ARE MANAGING AGENTS ALSO DEBT COLLECTORS?

ARE MANAGING AGENTS ALSO DEBT COLLECTORS? 1. BACK GROUND 1.1.1. Are managing agents liable to register as a Debt Collectors in terms of the Debt Collectors Act 114 of 1998; 1.1.2. If they are required to register in terms of the aforementioned Act, what administrative charges can be levied for the attendance of such collections? 2. THE LEGAL QUESTION 2.1. The legal question requested in essence is whether an Estate Agent as defined in Section 1 of the Estate Agency Affairs Act, is a person contemplated in the definition of debt collector in terms of the Debt Collectors Act 114 of 1998. 3. DOCUMENTS USED

2 3.1. The documents perused in formulating the opinion consists but are not exclusive to the following:- 3.1.1. The Debt Collectors Act 114 of 1998; 3.1.2. The Regulations under the Debt Collectors Act 114 of 1998; 3.1.3. The Estate Agency Affairs Act 112 of 1976; and 3.1.4. The Rules of the Magistrate s (as Amended). 4. OPINION 1 4.1. The EAA Act defines an estate agent as inter alia (a)... any person who for the acquisition of gain... in any manner holds himself out as a person who... on the instructions of or on behalf of another person (iii) collects or receives any monies payable on account of a lease of immovable property or any business undertaking; or 1 The Council of Debt Collector v Brunello Property Management CC and another: the respondents were held to be debt collector in terms of the Debt Collectors Act and were found guilty of attempting to recover amounts to which they were not entitled and acted as debt collectors when they were not registered to have done so

3 (iv) renders any such services as the Minister on recommendation of the Board may specify from time to time but notice in the Gazette. 4.2. One of the ancillary services specified by the Minister in terms of Section 1(A)(iv) of the EAA Act is Collection or receiving (a) money payable by any person to... a Body Corporate in terms of the Sectional Titles Act, in respect of a unit... 4.3. It is accordingly submitted that the occupation of managing agents of a Sectional Title Scheme falls clearly in the ambit of the definition of estate agent as contained in the EAA Act. 4.4. The EAA Act, clearly, confers upon an estate agent, the right to collect debt in the limited circumstances where the debt relates to: 4.4.1. Monies payable on account of a lease of immovable property or any business undertaking, and to collect and receive money payable by any person to a Body Corporate in terms of the Sectional Titles Act in respect of a unit. 4.5. The authority to collect and receive debt is limited to debts in respect of rental values only.

4 4.6. The Debt Collectors Act is a statute of general application that has its aim to control the occupation of debt collectors and to protect the public of unscrupulous debt collection practices at excessive collection costs. The Act is applicable to the collection of all debts no matter what the underlying cause of the debt may be. The EAA Act on the other hand, regulates the profession of estate agents, the right to collect debts which relates to levies and rental. 4.7. The provisions in the EAA Act that confer limited debt collection rights of estate agents are special provision, which in the absence of a clear legislative intent in the Debt Collectors Act, cannot be said to have been interfered by the promulgation of the Debt Collectors Act. 4.8. For a proper assessment in the matter it is essential to look at the purpose of the Debt Collectors Act, in particular the definition of a debt collector in terms of this Act. Should this definition include estate agents who carries on business as either property managing agents or Sectional Title managing agents and who are as part of their functions as such collect and receive for reward rental or levies on behalf of another then they have to register as Debt Collectors unless they have been specifically excluded in terms of the relevant legislation.

5 4.9. The purpose of the Debt Collectors Act is stated as follows: 4.9.1. To provide an establishment of a Council known as the Council for Debt Collectors, to provide with a exercise of control over the occupation of Debt Collectors and to amend the Magistrate s Court Act so as to legalise the recovery of fees or remuneration from registered Debt Collectors and to provide from that what is connected therewith. 4.9.2. In view of the fact that prior to this Act, Section 60 of the Magistrate s Court Act, provided as follows:- 4.9.2.1. Section 60 prohibition of recovery of fees or remuneration by certain persons in connection with the collection of debts: Unless expressly otherwise provided in this Act or the Rules no person other than an attorney or an agent referred to in Section 22 shall be entitled to recover from the Debtor any fees or remuneration in connection with the collection of any debt.

6 4.9.3. The important words in this regard is that no person other than an attorney shall be entitled to recover from the debtor any fees or remuneration in connection with the collection of any debt. 4.9.4. This provision was specifically amended by Section 27 of the Debt Collectors Act to read as follows:- 4.9.4.1. Unless expressly otherwise provided in this Act or the...and subject to the provisions of Section 19 of the Debt Collectors Act, no person other than an attorney or an agent referred to in Section 22 shall be entitled to recover from the Debtor any fees or remuneration in connection with the collection of any debt. 4.9.5. This absolute prohibition was amended to make provision for Debt Collectors registered with the Council of Debt Collectors to recover the limited fees as set out in annexure B to the Regulations of the Debt Collectors Act.

7 4.9.6. A further prohibition was especially enacted to make an exception in terms of the National Credit Act. 4.9.6.1. This prohibition reads as follows 4.9.6.1.1. unless expressly otherwise provided in this Act or the Rules and the National Credit Act and subject to the provisions of Section 19 of the Debt Collectors Act, no person other than an attorney or an agent referred to in Section 22 or a person authorised by or under the provisions of the National Credit Act, to do so, shall be entitled to recover from the Debtor any fees or remuneration in connection with collection of any debt. 4.9.6.1.2. Any person who contravenes any provisions of Sub Section 1 shall be guilty of an offense and on conviction

8 be liable to a fine not exceeding R 4 000 or in defaults of payment, do imprisonment for a period not exceeding twelve (12) months or to both such a fine and such imprisonment. 4.9.7. From these provisions it is clear that every time the legislator intended to make any exception to the prohibition it was specifically enacted. 4.9.8. These provisions are unambiguous and clearly reflect the intention of the legislature. 4.9.9. What is also clear is that nowhere has any exception been made in terms of Section 60 of the Magistrate s Court Act for estate agents or their agents to charge any fees or remuneration in connection with the collection of any debt. This is also not the case in the Estate Agency Affairs Act or any amendment thereof. Similarly there is no exclusion for estate agents in the Debt Collectors Act which was enacted long after the Estate Agency Affairs Act.

9 4.9.10. From the above it is clear that the legislature never intended to allow estate agents and Sectional Title managing agents to recover any fees or remuneration when collecting arrear debts, should they do so they are contravening Section 60(2) of the Magistrate s Court Act and can also be criminally charged with such a contravention unless they have been registered as a Debt Collector with the Council of Debt Collectors. 4.9.11. This aspect of the matter is further emphasised by the following provisions of the Debt Collectors Act. Section 1 of the Act provides as follows 4.9.11.1. Debt Collector means other than an attorney or his or her employee or a party to a factoring arrangement who for reward collects debts on the latter s behalf. 4.9.12. In terms of this provision only attorneys and a party to a factoring arrangement are excluded from the provision this Act. The provision is confirmed in Section 8(1) of the Debt Collectors Act, which provides as follows

10 4.9.12.1. As from the date fixed by the Minister in the Gazette, no person, excluding an attorney or an employee of an attorney, shall act as a debt collector unless he or she is registered as a Debt Collector in terms of this Act. 4.9.13. Estate agents are in terms of these Sections not excluded from the specific provisions of this Act. The word shall used in Section 8(1) indicates that this is a pre-emptive provision to this provision which is not specifically excluded in this Section as an exemption. 4.9.14. These provisions are unambiguous and clearly reflect the intention of the legislature. 4.9.15. The Debt Collectors Act was passed after the Estate Agency Affairs Act and the legislature is presumed to know the existing law, but nowhere was provision made for estate agents to be excluded if they were collecting debts, and in the process in our opinion satisfies the definition of a Debt Collector as contained in the Debt Collectors Act.

11 4.9.16. It is also to be noted that the Debt Collectors Act in Section 10 disqualify certain persons from becoming Debt Collectors if they were for example convicted under the offence involving violence, dishonesty, extortion or intimidation in the preceding 10 years. These disqualifications are not imposed on estate agents specifically. 4.9.17. Apart from this Debt Collectors are in terms of Section 14 of the Debt Collectors Act subject to a very strict code of conduct when they are in the process of debt collecting. In terms of Section 14(3) of the Act this code is binding on all Debt Collectors. We cannot foresee why the legislature would have excluded estate agents from these provisions when they are in all respects performing the same functions as a Debt Collector. This will result in two sets of Governing Rules for persons performing the same functions. The playing fields would not be level. This will result in the behaviour of estate agents who are doing debt collecting will not be subject to any control in collecting debts. These provisions were clearly enacted in the Debt Collectors Act to protect the public from unscrupulous debt collecting practices and can therefore be accepted that the legislature will not

12 exempt others performing the same function from those provisions. In our view the legislature was fully aware of the services that estate agents render and therefore did not intend to exclude them from the Debt Collectors Act purposefully and as such it is our opinion that estate agents are subject to the provisions of the Debt Collectors Act. 5. The above having been said the next point to consider is who is a Debt Collector in terms of the Debt Collectors Act. If estate agents fulfil the requirements of the definition they have to register as Debt Collectors before they can collect arrear debts. In this regard it is essential to consider the definition of a Debt Collector as contained in Section 1 of the Debt Collectors Act which was highlighted above. From the definition it is clear that a Debt Collector is a person who for reward collects debts owing to another on the latter s behalf. 5.1.1. It is interesting to note that debt has not being defined in the Debt Collectors Act as such an ordinary interpretation thereof must be attributable to the meaning thereof. A debt in the New Edition, English Dictionary is defined as a sum owed, state of owing, an obligation.

13 5.1.2. In addition in the case of Cape Town Municipality versus Dunn SA 1964(1) 947 and a further case of the Joint Liquidators of Glen Avril Development Corporation Limited versus Hill Samuel SA Limited 1992(1) (SA103) (a) the following is stated: 5.1.2.1....in ordinary parlons a debt is firm obligation to pay, whether now or later. 5.1.3. A debt as defined in Section 55 of the Magistrate s Court Act is any liquidated sum of money due. 5.1.4. Therefore the following must be deduced. The procedures under the Magistrate s Court are available only in those cases where the debt is a liquidated sum of money due. If the debt is not liquidated for example a claim for damages, a Plaintiff will have to issue summons in the ordinary way and after obtaining a judgment in his favour, proceed under Section 65 if the judgment remains unsatisfied. 5.1.5. Liquidated sums of money constituting the debt must be due, that is owing and already payable. From the explanation it is clear that a liquidated sum of money constitutes a debt in terms of the Magistrate s Court Act when it is due and owing

14 and payable. This has become the standard to which the courts render judgment where it is claimed that an amount of money is owing to a plaintiff/applicant. 5.1.6. In our view this is the meaning which must be attributed to the word debt when estate agents are collecting arrear debts. Estate agents and managing agents are debt collectors if they are required in terms of their mandates to start demanding payments and sending out reminders for rentals and levies which are overdue, that is to mean already due, owing and payable. Once they advance this process they take legal steps to compel the defaulters to pay where it is not merely due but also already payable. If estate agents collect such arrear amounts on behalf of another, they are not performing the function of an estate agent but the legal collecting function which is reserved for attorneys and debt collectors. There is a clear distinction between the functions of an estate agent and a Debt Collector. However, in our opinion the moment the estate agent starts his ancillary function of collecting debts he becomes a debt collect and it is in respect of this part of

15 his functions which are subject to the provisions of the Debt Collectors Act. 5.1.7. When estate agents as managing agents collect arrear amounts they do not do so for their own account but for the body corporate whom they manage. In other words they are collecting debts owed to another person (albeit juristic or statutory) on the latter s behalf. This in our opinion brings them squarely within the definition of a debt collect as defined in the Debt Collectors Act. They are collecting a debt and they are also prohibited in terms of Section 60 of the Magistrate s Court Act to recover from the debtor any fees or remuneration unless they are admitted attorneys in terms of the Attorneys Act or they are Debt Collectors in terms of the Debt Collectors Act. If they do recover fees and they are not empowered in terms of the relevant provisions they are accordingly committing criminal offences as set out in the legislation mentioned above.

16 6. IN SUMMARY 6.1. It is our opinion that estate agents fall squarely within the definition of a Debt Collector in terms of the Debt Collectors Act. In the event that they seek to or in fact do attend to the collection of arrear levies which are already due and payable they perform an ancillary function (in addition to their normal functions) and specifically in line with their mandate and management agreements and are in the circumstances are required to register as debt collectors. 7. WHAT FEES ARE PAYABLE AND RECOVERABLE FROM REGISTERED DEBT COLLECTORS? 7.1. Having now dealt with the opinion that estate agents (and in turn managing agents) are debt collectors in terms of the Debt Collectors Act the next question to be answered is what remuneration and/or fees are payable and recoverable for their service, whether same is contractual in terms of their management agreement or otherwise? 7.2. The Debt Collectors Act was promulgated with various regulations attached thereto, which are incorporated as part of the Act and deal

17 specifically with issues and procedural aspects of the legislation enacted before it. The Debt Collectors Act is no different. 7.3. The Debt Collectors Act regulations promulgated in March of this year make specific reference to fees and charges recoverable in terms of annexure B to the first schedule. 7.4. The schedule is attached for ease of reference and the content thereof is self explanatory. 7.5. It is interesting to note however item 9 of the schedule, which make provision for a collection commission payable to debt collectors for collecting debts. 7.6. The fee payable is 10% of the collection subject to a maximum of R368.00. It can only be assumed that this amount excludes V.A.T. should the debt collector be registered for value added tax. 7.7. The implications thereof are that estate agents can levy a fee on each collection of 10%. Practically this would mean, as an example, that: 7.7.1. In the event of an owner owing a body corporate arrear levies amounting to R10 000.00 and following a reminder letter to make payment thereof, enters into an arrangement to settle the

18 outstanding amount in instalments of R1 000.00 per month the following fees will be recoverable by the managing agent, against the owner: 7.7.1.1. R15.00 in respect of item 1.(a) of the schedule; 7.7.1.2. R15.00 in respect of item 2 of the schedule; 7.7.1.3. A possible R30.00 in respect of item 5 of the schedule; 7.7.1.4. A possible R37.00 in respect of item 7 of the schedule; 7.7.1.5. R100.00 (plus V.A.T. if registered) on each instalment. 7.8. As such the tariff and possible income of managing agents will vary on a month to month basis. 7.9. It is our further opinion that managing agents who charge in excess of the prescribed tariffs are acting in contravention of the Act and may be liable for criminal prosecution in terms thereof. 7.10. A further point of interest which must be considered is the contractual obligations to collect between a managing agent and its client. Many

19 managing agents include in their management agreements the cost to send out reminder letters and follow up payment with debtors. These agreements, although probably valid in all other respects, will need to be considered insofar as the fees and administrative charges are concerned (in light of the above). 7.11. An argument can be levied that the fees charged by managing agents are contractual and therefore do not fall within the ambit of the regulations or the Debt Collectors Act at all. This is an argument that we are not persuaded by for the simple reason that this contract (or the provisions dealing with administrative charges) will be in contravention of a statute and will therefore be unenforceable. The learned authors JM Otto and B Prozesky-Kuscke have clearly put it as follows: 7.11.1. An Act of Parliament, or provincial legislation, or even regulations or proclamations passed in terms of... an Act, may prohibit contracts of a particular nature or require that permission be obtained for the conclusion thereof. More often, however, the prohibition is coupled with a criminal sanction. In such a case it is possible that the parties merely commit an offense and that the contract remains valid. It is also, however possible that the parties

20 commit an offense and that the contract is void even though the legislation does not expressly declare it invalid. It is always a matter of interpretation of the statute in order to determine the legislature s intention. It would be correct to say that a contract in conflict with legislation will normally, but not necessarily, be void. 2 7.12. It is therefore with this in mind that our opinion is based largely on what we deem the legislature s intention would have been on the enactment of the Debt Collectors Act. 2 Commercial Law second edition Lexis Nexis p78