The Council for Debt Collectors v Brunello Property Management CC (Finding by the Debt Collectors Council, Cape Town, 06 June 2009)

This matter arose as a result of a complaint lodged by a sectional title unit owner with the Council for Debt Collectors regarding certain charges levied by the scheme’s managing agent whose responsibility it was to collect rentals, levies and arrear debts.  The Council for Debt Collectors held that such managing agents and/or estate agents are debt collectors as defined in the Debt Collectors Act 114, 1998 when the collection activities include arrear debts. As such they must be registered with the Council and are otherwise prohibited from charging any fees with regard to the collection.

Read here for the Council for Debt Collectors' Judgment and here for the Council for Debt Collectors' Finding.

Facts

Irvine lived in a unit in a sectional title scheme for which Brunello Property Management CC (‘Brunello Property Management’) acted as managing agents. The agents were charged with the duty to collect rentals and levies as they became due and also with the responsibility to collect outstanding debts.

The matter arises from a complaint that Irvine lodged with the Council for Debt Collectors in respect of the exorbitant collection charges that Brunello Property Management included as collection costs for the account of the debtor.  These charges relate to the various actions performed by the managing agent and included telephone calls made to demand payment, the sending of letters of demand and other letters in terms of the rules of the Body Corporate.

Irvine alleged that Brunello Property Management was not entitled to these charges since they exceeded the maximum costs as allowed in the provisions of the Debt Collectors Act 114, 1998 (‘the DCA’).  He alleged moreover that Brunello Property Management, when it attempted to recover outstanding debts, was acting as ‘debt collector’ as understood in the definition of the DCA without being registered as such with the Council for Debt Collectors.

Brunello Property Management defended the matter and alleged that it had at all times acted in its capacity as ‘estate agent’ (as defined in the Estate Agency Affairs Act 112 of 1976 (‘the EAAA’)) and not as ‘debt collector’ (as defined in the DCA) and that it therefore does not fall under the jurisdiction of the Council for Debt Collectors.  It alleged further that the DCA is a statute of general application whilst the EAAA is a statute of specific application. The former does not abrogate or amend the latter and therefore the DCA is not applicable to estate agents who carry on business as either Property Managing (Rental) Agents or Sectional Title Managing Agents and who, as part of their functions as such, collect and receive for reward rental or levies on behalf of another.

Council’s Finding:

When is an ‘estate agent’ a ‘debt collector?

• The purpose of the DCA, as noted in its preamble, is to "provide for the establishment of a council known as the Council for Debt Collectors, to provide for the exercise of control over the occupation of debt collectors …”.  It is furthermore an explicit purpose to “amend the Magistrates' Courts Act, 1944, so as to legalise the recovery of fees or remuneration by registered debt collectors; and to provide for matters connected therewith".
• Prior to the DCA, the Magistrates’ Courts Act (‘the MCA’) determined that no person other than an attorney (or an agent referred to in section 22 thereof) shall be entitled to recover fees or remuneration from a debtor in respect of any debt.
• This prohibition against the collection of debt was however amended in the DCA which provides that duly registered debt collectors may recover certain debts as set out in Annexure B of the regulations of the DCA.
• In the National Credit Act 34, 2005 (‘the NCA’) the prohibition against debt collection was similarly amended in section 60 to provide that unless expressly otherwise provided in the NCA and subject to the provisions of the DCA “no person other than an attorney, an agent referred to in section 22 (of the MCA) or a person authorized by or under the provisions of the National Credit Act, 2005, shall be entitled to recover from the debtor any fees or remuneration in connection with the collection of any debt.”
• It is apparent from a reading of the DCA and NCA that every time the Legislature intends to make any exception to the prohibition in the MCA against acting as debt collector, a clear prohibition is specifically enacted.
• It is furthermore apparent that none of the Acts containing exceptions (such as the DCA and NCA) has made any reference to include estate agents in the exception and it is neither provided for in the EAAA.
• From the above it is clear that the legislature never intended to allow estate agents and/or sectional title managing agents to act as debt collectors as defined in the DCA.
• Should they do so, they are contravening the MCA and the DCA and may be criminally charged for such a contravention unless, of course, they have been registered as debt collectors with the Council for Debt Collectors.
  

However, distinguish between the collection of debts (such as rentals and levies) that are ‘due’ and debts which are already ‘overdue’

• "Debt collector" is defined in the DCA as "a person, other than an attorney or his or her employee or a party to a factoring arrangement, who for reward collects debts owed to another on the latter's behalf."  A “person” for purposes of this Act furthermore includes a close corporation such as Brunello Property Management CC.  “Debt” is not defined in the DCA but the MCA defines it as a liquidated amount of money that is due; and the word “due” means that the liquidated sum of money is “owing and already payable”.
• Therefore before the tenant defaults with his stipulated monthly payments, the obligation is simply an obligation to pay which has its foundation in the terms of the lease agreement. An estate agent who merely receives amounts which are payable in terms of a lease agreement on or before the date when they are due and payable will not fall within the definition of a debt collector as set out in the DCA. This is the case when, for example, the estate agent receives timeous payments from persons willing to pay on or before the due date in the normal course. His obligations are then only covered by the lease agreement to receive the rentals which are payable and he will therefore not be able to charge any collection fees to the tenant.
• However, estate agents and managing agents are debt collectors if they are required in terms of their mandates to start demanding payments for rentals and levies which are overdue. Once they advance this process they take legal steps to compel defaulters to pay what is not merely due but also already payable.  (It is correct, though, that the collection of debt is an incidental function of the managing agent act, secondary to the managing agent’s main functions.  However, it is this secondary function which constitutes ‘debt collection’ and is subject to the provisions of the DCA. In other words, if estate agents and/or managing agents collect such arrear amounts on behalf of another (the body corporate) they are not performing the functions of an estate agent but the legal collecting function which is preserved for attorneys and registered debt collectors.)
• If they do recover fees and they are not empowered in terms of the DCA to do so they are also committing a criminal offence as set out in section 60(2) of the MCA and section 25 of the DCA.
• On the facts in this matter it is clear that Brunello Property Management was not only recovering fees but also amounts hugely in excess of the maximum amounts which are recoverable by registered debt collectors as contained in Annexure B of the regulations in terms of the Debt Collectors Act. (In terms of the Annexure B a registered debt collector can only collect R 12.60 from a debtor for a necessary letter.  An attorney may collect R 17.00 from the debtor for such a letter. The amounts charged by Brunello Property Management included telephone demands in the amount of R 175.00; telephone calls in the amount of R 55.00 each; letters of demand in the amount of R 125.00; and letters in respect of rules or collection in the amounts of R 175.00 and R 250.00.)
• This, the Council said, was “shocking” and is the kind of unscrupulous debt collecting which the Legislature intended to prohibit when enacting the Debt Collectors Act. Moreover this state of affairs is further exacerbated by the fact that tenants up to now had nowhere to complain about these amounts. This practice will as a result of this judgment be rectified and properly controlled.
• Irvine’s complaint was accordingly upheld and the managing agent received a fine.
  

Moral of the story: As far as estate agents/managing agents are concerned, a clear distinction must be made between the receiving of rentals and levies on a monthly basis from tenants as stipulated in the lease agreement and the collection of arrear rentals and levies. If the estate agency or managing agents are involved in the latter, they must ensure to register with the Council of Debt Collectors.