The Property Sector Transformation Code: Estate agent’s take note

• Africa
• South Africa

• Real estate
• Real estate sector

16-08-2019

The Property Sector needs to be aware of the Property Sector Transformation Charter Code (“the Property Charter”) as Section 20(1) of the Property Practitioners Bill (“the PPB”) states that:

“The Property Sector Transformation Charter Code, as amended from time to time, applies to all property practitioners.”

The Property Charter establishes a framework and principles upon which B-BBEE will be implemented in the sector and as envisioned in the Broad-Based BEE Act (No 53 of 2003) and the DTI Codes of Good Practice on B-BBEE. It lays the basis for the development of a code of good practice for the property sector, as envisioned in Section 9(1) of the B-BBEE Act and it sets up targets in respect of each element of B-BBEE and outlines processes for implementing commitments contained in the Property Charter and provides mechanisms to monitor and report on progress.

Once the PPB becomes law, one of the requirements for the issue of a Fidelity Fund Certificate will be a valid BEE certificate. (Section 50(a)(x)) and in order to obtain a BEE certificate, the Code will have to be complied with.

The Amended Property Sector Code was published in the Government Gazette on 9 June 2017. This amended sector code applies in particular to all enterprises engaged in property ownership or the provision of property services, and includes without limitation, practitioners and enterprises engaging in property development.

Its aims and objective are as set out in its preamble as follows:

• Constitutes a framework and establishes principles upon which Broad Based Black Economic Empowerment (B-BBEE) will be implemented in the property sector; and
• Establishes targets and qualitative undertakings in respect of each element of B-BBEE; and
• Outlines processes for implementing the commitments (to transformation) contained in the Property Charter and creates mechanisms to monitor and report on progress.

Exempted enterprises (EME)

Businesses falling below certain thresholds are totally exempted from specific compliance with B-BBEE requirements.

Property enterprises whose businesses are “asset-based” are exempt if the net assets of the business are less then R80 million. Enterprises who are “services based”, for example property management companies, will be exempt if turnover is below R10 million.

Estate agencies, however, are only treated as EMEs (and exempt from the B-BBEE requirements) if annual turnover is below R2.5 million.

Subject to certain qualifications, a new business will be treated as an Exempted Micro Enterprise for the first year.

Qualifying small enterprises (QSE)

An estate agency having an annual turnover of over R2.5 million and below R35 million, may fall into the category of QSE, which is an enterprise with assets of less than R400 million for asset-based enterprises and an annual turnover of less than R50 million for service-based enterprises.

These are enterprises with assets of less than R400 million for “asset-based” enterprises and an annual turnover of less than R50 million for “service-based” enterprises.

Generic category

Estate agencies with an annual turnover of more than R35 million will fall into the Generic (unlimited) category. Other service-based property businesses will only fall into this category if they have an annual turnover of more than R50 million.

Implementation of the Property Charter

The Property Sector Charter Council will oversee the implementation and entities within the property sector will be encouraged to contribute towards funding the Charter Council, which funding will be recognised as Enterprise Development or Supplier Development enabling entities to buy points by contributing to the costs of the Council.

Key principles in measuring B-BBEE compliance:

• Substance taking precedence over legal form;
• Misrepresentation being dealt with in harmony with the B-BBEE Act;
• Splitting of enterprises to enable qualifying could be an offence; and
• Representations relating to compliance must be supported by evidence.

Ownership

The Ownership element measures effective ownership of entities by Black people. Targets for ownership of service rendering property sector companies (e.g. estate agencies) are as follows:

• at least 27% ownership and economic interest held by black people and 27% exercisable by black people in such enterprises;
• at least 10% ownership and economic interest held by black women and 10% votes exercisable by black women in such enterprises;
• at least 3% participation in ownership and economic interest held by broad-based ownership schemes and/or designated groups; and
• at least 3% participation in ownership and economic interest held by new entrants.

Companies are given 10 years, in annual increments, to achieve 50% black ownership.

Management control

Management Control measures the effective control of entities Black people and the targets for Management Control of estate agencies are: -

• 50% of voting rights must be held by black people at board level, one half of which must be held by black females;
• 50% of executive directors must be black, half of which must be black females; and
• 60% of the executive management must be black, half of which must be black females.

Employment equity

Employment Equity measures initiatives intended to achieve equity in the workplace under the Act, and the Employment Equity Act. And the targets are: -

• 50% of all agents must be black and 35% must be black females;
• 35% of total management team must be black and 18% must be black females; and
• 30% of administrative team must be black.

Skills development

The Skills Development element measures the extent to which employers carry out initiatives designed to develop the competencies of Black employees and Black people internally and externally. Targets are set for enterprises to use a percentage of their income for skills development, learning programs, apprenticeships and internships and in order to qualify for the full quota of points.

Enterprise and supplier development

This element measures the extent to which entities buy goods and services from Empowering Suppliers which are Exempted Micro Enterprises or Qualifying Small Enterprises with at least 51% Black Ownership. This element also measures the extent to which enterprises carry out initiatives intended to assist and accelerate the growth and sustainability of black enterprises.

Socio-economic development

This element measures the extent to which entities carry out initiatives that promote access to the economy for Black people contributing towards Socio-Economic Development or sector specific initiatives.

Economic development

The Economic Development element is the unique element of the amended Property Sector Code, measuring the extent to which entities contribute towards development in under resourced areas.

Conclusion

Qualifying enterprises will have to submit a B-BBEE report, a certificate and a scorecard, verified by an accredited BEE verification agency, to the Charter Council on an annual basis in in order to receive their BEE certificate, which is one of the requirements for the issue of a Fidelity Fund Certificate.

It is of vital importance for all owners of estate agencies to be aware of the intricacies of the Bill and Property Charter and prepare themselves for compliance.