The Property Regulators tactical retreat on BEE

The PPRA’s tactical retreat on B-BBEE and what to do next

Dear Friends in the property business

Last week, faced with the prospect of a defeat in court, the PPRA moved into a tactical retreat on its level 8 BEE requirements.

This is a victory for Sakeliga, industry bodies, and the businesses that contributed to make it possible. On one of three counts the industry is now on a much better footing. This letter takes stock of the progress, the remaining risks, and recommends the next steps for you.

The progress achieved

Last week the PPRA’s board chairman sent a letter to REBOSA.

The letter relayed that the PPRA had sought legal advice and would no longer be requiring level 8 B-BBEE certificates with new FFC applications.

At last, its counsel had confirmed what our legal team had spelt out in letters of demand to the PPRA: that the Act’s reference in section 50(a)(x) to a valid BEE certificate cannot be construed to mean a certificate of BEE compliance – not at level 8 nor at any other level.

While the PPRA’s retreat is an important tactical victory, the way in which it was done is concerning and should leave no room for complacency.

Notably, as the PPRA board chairman makes clear, the PPRA backed down on legal grounds alone.

Not only does his letter lack an apology, but it shows, more importantly, no acknowledgement whatsoever of the disruption, ethical complications, and already-incurred costs that come with being threatened with restriction of economic participation based on race.

Remarkably, the PPRA also failed to make a public announcement.

After nearly five months of extreme disruption, costly legal procedures, and existential threats to thousands of businesses far beyond just estate agents, the PPRA expects you to be satisfied with second-hand information.

Its board chairman (as far as we could determine) merely drafted a letter to only one among dozens of industry bodies.

This is not only unprofessional but a wholly inappropriate way to communicate official regulatory policy.

It points to a desire to do the minimum to avoid litigation while keeping all options open to review its position in future or avail itself of alternative means to the same ends.

The way forward

The retreat by the PPRA from its level 8 requirement removes, for the time being, the most urgent element of the threat Sakeliga highlighted in April and on which we were preparing court papers.

However, two of the three elements we pointed out remain.

First, there is the Act’s requirement that not only estate agents, but all property practitioners must have a fidelity fund certificate.

This improperly expands the reach of the PPRA over thousands of businesses and trillions of rand of turnover. This should be reversed.

When the Property Practitioners Act replaced the old Estate Agencies Affairs Act in 2022, it shifted its focus from “estate agents” to the newly minted concept of “property practitioners.”

Today, Fidelity Fund certificates are required not only of estate agents who hold money in trust, but of all “property practitioners” spanning twelve different industry categories with vastly different businesses, including estate agents, property developers, property administrators, landlords, homeowners’ associations, auctioneers, bond originators, etc.

Second, the Act still stipulates that fidelity fund certificates may only be issued to applicants with a valid B-BBEE certificate.

At least for now, the PPRA is reverting back to accepting that “valid” cannot be taken to mean “compliance” with B-BBEE, yet the certification demand is itself an unjustified, costly, and harmful infringement on the freedom to do business and serve society.

The certificate requirement serves no legitimate government purpose, since there is no relationship between fulfilling the inherent requirements for a fidelity fund certificate and having a B-BBEE certificate or not.

The requirement itself should be scrapped. Adding insult to injury, the certificate requirement extends even to those thousands of businesses that do not participate in BEE, bizarrely requiring them to fork out in the region of R10 000 every year just to buy and submit a “valid” yet “non-compliant” B-BBEE certificate.

Reversing third wave BEE in the property industry

Thanks to your support, Sakeliga is able to evaluate threats in a larger context than just one industry.

What the PPRA is doing is not an isolated matter but part of a broader strategy in which state regulators use a two-phased approach to enforce BEE. This twophased threat has not been staved off permanently by the latest PPRA move, only temporarily.

In phase one, the foundation is laid.

First, where feasible, the state redefines an industry in a way that vastly extends the reach of its regulator. The regulator then gradually implements compulsory BEE reporting, though usually without attaching significant penalties to noncompliance, as if the reporting is only for statistical purposes.

In phase two, with the Trojan horse in place, the regulator starts enforcing compliance on an industry now used to BEE reporting.

The pretence is dropped and gradually all businesses – even those who have no contracts with the state – are required to comply with ever-increasing B-BBEE demands or face prohibition from doing business at all.

We call this approach the third wave of BEE, because it is no longer focussed just on big corporates like the first wave in the 1990s, nor is it focussed on businesses with state contracts like the second wave thereafter.

Businesses in South Africa find themselves at the cusp of this third wave of BEE, and it is crucial to stop it in its tracks before it becomes the new norm, spins out of control, and wreaks havoc with business, the public, and the country.

The property industry has just had great success in preventing the PPRA from implementing phase two of its BEE strategy.

However, if we do not also roll back phase one before it becomes firmly established, the industry will find it very difficult to maintain its freedom to trade.

Next steps

Rolling back phase one requires that Sakeliga continues with its court challenge.

We must put at least two crucial questions to the court:

1. Is it acceptable that unrelated businesses dealing with property in completely distinct ways are grouped as a single profession under a single regulator?

2. Is it acceptable and for a lawful governmental purpose that B-BBEE certification becomes a prerequisite for participation in the economy?

Since aspects of BEE are involved in the matter, the court case will be complicated and entail risk. However, the alternative is worse. The alternative is that the regulator continues down its path of strangling the industry and establishing political entry-requirements for economic participation.

Our recommendations

Given the recent progress, but also the remaining risks, we recommend the following:

1. Businesses that have been denied an FFC based on B-BBEE compliance should reapply. If you are denied again, please let us know immediately.

2. Continue to do business on the basis of value, including with customers and partners from across communities and race groups. This can be done without and regardless of BEE. Where you are forced by government policy to compromise, do so within a framework of maximum achievable noncompliance.

3. Support Sakeliga to challenge BEE in the courts and beyond.

4. Encourage your industry body to remain firm and insist that it does not commit you or your industry to blanket compliance with political demands.

Sincerely,

Piet le Roux

CEO

Sakeliga