do), and they don’t have to do Continued Education required by the EAAB; so this sounds great.

One often sees references like this Black & White Inc t/a Super Cheap on property portals like P24, when you look at agency profiles, which is surprising.

So, let’s get this straight they are attorneys, so they fall under the jurisdiction of the relevant law society, allegedly trading in the course and scope as attorneys, but are doing so under a name not on their fidelity fund certificate, if this is the situation does anyone see a problem with lawyers potentially breaching the practice directives of their law society?

It is therefore clear that the property being sold by the attorney must be sold in the name of the professional practice’s name. It would be disingenuous to say that an attorney could comply with this directive by selling as Black & White Inc t/a Super Cheap Realty, after all does this appear on his fidelity fund certificate issued by the law society because in our example he does not hold a fidelity fund certificate from the EAAB.

But this is no attorney’s practice know as Black & White Inc t/a Super Cheap Realty.

The exemption applies to attorneys and the attorney’s fidelity fund certificate does not stipulate this trading name, hence it is not the attorney’s practice name.

BUT WHY WOULD A LAW FIRM POSSIBLY WANT TO PRACTICE AS AN ESTATE AGENCY?

It could be driven by a multitude of reasons such as:

  • The rise of the so-called super firms, which have built massive practices and through proven efficiency and have large estate agent followings;
  • The number of legal practitioners is increasing, which increases competition;
  • The high cost of running a professional practice;
  • The law societies have always tenaciously guarded the potential “capture” of work by provisions such as making it an offense to have a conveyancer’s name typed into a deed of sale for example;
  • A consolidation of real estate agencies has concentrated business and possibly some firms are not able to attract the business that they would like.
  • Law societies also have cracked down on the ability of conveyancers to so-called buy work from estate agencies.
  • And there may well be other reasons.

Whatever the reason, it may sound like a great idea to in-house another profession.

In such a model, one is looking to secure the conveyancing instruction by offering a discounted rate on conveyancing. The best way to do this would possibly be to:

  • Avoid the high costs of the highly regulated estate agency environment by using a perceived loophole (which it really is not);
  • Avoid the qualification, accreditation, training, and continuing education requirements of the EAAB, by being Attorneys (while at the same time not having to do any estate agency training through the Law Society);
  • Avoiding effective oversight by the EAAB (despite operating as estate agents) and oversight of the estate agent function by the Law Society (as it was never envisaged that attorneys should practice as estate agents;
  • Create the impression that estate agents are not as legally qualified as lawyers hence prey on people’s perceptions and fears;
  • Possibly, sell the discounted commission on the condition that the firm gets the conveyancing.

This may sound great but maybe we need to consider that:

  • Rightly or wrongly, estate agents are expected to met high standards of regulatory compliance through the EAAB. When I practiced as a lawyer my audit report was 2 pages long and as an estate agent its 7 pages. I think the EAAB is excessive, but the point being is that a registered estate agency is highly regulated, by the EAAB (who is not overseeing such a practice);
  • An estate agent practicing as such falls squarely under the EAAB, whereas law firms practising as estate agents, may be doing so outside the bounds of the Act, while also not be suitably being regulated by the applicable law society, which has not enacted provisions to deal with practice which was never envisaged for attorneys;
  • Any professional estate agent knows the applicable law required to protect their client, works closely with highly qualified conveyancers (from various firms, chosen based on proven knowledge, ability to resolve problems, proven track record, knowing full well that if performance drops, they will lose that real estate agent’s work);
  • Selling one product conditional upon the use of another product would possibly constitute conditional selling, which is not an accepted business practice;
  • The question that may cause concern is: Is the applicable practice the best practice to undertake the conveyancing? Or maybe, are the “agents” acting as such for the firm; truly free to guide the seller to appoint the most competent conveyancer (given that they may be employed to secure transfer instructions?)
  • Given that the agent and the conveyancer is the same company, what happens if maybe the person acting as the agent makes a mistake. Will the firm withdraw as conveyancers and direct the client to another firm exposing the agent (their employee) and the law firm to financial damages claim? Maybe they will but it’s an unenviable position loaded with the potential conflict of interest scenarios.
  • And if the agent does get sued, will the client have to sue Black & White Inc t/a Super Cheap; which entity really does not exist or does the client sue Black & White Inc? It may be said that you simply sue the company but this could get interesting because even in the case of a legal practitioner practicing on his own the law society will have authorized a trading name, as such, not the one he may be used to act as an agent.
  • And if both agent and conveyancer made a mistake, is it not better to hold two businesses liable instead of one?
  • Would it not be better to know that the agent is regulated by the EAAB and the Conveyancer by the Law Society, instead of the agent being not effectively being regulated by neither the EAAB or effectively by the Law Society (when acting as an estate agent)?

SUPERVISION

But what could happen where a law firms potentially unleash unsupervised candidate attorneys who have not quite even been considered qualified as attorneys into another field where the EAAB likewise wants interns to be supervised? Even if the attorney is a qualified attorney, what does he know of real estate brokerage? If we look at the importance of supervision for all professions, this is an area of extreme concern.

MARKETING & ADVERTISING

Let’s assume that Black & White Inc are attorneys and fall under the law society, which they do. Would that not also mean that all marketing must meet the law society’s guidelines on advertising and promotion? It would therefore not be possible for lawyers to promote themselves effectively as estate agents do. They would also not be able to do drops or truly engage with the market, as they are constrained by the relevant law society’s rules.

IS THERE PLACE FOR LAWYERS TO SELL PROPERTY

If one adopts the common-sense approach to interpreting the limited scope of attorneys who selling property, there is no conflict of interest and there is no problem vis-à-vis other legal firms, because as the executor they will do the conveyancing as a matter of course.

The other option is the attorneys can follow the professional path of real estate agents in terms of the Act and form a separate company. There would still be challenges in the sense that clients would still need to be given a choice of conveyancers but this is a better option.

In my view attorneys cannot engage with the public and perform the services detailed in the Act as services and professional functions of estate agents. It appears that the activities of certain legal firms doing this are in fact breaching the Act and various provisions of the regulations relating to the practice of attorneys. It is my suggestion that the Law Society of South Africa engage with the EAAB as a matter of urgency and issue a position paper on this.

Incidentally, a person performing the functions of a real estate agent who does not have a valid EAAB FFC or where the attorney is excluded from the Act; is not entitled to be paid commission for such activity. The raises the question whether commissions raise and paid by sellers instructing such attorneys could be reclaimed?

This post is a piece which questions and asks questions we should be asking. It remains a clients duty to thoroughly investigate their rights and get independent legal advice from their own legal advisor. Commission amount should never be the deciding factor in appointing a real estate broker and always remember commission is negotiable.

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