Property regulator says do BEE or close down your business

28 April 2024

Tens of thousands of estate agents, property developers, property administrators, landlords, direct property sellers, auctioneers, property advertisers, and other “property practitioners” have been threatened to do BEE or stop operating.

On 13 March 2024, the Property Practitioners Regulatory Authority (PPRA) announced that it plans to refuse to issue or renew Fidelity Fund certificates for businesses with less than 40 points on a BEE scorecard. This vast and unlawful overreach is a form of expropriation, and one that sets a harmful and unacceptable precedent for state intervention in the economy.

Sakeliga is preparing to launch a court case against this existential threat to the industry. We require information and financial support from industry role-players to mount as comprehensive and successful a case as possible.

Businesses classified by the state as “property practitioners” have been told to do BEE or stop operating.

On 13 March 2024, the Property Practitioners Regulatory Authority (PPRA) announced that it plans to refuse to issue or renew Fidelity Fund certificates for businesses with less than 40 points on a BEE scorecard.

Since the Property Practitioners Act (22 of 2019) prohibits doing business as a “property practitioner” without a Fidelity Fund certificate, this is an existential threat to businesses.

Sakeliga opposes the PPRA’s unlawful, unconstitutional, and harmful conduct. In a letter to industry role-players this week, we invite them to contact Sakeliga if they wish to support a comprehensive legal challenge to stop the PPRA and uphold their freedom to do business without political permission.

Despite there being nothing in the Constitution, the Broad-Based Economic Empowerment Act, or the Property Practitioners Act to make a minimum level of BEE compulsory for “property practitioners”, the PPRA has decided that BEE certificates must have at least 40 points to be valid.

According to the PPRA’s Acting Transformation Fund Manager in its 13 March industry webinar:

“if you score anything below 40 and if your BEE certificate is non-compliant, then we will not be able to issue you with a Fidelity Fund certificate.”

The PPRA’s announcement means that tens of thousands of property businesses are at risk of being prohibited from operating. Annually, more than 40 000 Fidelity Fund certificates are issued currently mostly to estate agents and attorneys’ employees. The PPRA plans to extend this requirement as soon as certain system upgrades have been done to ten further categories, including property developers, property administrators, landlords, direct property sellers, auctioneers, bond originators, property advertisers, and more. In the words of Minister of Human Settlements Mmamoloko Kubayi: 

“The Property Practitioners Act heralded a new phase in the history of property affairs regulation in our country. Amongst [the Act’s numerous developments] the increase in the number of property categories and transformation of the sector were uppermost.” 

Fidelity Fund certificates are documents issued by the Property Practitioners Fidelity Fund. The Fund’s purpose is to ensure that payments held in trust by “property practitioners” remain safe and that clients can be compensated in case of theft. The Fund has nothing to do with BEE, yet it is now being abused for the illegitimate purpose of holding “property practitioners” ransom to political demands.

The PPRA is committing a vast and unlawful overreach.

It is making the political instrument of BEE a precondition for participation in the economy. It is trying to force “property practitioners” to relinquish significant portions of their businesses under untenable terms. As such, it is a form of expropriation and one that sets a harmful and unacceptable precedent for state intervention in the economy.

While the current enforcement drive is aimed mostly at companies and ostensibly offers some leniency to natural persons or sole proprietors operating below certain turnover thresholds, we caution that this leniency is arbitrary, unreliable for planning and legal purposes, and undoubtedly temporary.

Ultimately, a B-BBEE certificate is a political instrument and unrelated to business – it can never be a valid precondition to participating in the economy, creating value, and serving customers and clients.

Third wave BEE

The latest developments at the PPRA form part of an insidious third wave of BEE.

The first wave happened in the 1990s, when business deals across racial divisions proliferated without statutory force. The second wave commenced in the early 2000s, when BEE took a statutory turn with the Broad-Based Black Economic Empowerment Act (2003) and the Preferential Procurement Policy Framework Act (2000). In this second wave, BEE was enforced whenever business was done with the state – a vertical application of BEE.

In the past five years, the third wave of BEE took off, in which the state attempts to make BEE compulsory not only for doing business with the state, but for doing any business at all and for obtaining a license to conduct a profession. In contrast to the vertical (i.e. business-to-state) application of BEE, this new horizontal (i.e. business-to-business) enforcement of BEE is intended to place all economic activity under political control – even business that has nothing to do with the state.

Sakeliga is currently investigating 10 government departments and 14 further state entities for attempts to make it illegal for businesses to operate unless they subject themselves to BEE.

For Sakeliga’s letter to industry role-players, click here.
For more information or to follow developments, visit our dedicated webpage.

Piet le Roux
CEO: Sakeliga

Text of letter:

27 April 2024

REQUIREMENT FOR “PROPERTY PRACTITIONERS” TO SUBMIT A B-BBEE CERTIFICATE

To property practitioners operating in South Africa,

The Property Practitioners Regulatory Authority (PPRA) is currently instructing many of you to submit “valid” B-BBEE certificates, without which it refuses to issue or renew your Fidelity Fund certificate.

By “valid”, the PPRA explained in its webinar on 13 March 2024, it means that

“if you score anything below 40 and if your BEE certificate is non- compliant, then we will not be able to issue you with a Fidelity Fund certificate.”

Since the Property Practitioners Act prohibits doing business as a “property practitioner” without a Fidelity Fund certificate, the PPRA’s threat is existential. It affects you not only if you are operating as an estate agent, but also if you are a property developer, property administrator, landlord, direct seller of fixed property, bond originator, auctioneer, and so on. All these businesses are at risk of being prohibited from operating.

In this letter, we highlight:

A. The threat,

B. Considerations for maximum achievable non-compliance, and

C. Our recommendation of an independent and comprehensive legal challenge.

A. The threat

The PPRA has recently announced that it now requires a B-BBEE certificate with a minimum of 40 points (level 8) from you, or else will refuse to issue or renew your Fidelity Fund certificate. Currently, Fidelity Fund certificates issued number around 40 000, mostly to estate agents, but the PPRA plans to require such certificates of all “property practitioner” categories as soon as possible.

Since the Property Practitioners Act requires all “property practitioners” to have a fidelity fund certificate, the PPRA is in effect trying to make it illegal to operate a property related business unless you participate in B-BBEE. This is unlawful, harmful, and unconstitutional: Political compliance must not be a precondition for doing business and creating value in society.

While the current enforcement drive is aimed mostly at companies and ostensibly offers some leniency to natural persons or sole proprietors operating below certain turnover thresholds, we caution that this leniency is arbitrary, unreliable for legal purposes, and undoubtedly temporary. Among the 40 000+ annual recipients of Fidelity Fund certificates, most at risk are small, medium, and family-owned businesses.

B. Considerations for maximum achievable non-compliance

Compliance and non-compliance with the PPRA’s unconstitutional and harmful demands should be considered carefully after seeking sound legal advice.

Refusing to comply with the PPRA’s unlawful demands is ethically acceptable but may expose you to the risk of legal expenses and potentially (at least temporarily) losing your Fidelity Fund certificate and being unable to operate.

Compliance, however, feeds a rogue regulator that will keep escalating its unacceptable demands until you eventually lose your business or leave the industry.

Sound advice should take into account the risks and costs associated with both compliance and non-compliance, and should seek to find viable avenues for delaying compliance as much as possible.

We can sum this approach up as maximum achievable non-compliance after careful consideration of sound legal advice.

However, Sakeliga believes that a durable solution requires an independent and comprehensive legal challenge.

C. An independent and comprehensive legal challenge

Sakeliga considers it necessary to launch an independent and comprehensive legal challenge against the PPRA and certain sections of the Property Practitioners Act, for at least two reasons:

1. First, the PPRA is acting unlawfully, because a certificate with zero B-BBEE points is as valid as any other. The Act does not authorise the PPRA to determine how many points a B-BBEE certificate needs.

2. Second, the Act itself is arguably unconstitutional on two counts.

i.  It is unconstitutional because the Act’s definition of “property practitioners” is overly broad. When the Property Practitioners Act replaced the old Estate Agencies Affairs Act in 2022, it replaced the concept of an estate agent with that of a “property practitioner”. Now, Fidelity Fund certificates are required not only of estate agents, but of all “property practitioners” including vastly different businesses, such as property developers, property administrators, landlords, homeowners’ associations, auctioneers, etc.

ii.  The Act is also unconstitutional because it states in section 50(a)(x) that “property practitioners” may obtain a Fidelity Fund certificate only if they possess a valid B-BBEE certificate. While “valid” cannot be taken to mean compliance with B-BBEE at certain thresholds, the certification demand is itself an unjustified, costly, and harmful infringement on the freedom to do business and serve society.

Ultimately, a B-BBEE certificate is a political instrument and unrelated to business – it cannot be a valid precondition to participating in the economy and serving customers and clients.

Next steps

The option of a comprehensive legal challenge exists right now, but only for a limited time. It must be seized without delay, before new and unlawful practices become established.

If you wish to see the PPRA and the Act comprehensively challenged in court, you can help in three ways:

1. Forward this letter to associates in the property sector or who have an interest in a well-functioning property sector.

2. Fund this litigation effort here, or contact us at [email protected].

3. Tell us how this affects you here or at [email protected] so that we can build a better court case.

With good industry feedback, information, and financial support, Sakeliga can launch a powerful challenge against this assault.

Let’s act now and show what can be done by independent, organised business communities resisting harmful state intervention.

Sincerely,Signed

Piet le Roux CEO, Sakeliga

ENDS

Statement issued by Piet le Roux, CEO: Sakeliga, 28 April 2024