In this article we focus on the basic criteria of the Property Sector Charter within the scope of the B-BBEE Act, Number 53 of 2003.
The original charter was gazetted on 01 June 2012 as Gazette Number 35400 and subsequently amended by Gazette 40910 on 09 June 2017. The amended charter is extensive in detail and contains criteria vastly different to that of other sector charters. The sector codes apply to all privately owned and public enterprises within the property sector.
In general, the scope is applicable to commercial activities in the following industries:
Residential property industry including:
• Houses
• Community Schemes
• Land zoned for development
• Commercial property industry including:
• Office property
• Industrial property
• Leisure property
• Retail property
• Land zoned for development
Other property services:
• Property Ownership
• Property Letting
• Property Management
• Property Sales
• Property Valuation
From the Gazette:
“This sector code will be applicable to a subsidiary of a holding company or a division or business unit of a company if the primary business of the subsidiary, division or business unit of that company (“the entity”) is dealing in property or providing property services (“the services”), even if the company or holding company has to comply with provisions of another charter or code issued in terms of Section 9(1) of the B-BBEE Act.”
“For the avoidance of doubt this charter shall, among other, not apply to the following activities undertaken by entities such as but not limited to: mortgage loans, securitisation of mortgage loans, properties in possession of banks, properties owned, leased or otherwise used for the conducting of the business of the company or holding company and in-house property management services.”
The Property Practitioners Act of 2019 (“PPA”) was signed into law by the President on 19 September 2019, with a recently defined commencement date of 01 February 2022. The PPA has as one of its main objectives the transformation of the property sector.
The Property Practitioner Act replaces the Estate Agency Affairs Act of 1976. Its main purpose is to establish the Property Practitioner Regulatory Authority, which replaces the Estate Agency Affairs Board; to regulate the affairs of all property practitioners; to allow for transformation in the property sector and to provide for consumer protection.
Who or what is a Property Practitioner?
Any person (natural or legal) who in the ordinary course of business, for gain (i.e. against payment), holds out (i.e. this is his/her business), on behalf of another person:
- auctions; rents; sells or exhibits for sale or purchase, property or a business.
- manages property.
- negotiates such an agreement.
- canvasses for landlords/tenants/buyers or sellers of properties/businesses; or collects or receives
rental on behalf of another person. - acts as intermediary or facilitator in any of the above.
Intermediary: a person who acts as a link between people to try and bring about an agreement.
Facilitator: any activity that makes a social process easy or easier.
It also includes a homeowner’s association which does any of the above, for gain; and anyone employed by a property practitioner to do any of these things on his/her behalf; and includes anyone who sells, or markets time share or fractional ownership; and includes:
- anyone who is employed to manage / supervise the day-to-day business operations of a property
practitioner (office manager); and anyone who arranges: - financing for a sale or lease.
- bridging finance (i.e. where a seller wants to take an advance against the proceeds of his sale) or,
- acts as a bond broker, (someone who helps a buyer apply for a loan with the banks) except if either of these, fall within the definition of a “financial institution” under the Financial Services Board Act.
It includes directors of companies; members of CC’s and trustees of trusts, if the entity does any of the above; and, any attorney or person employed by an attorney who renders these services except if that person must hold an FFC with the Attorneys’ Fidelity Fund, and if this work forms part of the attorney’s normal practice. Anyone may apply to the Minister for exemption (partially or entirely from the Act) for up to 3 years at a time.
Section 50 of the PPA Act states that a fidelity fund certificate may not be issued to a person or entity that is not in possession of a valid BEE certificate.
To qualify for a fidelity fund certificate (FCC), every property practitioner (meaning the firm), must be in possession of a BEE certificate. The PP (firm) must have undergone a verification process with a BEE auditing company.
If you are certified, you can obtain an FFC. In terms of the Act the only time that a PP will have to have a certain level of BEE certification, is if the PP wishes to do business with an organ of state. The Act only requires that a firm is BEE compliant in such an instance.
What is an FFC?
An FFC is a certificate which is issued to every PP. Without an FFC, a PP may not trade or be paid for any work done. FFC’s are valid for 3 years, until 31 December of the year in which the FFC was approved.
If the firm is a company, then all its directors must also have one; if it is a CC, then all its members; if a
partnership, its partners; and if a Trust, all the Trustees.
What is the point of an FFC?
The point of an FFC is to provide the consumer with protection against theft of money that has been entrusted to a PP, such as money meant to buy a house, rental income or rental deposits.
In terms of the new Act, once an FFC certificate is issued to a PP and should that PP then steal money which the PP held in trust then the consumer can claim this money back from the fidelity fund. All the consumer needs to do is lay a criminal charge and be sure that the PP had an FFC at the time of the theft.
Consequences of not having an FFC:
If an entity has just one PP in its employ who does not have an FFC then the entity may not trade, which means no other PP in its employ may work legally then either.
If a PP was involved in a transaction and did not have a valid FFC at the time of the transaction, then he/she may not claim commission.
If the consumer finds out that the PP did not have an FFC at the time of the transaction, then the consumer has 3 years within which to claim it back and if the PP does not pay it back immediately, he/she will be guilty of a criminal offence.
The Act also states that if a PP does receive payment when he/she did not have an FFC, then the PP is required to pay the commission to the fidelity fund.
To obtain a BEE certificate is important to determine in which category your business falls.
QSE (R2,5 million – R35 million turnover). A QSE needs to go through a BEE audit and will need to have its status verified against scorecard verifying elements such as ownership, management, employment equity, skills development and others. QSE entities have lower targets and less stringent requirements compared to Generic entities. QSE entities which are 51% black owned will be exempt from going through a full BEE audit and can receive a level 2 BEE level via an affidavit. Generic (R35 million and above turnover). A generic company must undertake a full BEE audit with comparatively high targets for each of the elements. The Ownership element measures effective ownership of entities by Black people.
For a Generic Enterprise: 30 points on the scorecard (the total scorecard score is 117 points).
The maximum weighting points available under the Amended Property Sector Code, including Bonus Points are: Generic Entities 132 (117 + 15).
OWNERSHIP BONUS POINTS FOR GENERIC SCORECARD – A VALUE OF 27 POINTS
There has been limited support by the sector of entrepreneurial development and both public and private
sector disposal strategies have in general inadequately incorporated B BBEE objectives.
The sector commits to utilise property disposals to increase property ownership amongst black people and to contribute towards the growth of sustainable enterprises. In pursuit of this commitment, when an enterprise engages in the above activity in the sector, it commits to target 35% of total disposals to Level One (1) to Level Three (3) B-BBEE enterprises which are 51% black owned over a five-year period from the effective date of this sector code. The enterprises should be independent from the measured entity and the disposed assets must result in the creation of sustainable businesses or business opportunities in the hands of black people as well as the transfer of specialised skills or productive capacity to black people.
Contributions will be measured using a rolling 5-year period commencing on the effective date of the revised Codes of Good Practice being 2015. This means that the 35% target must be achieved at any time in a rolling 5 year period as a percentage of the total disposal of assets during that same period. A sale of fixed property may not be simultaneously counted towards the ownership score under sale of Assets, although an actual business unit may have been sold.
In each year a sub-minimum of 20% of 35% i.e. 7% must be achieved before any bonus points are awarded. Where greater disposal on any year is achieved, they can be carried forward as contribution to the next years. The bonus points will be calculated for the organisation that make disposal in line with the above clauses.
Exempted Micro Enterprises (“EMEs”)
Exempted Micro Enterprises (“EMEs”) will be exempt from obtaining a B-BBEE verification certificate and will automatically be awarded a level 4 recognition however, if black ownership exceeds 51%, the enterprise will be awarded a recognition level of 2 and a 100% black-owned EME qualifies for level 1 status.
Any enterprise with an annual total turnover of R10 million or less qualifies as an Exempted Micro-Enterprise. An Exempted Micro-Enterprise is initially deemed to have a B-BBEE Status of “Level Four Contributor” having a B-BBEE recognition level of 100% as per the Amended Codes of Good Practice recognition level with zero black ownership.
Enhanced B-BBEE recognition level for an Exempted Micro-Enterprise:
Exempted Micro Enterprises are allowed to be measured in terms of the Qualifying Small Enterprise (“QSE”) scorecard should they wish to maximize their points and move to the next procurement recognition level.
June 2024