Lawsuit Filed Against State Over Estate Agent BEE Initiative

The lobby organization Sakeliga has submitted documents to the North Gauteng High Court challenging the Property Practitioners Regulatory Authority (PPRA), along with the ministers of Human Settlements, Water and Sanitation, and Trade, Industry and Competition. This legal action is in response to the PPRA’s decision to stop issuing fidelity fund certificates to businesses that do not meet BEE compliance standards. The documents were filed in mid-December and publicly released on Friday.

Property practitioners, including real estate agents, are legally required to hold fidelity fund certificates to conduct their business.

Read:
Licences under threat as financial regulator eyes BEE [Mar 2024]
Legal challenge against legal sector BEE code …[Jan 2025]

In April, the PPRA cautioned property sector practitioners that non-compliance with black economic empowerment (BEE) legislation could lead to their ineligibility to obtain or renew a fidelity fund certificate (FFC).

The PPRA’s legal and acting transformation manager, Deli Nkambule, emphasized in March that “an FFC will only be issued if a compliant BEE certificate is included in the application.”

“A compliance score of 40 points or higher (BEE Level 8) is required.

“A BEE certificate will not be granted if the score is below 40 (rendering it non-compliant).”

Subsequently, the PPRA sent a formal notice to practitioners in April and began to deny the issuance of certificates to those who had not provided “valid” BEE certificates by the end of that month.

Read: After warning FSPs, state now threatens estate agents on BEE [April 2024]

After facing pressure from various stakeholders, including Sakeliga’s public campaigning, the PPRA quietly reversed its stance.

In August, its chair communicated with the estate agent industry organization Rebosa (Real Estate Business Owners of South Africa).

Read: Regulator quietly ditches plan requiring BEE for fidelity fund certificates [Sep 2024]

The PPRA indicated in its letter that it had sought legal counsel and would no longer require Level 8 B-BBEE certificates for new FFC applications.

Legal action

Sakeliga’s legal action seeks two main objectives:

1. To revise the definition of property practitioner in Section One of the Property Practitioners Act (22 of 2019); and
2. To compel the PPRA to cease requiring BEE certificates when issuing fidelity fund certificates.

The organization contends that the current definition of property practitioner in the act is excessively broad, encompassing “individuals such as property owners selling or renting properties without the assistance of an agent or intermediary, property developers selling or renting their own properties independently, individuals managing others’ properties for compensation, homeowner associations, [and] body corporates.”

Sakeliga aims to narrow this definition, asserting that the “legitimate purpose of the Act is to regulate the profession specifically identified as ‘Estate Agents’ who professionally engage in letting, selling, or managing properties on behalf of others.”

Sakeliga claims this would liberate most property-related businesses from unnecessary regulatory inclusion.

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Moreover, it argues that Section 50(a)(x) of the Act, which bars individuals without a valid BEE certificate from receiving a fidelity fund certificate, violates Section 22 of the Constitution.

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

Sakeliga emphasizes that “participation in BEE is irrelevant to managing client funds diligently and ethically,” which is the primary purpose of fidelity fund certificates.

Ultimately, it contends that “a B-BBEE certificate serves as a political tool of the state rather than a business necessity.”

‘Third wave’

Sakeliga refers to the PPRA’s actions as the “third wave” of BEE, following the initial phase (non-statutory since 1994) and the second phase (statutory from 2004). It describes this as a significant development.

“First, the initiative aims to extend the state’s reach by subjecting previously unrestricted economic activities to regulatory oversight or explicit licensing.

“Subsequently, it attempts to condition this approval on BEE compliance.”

Recent instances of this trend include the PPRA’s attempt to impose BEE requirements for fidelity fund certificates and the Financial Sector Conduct Authority’s (FSCA) demand for transformation plans from participants, which may ultimately result in the withholding of licenses from non-compliant entities.

Read:
SA to revamp regulations for financial institutions to align with peers
Licences threatened as Sahpra demands more BEE compliance in healthcare sector

Last year, the South African Health Products Regulatory Authority (Sahpra), which oversees health products—encompassing manufacturers, wholesalers, and distributors—introduced a new policy that necessitates BEE certificates from applicants submitting a license request.

In its fresh produce market inquiry, the Competition Commission is also pursuing the implementation of several BEE restrictions for marketing agents operating within the fresh produce value chain.

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