Whether you are a residential property developer, building your own house, or the builder/contractor employed to build it, understand how vital it is to comply with the Housing Consumers Protection Measures Act and its requirements of registering with, and paying enrolment fees to, the NHBRC.
It’s important legislation, designed to “offer protection against incompetent builders and the construction of homes having structural defects”, and failure to comply with it comes with severe negative consequences.
We discuss two recent and important court cases on the subject of whether the Act applies to builders that are trusts, and to “buy-to-let” developers.
“…the Act is consumer-protection legislation designed to offer protection against incompetent builders and the construction of homes having structural defects” (extract from judgment below)
In order to promote housing consumer rights, home builders (including residential property developers and builder/contractors – an “owner builder” may apply for exemption) must, in terms of the Housing Consumers Protection Measures Act (“the Act”) register with the NHBRC (National Home Builders Registration Council). They must also enrol houses they build with the Council, and pay an enrolment fee – which, as we shall see below, can be substantial.
Failure to comply is a serious matter for builders – it’s not only a criminal offence (with penalties of a R25k fine or a year’s imprisonment) but it means no payment can be claimed for work done. In other words you could be fined/jailed as well as lose your right to payment.
Two recent SCA (Supreme Court of Appeal) cases deal with specific types of home builder but they provide a timely reminder to all builders, big and small, of the need to comply with the Act.
Trusts – must you register?
The first case dealt with a trust which was building a sectional title housing development.
It failed to renew its original registration and then refused to comply with non-compliance notices served on it.
It argued that it was not a “person” and therefore did not fall under the Act.
The SCA was having none of that, saying that the question was not whether a trust is a “person” but whether it fell under the Act. Commenting that “To exclude trusts from the ambit of the Act would result in a consequence which is arbitrary and unjust”, it declared that trusts must indeed register.
What about “build to let” developers?
In the second case, the developer/builder of a property development comprising shops and 223 residential apartments refused to pay the (over R1.5m) enrolment fee required by the NHBRC.
Saying that it planned to rent the apartments out to tenants, and had no intention of selling them or developing them in terms of a sectional title scheme, the developer argued that it was itself the “effective end user” of the apartments and therefore it was “absurd to expect it to insure against itself”.
Eventually however the developer paid the fee under protest, and then successfully applied to the High Court for an order that it was not obliged to comply with the Act’s enrolment provisions.
On appeal however the SCA held that the enrolment provision of the Act “does apply to homes being built for lease and rental purposes”. It also rejected the developer’s alternative argument that the requirement was “unconstitutional, unlawful and invalid” because it was irrational to expect the developer to “insure itself against itself”.
To register and enrol, or not to register and enrol?
There are some exceptions to the Act’s application, and “owner builders” can apply for exemption. But there are grey areas here and our courts have signaled a willingness to interpret the Act as having a wide reach. As we have seen, the penalties for getting this wrong are substantial so if you aren’t 100% sure where you stand, specific legal advice is a no-brainer!