State sued over estate agent BEE plan

Lobby group Sakeliga has filed papers in the North Gauteng High Court against the Property Practitioners Regulatory Authority (PPRA), as well as the ministers of Human Settlements, Water and Sanitation and Trade, Industry and Competition over moves by the PPRA to no longer issue fidelity fund certificates to non-BEE-compliant businesses. It filed papers in mid-December and made them public on Friday.

By law, property practitioners, including estate agents, need fidelity fund certificates to operate.

In April, the PPRA warned practitioners in the property sector that failure to comply with black economic empowerment (BEE) legislation “may result in the inability to obtain or renew a fidelity fund certificate (FFC)”.

The PPRA’s legal manager and acting transformation manager, Deli Nkambule, had made it clear in March that it “will not issue an FFC unless a compliant BEE certificate accompanies the application”.

“The accepted level of compliance is 40 points or more (BEE Level 8).

“You will not be issued a BEE certificate if you score below 40 (making your BEE certificate non-compliant).”

Thereafter, it sent a formal notification to practitioners in April and started refusing to issue these to practitioners who hadn’t submitted “valid” BEE certificates by the end of that month.

Following pressure from various stakeholders, including Sakeliga’s public push, the PPRA quietly U-turned.

And in August, its chair sent a letter to estate agent industry grouping Rebosa (Real Estate Business Owners of South Africa).

The PPRA says its letter pointed out that it  had sought legal advice and would no longer be requiring Level 8 B-BBEE certificates with new FFC applications.

ALSO READ: Real estate agents warned of licensing risks over BEE compliance

Legal action

Sakeliga’s case targets two primary outcomes:

1. To roll back the definition of property practitioner in Section One of the Property Practitioners Act (22 of 2019); and
2. To force the PPRA to no longer require BEE certificates when issuing fidelity fund certificates.

It contests that the act’s current definition of property practitioner is overly broad and currently includes “persons such as owners of property selling or renting such out without the intervention of an agent or intermediary, property developers selling or renting out their own properties without the intervention of agents or intermediaries, persons managing other persons’ properties for reward, homeowner’s associations [and] body corporates”.

It wants this narrowed as the “only legitimate Government purpose of the Act is to regulate the profession which can be described as ‘Estate Agents’ who perform the acts of letting, selling or managing properties of others as a profession on the instructions of or on behalf of any other person”.

Sakeliga says this “would free the majority of property-related businesses from their unnecessary inclusion in the scope of the legislation”.

It also argues that Section 50(a)(x) of the act, “which disqualifies a person who is not in possession of a valid BEE certificate, from being issued with a fidelity fund certificate, contravenes Section 22 of the Constitution”.

This section provides that: “Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation of profession may be regulated by law.”

Sakeliga says “participation in BEE is not a relevant requirement in handling client funds diligently and ethically”, which is what fidelity fund certificates aim to ensure.

Ultimately, it says, “a B-BBEE certificate is a political instrument of the state, not a business requirement”.

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‘Third wave’

The move by the PPRA is what Sakeliga describes as the “third wave” of BEE, which follows the first (non-statutory since 1994) and second (statutory from 2004) phases. It says this is the third phase.

“First, it attempts to expand the scope of the state by finding ways to subject previously free economic activity to regulatory approval or explicit licencing.

“After that, it seeks to make that very approval subject to BEE.”

Recent examples of this are this effort by the PPRA to make BEE a requirement for fidelity fund certificates and a move by the Financial Sector Conduct Authority (FSCA), which regulates all financial services providers, to demand transformation plans from participants (and ultimately withhold licences from those who do not comply).

Last year, the South African Health Products Regulatory Authority (Sahpra), which regulates health products – including manufacturers, wholesalers and distributors – published a new policy that requires applicants to submit BEE certificates when applying for a licence.

As part of its fresh produce market inquiry, the Competition Commission also wants to implement several BEE restrictions for marketing agents in the fresh produce value chain.

This article was republished from Moneyweb. Read the original here.