Housing Consumer Protection Bill: final proposed amendments

Meeting report

Chairperson’s opening remarks
The Chairperson asked for a moment of silence for meditation or prayer. She welcomed the State Law Advisor, the Department of Human Settlements legal advisor and Parliament's Legal Services. She appreciated their availability to assist the Committee in finalising this Bill. She noted there were issues raised in the previous meeting that the legal team needed to address before the Committee finalised the A-list.

Department and Legal Advisors’ response to Committee concerns
Ms Thiloshini Gangen, Parliamentary Legal Advisor, asked to address the concerns that were raised that had not been already addressed in the A-list.

Clause 32 had the insertion of the phrase "through oversight" to address the role of the MEC and Member of the Mayoral Committee (MMC) adequately.

Clause 15 was redrafted to include: “as determined in terms of a job evaluation system approved by the Board”.

Clause 29(b) where there was a concern about it being unclear if this was prescriptive or a guideline, there was a proposal to insert the word 'guideline'. The legal team determined that the clause was clear and it was unnecessary to insert 'guideline'.

Clause 31(1)(b) there was concern about where construction had been halted due to non-enrolment, how the NHBRC could be stopped from dragging its feet in approving its recommence. Ms Gangen said the proposal was to insert a minimum time frame for the NHBRC to give re-commencement approval. She asked NHBRC to explain the rationale for not being able to include a specific timeframe.

Ms Natasha Fouche, Head of Legal: NHBRC, replied that the process was dependent on the submission of documents from the particular home builder or developer and once the application is submitted it would be processed. Where there are outstanding documents, communication would be sent and the processing of the application would then depend on how long the homebuilder takes to send the documents. Therefore it would be impractical to place a timeframe in which NHBRC completes processing the application. NHBRC has rules in terms of the current Act that there is a 90-day period for processing an application and thereafter it could reject the application.

Clause 31(2)(b): Ms Gangen said the Committee had a concern about the requirement of furnishing guarantees because it could hinder smaller businesses in the industry. It requested clarity about the specifics of these guarantees. She asked NHBRC to respond to this concern.

Ms Fouche replied that the provision was in the current Act. The financial guarantee was for cases where the homebuilder commenced with the construction of a home without enrolment meaning NHBRC inspections of the construction could not be done. What would then happen once the homebuilder completed the foundation or substructure was they would submit a late application for enrolment and certain inspections would then be done to mitigate the risk of what cannot be seen at that particular stage. A financial guarantee is needed. The guarantee could be submitted in the form of cash, bank guarantee or guarantee submitted through an insurance company. The amount is determined after inspections have been conducted by engineers. If there was no claim on a particular property and the warranty period had lapsed then the NHBRC would release the guarantee back to the homebuilder.

Clauses 25 and 28: On the concern if work done by a homebuilder who is not registered would be covered by the fund, Ms Fouche replied that there would be no warranty attached to the particular home. However, the protection offered to house consumers was twofold. It was through the warrant and regulatory enforcement as provided for in the Bill. There would be no warranty attached to the home because no enrolment fee would have been paid by the homebuilder. The homebuilder would still however be subject to enforcement provisions in this Bill as it is an administrative non-compliance. The builder would be subject to disciplinary action before the Compliance and Enforcement Committee.

Clause 25(6): The Committee said it seemed unfair to the builder if annual fees were paid and no work was procured and that these fees should not be payable but only when work was procured. Ms Fouche explained the rationale saying all homebuilders undertaking construction had to be registered with the NHBRC and therefore for a homebuilder to submit a tender or contract one of the requirements would be that they had to be registered. Therefore builders needed to update their registration annually. She noted the proposal that builders should submit renewal applications upon receipt of a contract. It was important for builders to register annually. The NHBRC does not receive funding from the fiscus and therefore the registration and renewal fees were a source of income for the NHBRC.

Clause 39 on the establishment of a non-profit company, there was a proposal to have the entire clause removed. Mr Neville Chainee, DHS Deputy Director General, Human Settlements, Planning and Strategy, explained the rationale for clause 39 was that there were several technical defects such as asbestos and geographical sinkholes emerging in residential properties built before 1994. This has resulted in government having to provide resources for the rectification of these defects. For example the relocation of 25 000 hostels in Khutsong, Gauteng and homes built on dolomites in other parts of the country. Post-1994 there was an emergence of substantial structural defects after the five-year NHBRC warranty expiration. This included geotechnical planning and other construction-related matters. Due to climate change, there was demand for flood line redetermination. There were a substantial number of issues. In the Eastern Cape, 10 000 houses required rectification after warranty expiration. He noted that NHBRC came into effect in 2000.

Mr Chainee said the recent disasters demonstrated the impact of climate change and in this context clause 39 was a proactive measure to ensure that citizens were protected especially those who are poor and have no access to a financial safety net.

The South African Special Risk Insurance Association (SASRIA) was a precedent for clause 39. The issue with SASRIA is that the government cannot purchase a long-term warranty or reinsurance for houses and residential properties. SASRIA covered primarily businesses and the economy. SASRIA provided protection for economic development and businesses that did not have insurance coverage as insurance companies did not provide political insurance coverage.

Clause 39 allows the NHBRC together with the Minister to establish a non-profit organisation (NPO) in the event proactive measures need to be taken, it is not a must. Disallowing the clause leaves the door of opportunity open as evidence and socioeconomic circumstances require as the case was with SASRIA. In the case of SASRIA, it started on a zero balance and based on its provisions is now a global practice. This NPO would be a SASRIA residential-based NPO. He referred the Committee to clause 6 of the Finance Act of 1994 where SASRIA was incorporated. There was also the Reinsurance of Material Damages and Losses Act 56 of 1989.

What was important to understand in the current context is they dealt with the present, past and future. Transformational and developmental issues of inequality needed to be considered. Providing mechanisms that safeguard and encourage residential property development was necessary to avoid the risk of poor citizens being exposed. He said with the recent disasters a lot of households could not respond to the damage to their property due to no insurance because they cannot afford it. The rationale behind clause 39 is to provide security and stability.

Discussion
The Chairperson asked Members to respond to the explanation given by DHS on Clause 39
Establishment of non-profit company. She thought it had been concluded that the Committee did not want clause 39. It was concerned that the clause could be abused as the NPO was not needed immediately. However now in its response the Department said it was needed immediately.

 Ms E Powell (DA) asked why the clause needed further rationalisation given the Committee reached a consensus in the previous meeting that it must be rejected entirely and this should be reflected in the A-List. On Mr Chainee’s examples of defects found in homes built before 1994 such as dolomite and asbestos, government housing programmes were using grants given by Treasury to remedy these defects. Mr Chainee’s points were nullified as an NPO offering risk-based insurance cannot insure retrospectively. Therefore the title-deed holder of a state-subsided home with a defect would not be insured.

Ms Powell said it was agreed that in a capitalist social market economy all homeowners were responsible for extensively available insurance. The clause cannot claim to be closing a gap that was already provided for in the financial services market. The Committee agreed that the clause was not needed at this point and therefore did not need to be included in the legislation. This provision would be left out until a feasibility report proved it necessary for government to provide something that was already extensively available. The justifications given for this clause did not hold up.

Ms N Khumalo (DA) agreed and said a consensus was reached on 23 November. The Committee formulated laws for reasons known and given past events with NPOs and state-owned entities, the Committee was justified with its stance to exclude clause 39.

Mr A Tseki (ANC) said to Ms Powell that sometimes the minority party had to listen to the majority party. The Department’s reasoning was unconvincing at present but could be determined by annual plans and formulated projects.

Mr Tseki said there was a need in terms of emergencies and planning. Ms Powell spoke as if apartheid never happened and the homes affected by dolomite were 99 years old. Ms Powell should learn about insurance. Government would respond to all injustices including 99-year-old homes affected by dolomite.

Ms N Sihlwayi (ANC) said NPOs were established through their intention and this Bill was concerned with housing. There were challenges with errors being made with housing development beneficiary lists where houses were being given to the wrong people. The Department’s response to this – because they are not structured to deal with this issue – should have been to establish an internal mechanism that dealt with complaints of this nature to appropriately resolve them.

Ms Shilwayi took issue with DHS saying it would establish an NPO as the Department was unsure of itself and that there were possible risks. An internal risk unit was what the Department needed.
Most NPOs were government departments on their own and were now companies. Therefore DHS would be establishing another company within the department when there are many NPOs that worked like government departments that could be utilised instead. She agreed that the clause should be excluded. If DHS identified risks they should enlist an existing NPO to assist with the specific issue.

The Chairperson said the Committee maintained that this clause should not be a part of the Bill. The Committee was not saying the Department could not establish this non-profit company. This was allowed and once they were ready to do so, processes outlined in the PFMA would be followed. Clauses that create loopholes for abuse when being implemented would not be accepted. This was the gist of their justification for the exclusion of this clause.

The Chairperson noted to the legal team that issues that had been decided on and finalised by the Committee should not be brought back to the Committee.

Mr Chainee raised an issue he had with how Ms Powell addressed him.

The Committee members and the Chairperson had a back-and-forth discussion about this.

The Chairperson said she did not hear what Ms Powell said and requested the assistance of the staff that this issue be presented in the next meeting.

Portfolio Committee proposed amendments (A-list ): latest version

Clause 2 Application of Act
The Committee agreed to the proposed amendment.

Clause 7 Application of Public Finance Management Act
The Chairperson said this concerned the time period for the replacement of Council members which the Committee suggested should not be left open. The Minister should be given a time period in which they have to finalise the replacements.

The Committee agreed with this clause as read.

The Chairperson said the A-List incorporated issues raised by Committee members and if they were not in support of these amendments it would become an issue.

Clause 11 Meetings of Board
The Committee agreed to the proposed amendment.

Clause 15 Appointment of Chief Executive Officer and Chief Financial Officer
The Committee agreed to the proposed amendment.

Clause 16 Conditions of appointment of Chief Executive Officer and Chief Officer
The Committee agreed to the proposed amendment.

Clause 32 Duties in respect of subsidy housing project
Mr B Heron (GOOD) said he missed the 23 November meeting and did not know what the Committee had agreed about this clause. The Bill as introduced had robust directives for the MEC and MMC not to release funds and this proposed amendment diluted this potent tool. He did not understand why it was not redrafted so it is the accounting officer who cannot release funds to a housing project that did not meet the requirements of this Act. He had no issue with the MEC and MMC exercising oversight. However, to replace the directive that funds cannot be released with only oversight did not make sense. He did not understand why drafters did not want to hold accounting officers in municipality and in the province accountable. 

The Chairperson clarified that Mr Herron was suggesting that the MEC and MMC oversight should be ensured but the directive needed to be retained in the proposed amendment but addressed to the accounting officers.

Mr Herron clarified indeed that was what he was suggesting. He thought this was a good clause. The Chairperson proposed that it be changed to Head of Department and municipal manager – as the accounting officers – and he supported this suggestion.

The potency of the directive is lost when the clause just states that the MMC and MEC must exercise oversight. The oversight obligation could be kept as well as the directive that only companies that are registered are involved in subsidised housing and that funds cannot be released unless there is compliance.

The Chairperson said the Committee proposed to keep the oversight aspect but the directive about not releasing funds should refer to the accounting officers.

Clause 41 Commencement date and duration of warranty
The Committee agreed to the proposed amendment.

Ms Powell said the pages in the A-List did not correspond with the Bill.

The Committee Secretary clarified that the numbering difference was due to there being PDF and Word versions. Both versions were sent to Members. They were working with the PDF version.

Clause 80 Vicarious liability and law of agency
Mr Tseki said this clause in the introduced Bill dealt with liability that referenced "employee". It had been removed and stated "If an agent of a person is liable". He agreed to this. 

Mr Malematja supported Mr Tseki’s comment.

The Committee agreed to the proposed amendment.

Clause 88 Rules
The Committee agreed to the proposed amendment. 

Discussion
The State Law Advisor asked the Chairperson to adjourn for a few minutes so the legal team could work on Mr Herron’s proposal for Clause 32 before the formal adoption of the A-List.

Mr Tseki said that the Committee raised a concern in a previous meeting about residential inspections which is a municipality responsibility. It wanted to check the relationship between municipal building inspectors and the NHBRC inspectors and how they could work together. He had asked the legal team to look into this. However, if it did not fit in the Bill perhaps it could be referred to the regulations.

The Chairperson asked the legal team to look at the clause dealing with inspectors and consider how NHBRC inspectors could be obliged by the Act to work with municipal building inspectors.

Ms Shilwayi said the issue could be that building inspectors were part of the municipality. What was the relationship between the NHBRC and the municipal building inspectors? Which party had the final say upon completion of construction? At what stage was building construction approved. Clarity was needed so that homes could be well built.

The Chairperson added that the legal team should look at the clause on inspectors to ensure municipal inspectors were included without limiting NHBRC powers. NHBRC was responsible for providing quality assurance.

Ms Shilwayi said the Committee had raised concern about clause 25(3) about builders who had to register annually even if they could not get jobs. She asked for clarity on this.

Ms Powell asked if the legal would be applying amendments to the A-list so that it could be adopted. She asked when clauses 31 and 40 would be discussed.

The Chairperson replied that these clauses could not be inserted in the A-list as the Committee had not agreed to amend them. Ms Powell could ask questions on these clauses.

Ms Powell explained that a number of Members requested that clause 31 require a minimum approval period by NHBRC. Did the current Act include a 90-day approval period and why can it not be included in the Bill? She gave the example of the Property Practitioners Regulatory Authority and Fidelity Fund certificates where a prescribed approval timeframe has enabled industry players to hold the entity to account for delays. Members were concerned that delays would negatively affect small to medium size businesses.

Ms Powell asked if it was possible to keep this 90-day approval period. If the concern was the submission of documents this could be accommodated by saying the 90-day period started upon receipt of all necessary documentation. She was concerned that the sector would not be able to hold the NHBRC accountable.

Ms Powell pointed out that the rationale the Department gave for the once off registration fee, annual fee and enrolment fee was no longer the case because clause 34 of the Bill now allowed the NHBRC to receive appropriations from the fiscus. Therefore these fees would not be the only income for the NHBRC. The Committee's concern was that builders who had not worked for years were expected to pay annual fees. The A list still had not tightened these concerns and clarity was needed.

On clause 31, Mr C Malematja (ANC) said that it was important that the approval of applications was allocated a timeframe. The timeframe would commence once all documents had been submitted so outstanding documents should not factor into the allocation of a timeframe. He added that the 90-day period needed to be reviewed as it seemed too long. It needed to be shortened given the sector they were in.

Mr Tseki said he agreed with Ms Powell about the need for a timeframe but noted that the legal team said the timeframe was a policy matter.

Ms Shilwayi noted the concern in clause 25(3) about builders having to register annually who were without building jobs for long periods of time. This presupposed that there be a stipulated timeframe in which builders would get jobs. This could not be the responsibility of the Act. The Act protects consumers and ensures that builders given work are registered. There were clear criteria that assessed if the builder was fit to do the job. The Bill’s purpose was not to provide builders with work. That remained the responsibility of associated processes and the builder. Clause 25(3) cannot be relaxed.

Department responses
Mr Paul Masemola, DHS Acting Chief Director: Legal, replied that the 90-day approval period was part of the rules that went hand in hand with the Act. Therefore this tight limit of when the NHBRC was expected to conclude application approvals would still be in the rules and regulations.

The legal team would consider Mr Herron’s suggestion.

Ms Fouche replied that the approval timeframe was addressed in the rules and therefore when rules and regulations were drafted more specific timeframes would be provided.

The Chairperson said the 90-day timeframe would be provided for in the regulations and the Committee reached a consensus on this matter.

Mr Masemola said the legal team understood there were challenges and it needed to be indicated since the inception of the current Act the registration and renewal fees remained at R750 and R600 respectively. These fees when determined did consider the economic climate. However the fees could not be kept the same for extended periods of time so three years was the cap. The intention was that builders be registered for that year so they could receive work as well to avoid a reduction in the funds NHBRC needed to execute its duties. They did not know if the appropriation received from Parliament would be enough.

The introduction of an appropriation from Parliament was because the NHBRC mandate needed more funds to be executed. The annual fees were still needed and would be raised in a manner that was not detrimental to small businesses.

Ms Fouche added that Mr Masemola had covered the issue adequately. The fees have remained the same since the inception of the NHBRC and were relatively low. Ms Powell noted that NHBRC would now receive an appropriation from Parliament as per clause 34 of the Bill. The Bill extended the NHBRC mandate to issues that were not covered previously. The amount that would be received from Parliament was still unclear therefore it could not be determined yet if it would be sufficient.

The Chairperson noted that this was a policy issue and not a legal one.

Ms Powell said she and Mr Tseki were clear on their concern about the impact of the Bill on small business owners. They did not have financial knowledge of the NHBRC and therefore needed guidance from those who did. She recommended it would be useful to find a way to reduce the fees payable by small-scale builders in light of the introduction of an appropriation by parliament and the surplus in the warranty fund.

Mr Tseki noted that when dealing with legalities sometimes there were financial aspects that the legal team could not speak to. He was satisfied with the responses from the legal team.

Mr Shilwayi said she was unsure if her concern was responded to as she had network difficulties. She asked if a response was given by the Department.

The Chairperson replied that the Department's response was that the issue was a policy matter and the Bill's extension of the NHBRC mandate meant the registration fees were needed to generate income. Reduction of registration fees would mean it would be unable to fulfil its mandate.

Ms Shilwayi agreed with the DHS response about the registration fees. If builders and developers still had concerns, they could raise these concerns to the NHBRC at another level.

The Chairperson said there was an issue about homebuilders not being obliged to register for smaller alterations. Clarity was needed on what was meant by smaller alterations.

Mr Masemola replied that small alterations were those that did not require submission of new plan to the municipality. Once you were required to submit plans to the municipality for alterations to your home they were no longer deemed small and thus should be covered by enrolment. Clause 2(1)(b) indicated that it would be necessary to enrol once it is required for you to submit plans to the municipality.

The Chairperson asked if a practical example of a small alteration be installing new windows in an RDP house.

Ms Fouche replied that this question was very technical; however, the replacement of windows would not be something that required submission of plans to the municipality and therefore would be a small alteration. The NHBRC concern was the structure of the building and any changes made to it. Structural changes required enrolment as plans would be need to be submitted.

Mr Malematja said he did not understand how the replacement of windows was considered a small alteration as it could have major effects on the structural integrity of a building. Compliance measures were needed as he had seen this happen before.

Mr Fouche replied that she would have a discussion with her technical manager who was not in attendance and revert to the Committee.

The Chairperson asked the legal team if the concerns raised by Members on the registration of builders would require amendments to the Bill or if could they be discussed outside the Act.

Further discussion
On Clause 25 Homebuilder or developer to be registered, the Chairperson asked if the Committee wanted to remove annual fees and how this could be done without benefiting large building businesses. She asked if this could be debated outside the Act by looking at the NHBRC grading process as this was a policy issue. 

The Chairperson proposed that annual fees should be applied using the NHBRC grading system so that small-sized builders could pay less than larger-sized builders. The grading system was informed by the work builders have done and how much they have earned.

Ms Shilwayi said what the Chairperson has raised was important. Given the sensitivity of the Committee’s role politically, clarity should have been given in the Bill about the capacity of the developer, homebuilder and contractor. This would allow for the categorisation of these builders so that an appropriate fee structure could be implemented for each category.

The provision did not differentiate on the basis of their individual capacities which makes the application of a fee scale structure difficult. She asked if the categorisation of the builders on the basis of their capacity was possible.

Ms Powell agreed with Ms Shilwayi in reference to clauses 25 and 40 that were correlated. She proposed an addition to clause 40(1)(d) "any other fee which the Minister authorises by regulation"
to allow the Minister through the regulations to exempt certain categories of homebuilders from paying certain fees. The Minister could do this with the advice of the chief financial officer.

Mr Malematja proposed an option where if the builder generated no income and proof was provided that attested to this, the builder would be exempt from paying annual fees which was a system similar to that of SARS. 

The Chairperson asked the Committee to finalise the registration fees matter. There was a proposal to make insertions that empower the Minister to exempt certain categories of builders from paying annual fees and only once they had received a job, the fees would be payable.

Mr Masemola said they would revert to the Committee on this. However, registration was paid prior to the commencement of the year and not once the year had passed. The issue of registration could then be something very technical but the legal team would respond once it had time to discuss this matter.

The Chairperson said the Committee was concerned with emerging contractors. DHS and the legal team needed to categorise builders using the NHBRC grading system for registration. The Department had noted that for homebuilder development, those who were newly qualified needed assistance with obtaining items such as certificates. A newly qualified builder would require the registration of a company and registration with NHBRC but there was no certainty about getting building jobs. Therefore a system should be used to assist those who were struggling financially to exempt them from paying registration fees. This was to ensure that registration fees were not an obstacle. The legal team had made clear that this was a policy matter and time would be given to DHS to consider and respond to the Committee on this. 

Ms Powell asked what the DHS response was to the 90-day approval period as she had missed it. 

The Chairperson replied that the 90-day time period as stipulated in the regulations would remain in the regulations.

[Break]

A-List finalisation and voting
On reconvening, Ms Gangen explained that the Department and the legal advisors agreed that the Committee’s concerns about fees were spoken to and addressed by clauses 2(5) "exempt certain persons or homes from the provisions of this Act"; 38(7) "instruct the Council to lower any enrolment fee" and 40(4) "may differentiate between different categories of enrolment fees in relation to different categories of homes, and different categories of homebuilders and developers based on grading status". There was a proposal to remove 'enrolment' from clause 40(5) "The enrolment fee must be proportionally adjusted in accordance with the extended period of the warranty cover".

The Chairperson noted the feedback from the legal team. She asked if the Committee agreed with the legal team's proposal.

Ms Powell agreed and asked if the legal team was able to include this proposal in the A-list so that it could be concluded or would the A-list be circulated for approval. She thanked the legal team for their quick turnaround time.

The Chairperson said the conclusion of the A-list was done.

Mr Masemola said the A-list had been updated as there were two issues the Committee wanted the Department to deal with.

The Chairperson noted the issue raised by Mr Herron on clause 32 that needed to be addressed. The Committee agreed with the legal team’s response on fees.

Ms Gangen said the legal team had responded to clause 32. The directive to 'head of department' and 'municipal manager' were added 32(1).

Mr Herron supported the redrafting of this clause.

Ms Powell supported the amendment to clause 32 and thanked the Legal Services for their work.

The Chairperson asked that the Committee formally adopt the A-list.

The Committee adopted the A-list. 

The Chairperson said the legal team would incorporate the A-list into the Bill which should not be called the B-list.

Mr Masemola said the Committee Secretary would be in communication with the printers to ensure that the amendments would be incorporated. 

The Chairperson thanked the legal team and the Department for assisting with this process. She hoped that everyone was happy with their contributions and the Bill would be moving on to the next step of the process.

The meeting was adjourned.