Do managing agents or property agents need to be registered with the Council for Debt Collectors to recover outstanding levies or rentals on behalf of their clients?
Apparently so! Brunello Property Management was recently charged with improper conduct by the Council for Debt Collectors. A judgment against them has huge financial implications for managing agents who recover expenses in the process of collecting arrear levies.
Already Cape Town’s NAMA members are attempting to raise R15 000 to obtain a second legal opinion on whether or not a managing agent needs to be registered with the council in order to recover outstanding levies.
The first legal opinion was obtained from Prof Henk Delport of the University of Port Elizabeth in 2005 and relayed to all NAMA members. There have been many different opinions from experts since 2005 and a fresh look at this controversy is necessary. In their schedule of functions, managing and property agents are required to collect levies and rentals on behalf of clients. Most charge defaulters for costs incurred in the debt recovery process, on letters sent, and phone calls made. They do so under the auspices of the Estate Agent’s Act, and do not believe that they are subject to the conditions contained in the Debt Collectors Act of 1998.
The case arose when a Mr Ervine was charged R175 for telephone demands, R55 for each telephone call, R125 for letters of demand, and R175 for letters in respect of rules or collection by Brunello Property Management. Soon afterwards Mr Ervine’s dilemma reached the offices of the Council for Debt Collectors, which instituted action against Brunello. Mr A Cornelius represented the council and maintained that the respondent had acted as a debt collector by asking Mr Ervine to pay costs associated with his debt recovery, and did so while not registered as a debt collector.
Brunello pleaded not guilty, and its lawyer, Hein von Lieres lodged a plea stating that Brunello had acted in its capacity as an estate agent as defined by the Estate Agents Act, and as such was not regulated by, or subject to, the Council for Debt Collectors, its Act, regulations or its jurisdiction. The plea emphasised that the Estate Agents Act gave property agents the right to collect debt that related to collecting and receiving monies payable by any person, or to a body corporate in terms of the Sectional Titles Act, in respect of a unit, or rentals and leases.
The respondents argued that the Debt Collectors Act was for general application to control the activities of debt collectors, and to protect the public at large from unscrupulous debt collectors and excessive collection costs. They pointed out that the Estate Agents Act was explicit to estate agents only, with specific mention of their right to collect levies and rentals. The Debt Collectors Act, on the other hand, did not make such provision, as it did not interface with the Estate Agents Act.
The argument in favour of the Council for Debt Collectors becomes technical, as to fully assess the matter in dispute, one must consider the purpose and function of the Debt Collectors Act of 1998, and the definition of a debt collector in terms of that Act. The purpose of the Debt Collectors Act is to control the debt collecting occupation, and legalise the recovery of fees by registered debt collectors.
Prior to the Act only attorneys could collect debt and recover fees in connection with debt recovery. (As provided for in Section 60 of the Magistrate’s Court Act.) In 1998 that condition was amended by the Debt Collectors Act, which then made provision for debt collectors registered with the Council for Debt Collectors to also be allowed to recover fees associated with the collection process, in line with set tariffs. In 2005 an additional amendment was made to encompass the respective provisions of the National Credit Act. It is clear that on every occasion when the Act was amended no provision was made that allowed estate agents any form of exemption from the rules! No provision was made to exclude or separate them from the scope of the Act and its rules. Arguably this omission in itself implies that estate agents must be registered with the Council for Debt Collectors so that they can charge fees when collecting arrears. Only attorneys are exempt from membership. The respondent’s plea was denied.
Estate agents are said to be subject to the Act if they charge fees in connection with debt recovery, and engage in the function of collecting debt. The estate agents’ function in the whole process of collecting monies was analysed and conclusions were drawn. The prime function of a managing agent or an estate agent is embedded in the sale or management of property and collecting over dues is a secondary associated function, which falls squarely in an ambit normally preserved for lawyers and debt collectors.
The Estate Agents Act was written to control estate agents in their function as estate agents. The Debt Collectors Act was written to monitor debt collectors. Nowhere in the Estate Agents Act is it stipulated that estate agents should recover outstanding (overdue) debt. A distinction is drawn between monies due and monies due and payable. (Overdue) receiving levies or rentals on or before due date doe not fall within the definition of a debt collector. Yes, estate agents must collect, facilitate and process monies due, but once a debt becomes overdue it falls within the ambit of another discipline. In other words it should then be handed over to a debt collector or an attorney.
If a managing agent or property rental agent has it in their business plan to recover outstanding (overdue) debt (as opposed to due debt), then it appears that they should pay the costs and register as a debt collector, and conform to the tariffs in that Act. Collecting fees and engaging in activities associated with overdue debt by an entity not registered with the Council of Debt Collectors is therefore regarded as an offence.
Ideally property agents should therefore collect/receive due monies and refer outstanding monies to a registered debt collector, or register themselves as a debt collector. Alternatively they must be prepared to incur phone expenses and send out letters of demand free of charge, and in the name of the body corporate to whom the debt is owed. They cannot collect overdue funds under the banner of their own business, or letterhead, or on behalf of a client if they are not registered with the council.
Should the managing agents then keep letterheads for each body corporate? To register as a debt collector is indeed a costly and onerous task, as additional trust accounts must be established, and the costs that can be claimed for debt recovery are minimal. To challenge the ruling is indeed a process to consider going forward, and NAMA is planning to challenge the judgement.
As editor of the now dormant Body Corporate News I can’t help but sympathise with managing agents as their function seems to become increasingly difficult, and their role in the collection of overdue funds more confusing.
We live in a fools paradise if we expect levies to flow in on or before due date, and must now have to regard a phone reminder on the 7th of a month as a function for a registered debt collector. Surely this is case of the very defaulters who complain about costs having thus shot themselves in the proverbial foot. Yes, undeniably the case examined was indeed a case of overkill as the property agent was charging excessive fees, which is not the norm in the industry. But the long term effect will result in managing and rental agents resorting to ìhanding over an accountî if it is unpaid by the 7th of a month. A little harsh and impersonal on the defaulter I would suggest!
Article appeared in Sectional Forum Newsletter www.sectionalforum.co.za