Is BEE compliance a legal requirement for estate agents?

Posted on:
3 Oct 2018
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Commercial, Property
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“I run a small estate agency in town. I’ve recently listened to a radio discussion that implied estate agencies will also have to be BEE compliant and get a BEE certificate. Is this true? I’m a small agency and cannot imagine that BEE compliance would be applicable to my business?”

It must be appreciated that BEE compliance has become a key aspect of doing business in South Africa. Through the application of industry sector charters as well as the pervasive impact of preferential procurement, it is nearly unavoidable in today’s times for any business to be BEE compliant. The property sector is no different, with even estate agents currently facing a situation where compliance may very soon become a real condition to being allowed to practice as an estate agent.

The draft Property Practitioners Bill was gazetted on 31 March 2017 for public comment, seeking to replace the current Estate Agency Affairs Act. Section 49 of the Bill contains a list of qualifying criteria for the issuing or renewal of a Fidelity Fund certificate, and includes a new requirement that a Fidelity Fund certificate may not be issued to any property practitioner (which includes an estate agent or agency) who is not in possession of a BEE certificate.

The significance of the above requirement is that once the Property Practitioners Bill becomes law, a property practitioner will not be able to renew their Fidelity Fund certificate without also having a valid BEE certificate. Should a property practitioner, or every director or member in the case of the property practitioner being a company or close corporation, not be in possession of a valid Fidelity Fund certificate, they are not legally allowed to receive any commission, remuneration or payment in respect of or arising from the sale or lease of any property, and will also be guilty of an offence which could lead to a fine or imprisonment if convicted – serious consequences for not having a Fidelity Fund certificate, which will now also be linked to having a BEE certificate.

The Bill does not specify the specific requirements or level for the BEE certificate, so it can be assumed that a valid BEE certificate meeting the minimum level of BEE compliance will be sufficient to meet this requirement.

But, to meet the minimum level of BEE compliance and get a valid BEE certificate, an estate agent or agency will have to comply with the targets and requirements as set out in the Property Sector Code for BEE. The only exemption is where the estate agency’s annual turnover is less than the threshold set for Exempt Micro Enterprises (“EME’s”), in which case the estate agency will be exempt from having to comply with the scorecard elements of the Property Sector BEE Code (“Property Code”) and will qualify the estate agency as an automatic Level 4 contributor to BEE.

Although this sounds like good news given that many estate agencies are relatively small, it must be noted that the thresholds in the Property Code applicable to estate agents is much lower than that of the Amended Generic BEE Codes (“Amended Codes”). The threshold for EME’s under the Property Code is set at R2,5 million turnover per year as opposed to R10 million per year under the Amended Codes.

This limits the impact of the exemption to the smallest estate agencies which have an annual turnover of less than R2.5 million. The threshold for QSE’s under the Property Code is also lower than under the Amended Codes and set at between R2.5 million and R35 million, with estate agencies with an annual turnover of R35 million or more, having to report under the Generic scorecard of the Property Code. The turnover of an estate agency will be based on income or commission received by the estate agency and not the sales values of property being sold.

More than a year has passed since the publication of the draft Property Practitioners Bill for comment, and to date there is still no clear indication of when it will be formally adopted. That said, it would be dangerous for any estate agency to become complacent. Should the Bill be passed and your annual turnover is above R2.5 million you have to undergo a formal BEE verification audit in order to obtain a BEE certificate. Such verification audit is usually based on your latest completed financial year and if your BEE planning is not in place with the necessary initiatives undertaken, you may be caught off guard in the event of the Bill being finalised and not be able to renew your Fidelity Fund certificate. The Bill then determines that this may require you to repay any commission, fees or remuneration received from the sale or lease of a property, failing which you could be guilty of an offence.

Given the grave consequences of not renewing your Fidelity Fund certificate without a BEE certificate once the Property Practitioners Bill is finalised, it is advisable, where your estate agency turnover is above R2.5 million, to consult with a BEE specialist to help you plan to meet the requirements of the Property Code and be BEE compliant.

This article was first published in Phatshoane Henney Attorneys’  September 2018 Newsletter.

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