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Consumer Protection Act, 2008 (Act No. 68 of 2008)


Consumer Protection Act Regulations

15. Public property syndication schemes


1) In this regulation, unless the context indicates otherwise—


"fraudulent public property syndication scheme"

means a public property syndication scheme in which one person, by false pretence or with the intent to defraud another person, represents to that other person that the property he, she or it is investing in is worth more than its true market value;



means a company and its directors, close corporation and its members, partnership and its partners, trust and its trustees and all other persons who are actively involved in the forming and establishment of a public property syndication scheme, and a reference to a company and its directors also refers to a close corporation and its members, or to a trust and its trustees, or to a partnership and its partners or to a sole proprietorship, or their representatives;


"prescribed information"

means the prescribed information contemplated in subregulation (5)(b);


"public property syndication scheme"

means the assembly of a group of investors invited, by word of mouth or through the use of electronic and print media, radio, television, telephone, newspaper and magazine advertising, brochures and direct mail, to participate in such schemes by investing in entities, which could be companies, close corporations, trusts, partnerships or individuals, whose primary asset or assets are commercial, retail, industrial or residential properties, and, where investors share in the profits and losses in these properties and or enjoy the benefits of net rental growth therefrom through proportionate share of income;





means a professional valuer or professional associated valuer registered in terms of section 20(a) of the Property Valuers Profession Act, 2000 (Act No. 47 of 2000), with at least three years' experience in the field of attending to valuations of properties.


2) No person may directly or indirectly promote or facilitate a fraudulent public property syndication scheme.


3) A promoter may not—
a) withhold the prescribed information, in part or otherwise, from an investor or potential investor in a public property syndication scheme; or
b) include any term, condition or provision in the disclosure document that excludes, limits or purports to exclude or limit the legal liability of the syndication promoter towards the investor in respect of any malicious, intentional, fraudulent, reckless or a grossly negligent act of the syndication promoter, his or her employee, representative, contractor or subcontractor or any other person used by the syndication promoter or recommended by him or her to the investor or prospective investor.


4) A promoter must make available the prescribed information to an investor or potential investor who invests in or intends to invest in public property syndication schemes, and the prescribed information must be made available to investors or potential investors in a disclosure document, the details of which are set out in subregulation (5)(b).


a) A statement, presentation or description must not convey false or misleading information about public property syndication schemes or omit material information during the public offer of shares.
b) An investor and or potential investor must be informed in writing that –
c) public property syndication is a long-term investment, usually not less than five years;
d) there is a substantial risk, in that the investor or potential investor may not be able to sell his or her shares should he wish to do so in the future; and
e) it is not the function of the promoter to find a buyer should the investor or potential investor wish to sell his shares and that it is the investor's or potential investor's responsibility to find his or her own buyer.


a) Investors must be informed in writing that all funds received from them prior to transfer or finalisation must be deposited into the trust account of a registered estate agent, a firm of an attorney or attorneys or a certified chartered accountant, provided that such trust account is protected by legislation.Individual investors are to be given written confirmation thereof, and it must be clearly stated who controls the withdrawal of funds from that account. Such an account must be designated "XYZ Attorneys/auditors/estate agents Trust Account - the XYZ syndication". In the event of investors paying by cheque, promoters must ensure that the name of the payee is printed in bold on the application forms.
b) Funds must only be withdrawn from the trust account in the event of registration of transfer of the property into the syndication vehicle; or underwriting by a disclosed underwriter with details of the underwriter; or repayment to an investor in the event of the syndication not proceeding.
c) It must be disclosed whether the property has been bought conditionally or by option, and in either or both cases full details of any condition and or option on which the property was purchased must be disclosed together with the effective date of commencement of the syndication.
d) Any direct or indirect interest, which a promoter and or any of his or her family member or any other person who is actively involved in the promotion of that syndication has in the property to be purchased, must be disclosed.
e) It must be disclosed how any capital shortfall will be dealt with.
f) The method of raising the necessary capital to fund the acquisition of the property and the syndication and how any disbursements will be dealt with prior to transfer, must be disclosed.
g) Provision must be made for interest earned to be paid on investors' funds deposited as provided for in paragraph (a) prior to the effective date of the transfer of the property.


a) Full details of the promoter of the syndication scheme, such as name, registered company or close corporation numbers, directors, addresses, telephone and fax numbers and e-mail address must be given.
b) Full disclosure must be made as to whether the promoter is acting as a principal in the scheme or as an agent for someone else. If the promoter is acting as an agent, he or she or it must provide full details of the principal.
c) The disclosure document, which is to be dated and signed by the promoter, must contain a statement of proper due diligence (commercially and legally) with regard to the property and its tenants prior to the unconditional purchase thereof and he or she or it must state that this was done and that he or she is satisfied with the results thereof.


a) Full details of the syndication vehicle must be disclosed, including the names and addresses, telephone and fax numbers and the e-mail addresses of the property manager, the company secretary, the board of directors, the auditor, the attorney and the valuer.
b) In addition full disclosure must be made of the fee structure of the management company or manager(s) and any appointments or contracts relating to the syndication.


a) Full disclosure must be made of the type of company structure to be used for the syndication scheme and reference must be made to the legislation governing the company structure chosen. Reference must be made to the company registration number, or advising that the company is still to be formed, the memorandum of incorporation, the articles of association, the shareholder's agreement, and where applicable, the partnership agreement, a deed of trust and the founding statement. The disclosure must state whether a shareholders' agreement exists or not, and if such an agreement exists then it must be attached as an annexure to the disclosure document.
b) Full details must be given of the financial year end, the shares to be issued, the shares to be issued in future, control over unissued shares, shareholders' loans and debentures, a pro-forma balance sheet on acquisition (or in the case of new developments, on completion), the income distribution plan, minimum and maximum shareholders or participation quota, any special voting rights, existing and planned gearing, borrowing powers and how they are to be exercised, external borrowing facilities available to investors to finance the acquisition of shares in the investment company and the amount provided in the syndication structure for working capital and reserves.


a) Details must be given of—
i) the title deed and its number;
ii) material servitudes or encumbrances if further development is considered with regard to the property;
iii) zoning and the relevant town planning regulations insofar as further development is intended with regard to the property;
iv) additional development potential;
v) the buildings erected or dates of original erection with dates of improvements (including lifts, air conditioning and roof structure) thereto, if available;
vi) the physical address, locality and site area, including a map of the area; and
vii) insurance cover, name of insurer, types of risks covered, amounts covered, policy due date and policy number.
b) In addition there must be a statement which sets out-
i) the cost of the property to the promoter or the syndication company including acquisition price, cost of renovations, conversion or enhancement including details of any new leases or lease renegotiations which enhance value, marketing and promotional cost fees and the promoter's entrepreneurial mark up, giving rise to the shareholding offer price in the company as at the offer date; and
ii) the valuation of the property as at a date, which must be not more than three calendar months before date of the offer, undertaken by a valuer, in accordance with subregulation (14).
c) If the land is to be encumbered by a mortgage bond after the closing date of the offer, the promoter must disclose—
i) the outstanding balance owing by the mortgagor in terms of the mortgage bond including the rate of interest, the loan repayment period and whether the bond is first ranking or otherwise;
ii) the maximum amount secured by the mortgage bond;
iii) the terms of the mortgage bond;
iv) the identity of the mortgagee; and
v) a statement to the effect that the taking up of such a loan will not be in contravention of: the memorandum or articles of association of the company, the association agreement of the close corporation, trust deed of the trust, partnership agreement of a partnership or the constitution of the public property syndication vehicle.


11) Full details must be given of—
a) any head lease agreement and subleases together with the quantum and location of any vacant space covered by such head lease and subleases, where "quantum" refers to the square meterage and the value involved;
b) any gross or net rental guarantees supplied by the vendor of the property; and
c) actual leases concluded with full details of space let, duration of leases, rentals, escalation rates for the leases, tenant names and security for leases, expenses recovered from tenants, lease renewal options, rental review periods and vacant space.


12) The income and expenditure statement must provide—
a) a detailed pro-forma income statement which must detail all projected expenses, contractual expenses and fees payable, gross rentals, recoveries, and projected net income for the syndicating company;
b) a statement as to the long-term vacancy rate with full motivation thereof, but a nil rate is unacceptable; and
c) a statement as to the extent of provision for future maintenance, with full details where applicable.


a) Full details must be provided of—
i) the basis used to calculate projections with regard to net income growth, to be based upon rental income derived from leases and or market rental growth, less specified and disclosed, as well as reasonably expected expense projections;
ii) the basis used to calculate projections on capital value, to be stated in Rand currency as estimates, provided they are accompanied by stated, specific assumptions showing how those values are determined, but specific projections as to capital growth are not permissible, taking into account the many variables influencing property values; and
iii) whether the validity of the assumptions used in determining projections is based on fact or opinion; and
b) should a specific return be projected, it should be calculated with reference to the syndication value.


a) The name of the valuer and his or her qualifications and experience must be disclosed.
b) The valuer must take cognisance of the state of repair and condition of buildings and improvements.
c) The valuer must take cognisance of a recent municipal valuation of the property concerned, which municipal valuation must not be older than three months.
d) For purposes of subregulation (e)—
i) "open market value" contemplated in subregulation (e)(ii) means the best price at which the property might reasonably be expected to have been sold unconditionally for a cash consideration on the date of valuation assuming—
aa) a willing and informed seller and a willing and informed buyer who are not connected persons as defined in section 1 of the Value-Added Tax Act, 1991 (Act No. 89 of 1991); and
bb) that, prior to the date of valuation, there has been a reasonable period, having regard to the nature of the property and the state of the market, for the proper marketing of the interest, for the agreement on price and terms and for the completion of the sale; and
cc) that no account is taken of any additional bid by a purchaser with a special interest.
ii) "syndication value" contemplated in subregulation (e)(ii) is the aggregate sum of the shareholders' total interest in the syndication vehicle in terms of the disclosure document, recognising that this sum includes an appropriate premium over and above the open market value of the property asset, and the quantum of the premium must be stated.
e) A report from a valuer for purposes of subregulation (5) must incorporate—
i) an introduction, stating that the valuer has been instructed by the promoter or whoever instructed the valuer;
ii) the valuation undertaken by the valuer, which must be either an open market value or syndication value;
iii) the title deed description;
iv) municipal information such as town planning regulations and the municipal valuation of the land and improvements;
v) the location of the property;
vi) a brief description of the building, such as the method of construction, materials, type, grade and size;
vii) the insurance replacement cost of the building in accordance with the following definition: The estimated cost of replacing the asset, as it exists, as if new, at prices applicable on the valuation date, inclusive of professional fees, but exclusive of any finance charges, demolition costs or emergency services costs;
viii) tenancy details, including names of tenants, rentable areas occupied and or vacant, rental escalations, and lease expiry dates;
ix) expenses such as the level of anticipated initial annual operating expenses and the rate of collection/commission;
x) the net income, the anticipated net rental income in the first year and comments on any unusual growth or anticipated vacancies in the next three years, and what assumptions are made as to the re-Ietting of space over which leases are expiring or are vacant, including anticipated re-Ietting commission and tenant installation costs;
xi) the capitalisation rate, meaning the appropriate rate at which the market net income is capitalised, and evidence to this effect;
xii) two valuations, signed by the respective valuers, must be undertaken of the property as at a date, which must be not more than three calendar months before the date of the offer, stating whether the open market value or syndication value has been used;
xiii) full details about previous transactions regarding the property, including—
aa) in the case of a new development, the total cost thereof, including the market value of the land. The contractor or contractors are to confirm in an affidavit the total costs, including the costs of any improvements;
bb) the sales history of the property for the past ten years, including details of—
A) the various legal entities who owned the property according to the title deeds and the selling price of the property with each change of ownership and the relevant dates; and
B) if one or more legal entities owned the property according to the title deeds, any changes in the ownership of the legal entities, the selling price of the property with each change of ownership and the relevant dates.
f) The fees for valuations must not be dependent upon the amount of the valuation.