Housing Consumers Protection Measures Amendment Bill: briefing

HOUSING PORTFOLIO COMMITTEE
2 May 2007
HOUSING CONSUMERS PROTECTION MEASURES AMENDMENT BILL: BRIEFING

Chairperson: Ms Z Kota (ANC)

Documents Handed out:
Briefing on Housing Consumers Protection Measures Amendment Bill
Memorandum on the Bill (see Appendix)
Housing Consumers Protection Measures Amendment Bill [B6-2007]

Audio Recording of the Meeting

SUMMARY
The Housing Department presented the amendments to the Housing Consumer Protection Measures Act. The amendments rectify certain interpretation and implementation problems that had arisen since the Act had been promulgated. The definition of owner builder as it appears in the Act was clarified. The late enrollments of houses with the NHBRC and penalties that arose from this were discussed. The question of the delays in building projects were attributed to the lack of supplies and lack of inspectors, the focus was on the role of the NHBRC in regulating the issue of inspectors. The NHBRC highlighted the need for an accredited inspector to carry out tasks on building projects. There had not been any public hearings on the Bill. The committee had to decide whether they were going to hold public hearings.

MINUTES
Mr Richard Thatcher, Acting Chief Director: Housing Legislation, gave some background to the Bill, noting that the Act had been promulgated in 1998 but since then the Department had come across a lot of interpretational problems as well as problems in the implementation of the Act. He then went through the amendments (see document).

The main problem that faced the regulatory authority, the National Home Builders Registration Council (NHBRC), was that many builders had tried to evade the Act and this was detrimental especially to the residential building industry. One of the loopholes was that the Act mentioned that owner builders were exempt from the Act. It did not take long for people to realise this loophole and they got away without paying fees by claiming to be owner builders. They built houses without the regulatory authority knowing about this. When problems arose and the NHBRC was asked to intervene, they could not because these people were owner builders. He said that they needed to clarify the definition of an owner builder. The amendments stated that owner builders had to apply for exemption from the NHBRC and prove this. This will serve as a better control over this problem.

In order to enforce the provisions of the Act, they had also included the conveyancer into the process. Conveyancers who transferred property which was bonded, would now have to ensure that the houses were enrolled with the NHBRC.

He noted that the Minister had been inundated with applications for exemptions and such like. However the NHBRC would be better suited dealing with these as they were technically competent to assess these applications. If builders were aggrieved with the NHBRC decision, they could then appeal to the Minister.

He stated that the DoH and the NHBRC had many complaints that builders were building houses and not enrolling them so the owners of the houses would then have to apply for late enrollment and pay the penalty. Regulations had dealt with this but now the Act would provide for rectification of this in section 14 of the Bill

He stated that the Act did not have any provision for roof leaks in the NHBRC warranty scheme. However, the scheme was extended in the Bill to include roof leaks for a period of two years. He stated that often times, there were disputes as to what constituted a structural defect in a building project. There is provision for a claim where there is a defect where the owner is not satisfied with the house that had been built.

The list of contraventions had been extended.

The Bill had been published last year for public comment. They had consulted very widely and had been in constant communication with the NHBRC. He said the Department was satisfied that the Bill addressed all the problems with which both the DoH and the NHBRC had been faced. He noted that the regulations had been completed but they had been advised by the state law advisors that these could not be submitted until after the Bill had been dealt with by Parliament.

Mr Morris Mngomezulu (Director: Housing Industry) added that the NHBRC had been thoroughly consulted on the issue and they were happy with the Bill.

Discussion
Mr Gideon Hoon (Principal State Law Advisor) pointed out that the roof leak provision was meant to be two years but is referred to in the Bill as twelve months. This would need to be corrected

Mr Butch Steyn (Democratic Alliance) asked about the allowance for late enrolments. To his knowledge late allowances were in progress already, this he found out from the NHBRC Annual Report. His concern was what happened if the foundation of a house had already been cast? Proof was needed to show that reinforcement has been used. How did the NHBRC satisfy themselves that the reinforcement had been put in the foundation of the building because if the foundation was faulty then the integrity of the whole structure would be faulty. This could not be seen with the eye so how could this be proved. The NHBRC could open itself up to claims.

Mr Thatcher replied that the allowance for late enrolment had been implemented to a certain extent by the regulations. However, people who had to pay massive penalties for late enrolment would contest paying these, based on the fact that this stipulation was not in the Act but only in the regulations. One should not legislate by way of regulations. The new legislation would boost the powers of the NHBRC with regard to late enrolments. It was very important that contractors ensure that the houses they were building were enrolled before construction so that the NHBRC could satisfy itself that work was being done properly.

Mr Steyn asked whether the Section 14 amendment differed in any way to the regulations that already existed on the subject. He also asked why the Peoples Housing Process (PHP) projects were exempt. He said that they should be subject to the NHBRC enrollment.

Mr Thatcher replied that the PHP process was for people who built their own houses. There was expertise on hand to assist them. As the house was for themselves, they would thus ensure that the house was not shoddy.

Mr Steyn asked with regard to full and final settlements, whether there was a provision for a cap in this amendment.

Mr Thatcher replied that debate in the Committee would determine whether there should be a cap or not. He acknowledged that a claim could be exorbitant if a whole house had to be demolished but the claims they had received were mostly minor such as for cracked walls, roof leaks, or reinforcing the foundation.

Mr Steyn asked where the expertise to deal with appeals would come from if the Minister did not have the expertise to deal with the exemptions themselves.

Mr Thatcher said that the Minister would appoint technical advisors who would look into the ruling if there was not sufficient expertise within the Department

Ms N Ngele (ANC) said that many houses had fallen apart before they were occupied. She asked whether the inspectors or the emerging contractors were to blame. She commented that most housing projects were not completed on time and wondered who was to blame.

Mr Thatcher replied that the DoH had had complaints about the inspectors and also about inspectors not arriving on time. He said that the NHBRC was responsible for ensuring that they had sufficient staff, especially inspectors, to deal with enrolments at the right time. Inspections were crucial to the success of this Act.

He agreed that there were many projects that were not completed on time. There were many reasons for delays such as weather delays, shortage of materials like cement, infrastructure delays like the building of storm water drains. Thus one could not lay the blame entirely at the door of the provincial housing departments. This is really a pure NHBRC matter as they need to warn contractors who do not deliver on time and there are measures that can be taken against them such as blacklisting or ensuring they go on further training. Thus timeous delivery does rest a lot with the contractor. One must understand and accept that emerging contractors have not yet reached the stage where they can deliver everything on time but the Department is hoping that with further ongoing training which many are receiving, they can fulfil the task and develop into expert builders. Emerging contractors are assigned a few houses at first and as they deliver and become more experienced, they are given a larger number of houses to build. Often on a project, there will be several contractors at different stages of completion

Ms Kota commented that she was not happy with the justifications for the delays. She said that partnerships needed to be formed between emerging and experienced contractors. The Act encouraged good building practices and excuses should not be made. Inspectors on the ground needed to ensure that each and every foundation was inspected. She felt that the Bill was silent on the issue of inspection.

Mr Thatcher noted that section 17 dealt with the issue of inspectors.

Mr Steyn gave a suggestion with regard to late enrolments. He pointed out that every house being built had to be approved by the municipality. He asked if it was possible that an application to the municipality could include proof of the NCHRB enrolment application. This could cut out a lot of the late enrolments.

Mr Thatcher said that Mr Steyn's point that if municipalities were involved, this would minimise late enrolments, was a good one

Mr Steyn said that many people had been consulted. He wanted to know if their submissions were at all taken into consideration and if not why not.

Mr Thatcher replied that the consultations with organisations and the submissions had been accommodated and that he could make those available.

Mrs Ngele said that she did not understand the ‘mess’ that the emerging contractors had made. She wanted to know whether they underwent any training.

Mr Steyn asked whether there was a way to stop people who were deregistered as builders to be registered under another company

Mr Thatcher replied that they used a registration ID system where an ID number is used and the system could pick it up, once one was deregistered

Ms Kota wanted to know whether all emerging contractors were on the database. She said that there needed to be partnerships in order to build quality houses

Mr Phetola Makgate (CEO NHBRC) said that with regard to the deregistering system that it was hard for anyone not to be picked up by the system. But the trend in the market was to join another company and work under someone else. Constitutionally, they could not deny anyone access to work.

He said that the major challenge was that of inspectors. The problem in South Africa was that there was no accredited inspector. The challenge to most provinces was that there is a NHBRC inspector, a municipal inspector, a provincial inspector as well as a company inspector. There was need for one role. This was something that the NHBRC was trying to work on. He said that inspectors on the ground had been increased.

He further stated that conveyancers were to make sure property that was transferred was registered with the NHBRC and that so far there had been no penalty on conveyancers who did not ensure the property was registered with the NHBRC.

He said that the big problem was with untrained residential home builders. The appointment of these contractors was done by the municipalities and the provinces. Training was ongoing but most builders did not bring in their employees for training.

Mr Steyn asked whether the role of inspector would take over the role of all four inspectors.

Ms Kota said that the four inspectors have different purposes and that they focus on different things.

Mr Makgate said that they envisioned a properly accredited inspector in the future.

Ms Kota said that it should be compulsory that every employee should be trained in some way.
She further said that they had dealt with all the issues

Mr Steyn said that the Committee had not consulted stakeholders yet.

Ms Kota said that stakeholders had been contacted.

Mr Steyn again asked about issue of capping.

Mr Makgate replied that capping was provided for in the regulations. It was not in the Act. The cap was at half a million rand now. This was the amount to be paid to the builder.

Mr Steyn said that they had not asked the consumers about the Bill. He did not understand why the Bill had to be rushed and approved that day. Was it not a constitutional requirement to consult? They did not have to hold public hearings but at least ask for comment.

Ms Kota asked the DoH to explain the urgency to pass the Bill.

Mr Thatcher said that the Bill had been a long time in the making and the longer the Bill was left unpassed, the more problems would accumulate. The regulations could not be finalised until the Bill was finalised. They would send all comments that had been received to the Committee

The state law advisor was asked for his opinion on whether there should be public hearings.

Mr Hoon replied that it was a difficult question. One could only be ambivalent in the light of the two court cases where one bill processed without public hearings was found to be acceptable and yet the other bills were not. He said that there should be a degree of consultation in the light of those cases as there could be consequences.

Ms Kota said that the Committee would meet with the Department again and the Committee would decide on the way forward.

Appendix:
MEMORANDUM ON THE OBJECTS OF THE HOUSING CONSUMERS PROTECTION MEASURES AMENDMENT BILL, 2007

BACKGROUND

The Bill seeks to rectify certain interpretation and implementation problems which have arisen since the promulgation of the Housing Consumers Protection Measures Act, 1998 (Act No. 95 of 1998) (the Act).

2. OBJECTS OF BILL

2.1 The Bill seeks to amend the definition of ‘‘business of a home builder’’ by— (a) inserting the words ‘‘leasing’’ and ‘‘renting out’’ in paragraph (b) of the definition, which deals with acts that are regarded as constituting disposal of a home; and

(b) deleting the references to ‘‘owner builders’’ in paragraph (d) of the definition. The wording of paragraph (d) has resulted in so-called ‘‘owner builders’’ being excluded from the application of the Act. In broad terms an owner builder is a person who wishes to build a home for occupation by himself or herself, and who utilises own resources such as labour and financing. In these cases application of the Act would result in an absurd situation where the mentioned person is in fact protected against himself or herself.

Although this fact is recognised, it was never the intention of the legislature to totally exclude such ‘‘owner builders’’ from the application of the Act, but rather that they be entitled to apply for exemption from the provisions of the Act, thereby ensuring that they are indeed owner builders, and not just builders wishing to escape from the letter of the law.

As paragraph (d) of the definition has not achieved this, it is proposed that it be amended and that a substantive definition of and provisions pertaining to ‘‘owner builders’’ be added.

2.2 The definition of ‘‘home builder’’ is to be amended in order to include ‘‘owner builders’’ who have not been exempted in terms of the Act.

2.3 Definitions for ‘‘late enrolment’’and ‘‘non-declared late enrolment’’ are proposed. Although these issues have in the past been dealt with in regulations issued under the Act, they are not defined in the Act, nor does the Act contain any specific provisions pertaining thereto. The Bill seeks to rectify this situation by the insertion of those definitions, as well as making specific provision for them in the proposed section 14A, dealt with below.

2.4 Definitions for ‘‘National Housing Code’’ and ‘‘PHP project’’ are also proposed as these expressions are contained in substantive provisions proposed by this Bill.

2.5 A new section 1A is proposed in order to provide for the scope of application of the Act.

2.6 Section 7 of the Act, dealing with measures that the Council and the Minister may prescribe, is to be amended in order to include measures pertaining to late enrolment, non-declared late enrolment and fees for late enrolment. 2.7 A new section 10A is proposed to enable ‘‘owner builders’’ to apply for exemption from section 10 (registration of home builders) and section 14 (enrolment) of the Act.

2.8 A new section 14A is proposed to provide for, and to regulate, late enrolment and non-declared late enrolment. The proposed section 14A consists of a revised combination of the existing regulations 14 and 15, as contained in the Council Rules published under Regulation No. R.1408 dated 1 December 1999 (Gazette No. 20658).

2.9 Section 17 of the Act is to be amended in order to extend the cover provided by the Council’s warranty scheme to include roof leaks and to enable the Council in exceptional circumstances, instead of having a defect rectified, to make payment to the housing consumer in full and final settlement of a claim.

2.10 The list of contraventions of the Act that constitute offences, as set out in section 21 of the Act, is amended to include the section 18(2) duty of a conveyancer to ensure that a home builder is registered before attending to the registration of a mortgage bond.

2.11 Section 22 of the Act is to be amended by the addition of a new subsection that will enable persons who are aggrieved by any decision made by the Council in terms of section 29 to lodge an appeal with the Minister. This is necessitated by the proposed amendment of section 29 of the Act.

2.12 Section 29 of the Act is to be amended to allow the Council to grant or refuse applications for exemption. In its current form the section empowers the Minister to consider applications for exemption based on recommendations provided by the Council. As this process causes lengthy delays due to the extensive responsibilities of the Minister, and as the technical expertise necessary to properly evaluate applications is not available in the Department of Housing, the responsibility is best vested in the Council. A safeguard in the form of an appeal process is, however, built into section 22 of the Act in order to ensure that exemptions are not refused unreasonably.

3. PERSONS CONSULTED
The Bill was published in the Gazette for public comment on 25 August 2006. In addition, invitations to comment were sent to inter alia the NHBRC, the Banking Association of SA, all major Banks, the national departments of Justice and Constitutional Development, Agriculture and Land Affairs, Provincial and Local Government, the nine provincial housing departments, SALGA, the Master Builders Association, the Building Industry Federation of SA, COSATU and SAPOA. Comments were received from nine institutions.

4. IMPLICATIONS FOR PROVINCES
None.

5. FINANCIAL IMPLICATIONS FOR STATE
None.

6. PARLIAMENTARY PROCEDURE
6.1 The State LawAdvisers and the Department of Housing are of the opinion that this Bill must be dealt with in accordance with the procedure established by section 76(1) or (2) of the Constitution of the Republic of South Africa, 1996, since it falls within functional areas listed in Schedule 4 to the Constitution, namely ‘‘Consumer protection’’ and ‘‘Housing’’.

6.2 The State Law Advisers are of the opinion that it is not necessary to refer this Bill to the National House of Traditional Leaders in terms of section 18(1)(a) of the Traditional Leadership and Governance Framework Act, 2003 (Act No. 41 of 2003), since it does not contain provisions pertaining to customary law or customs of traditional communities.