The new Property Sector Code for Broad-Based BEE (“the Code”) was gazetted and is effective as of 1 June 2012. The Code applies broadly to enterprises engaged in the property sector in property ownership or the provisioning of property services in both residential and commercial markets.
The scope of the Code is intended to be as broad as possible and includes estate agents, property developers, commercial letting agents, the office and leisure property industry, property valuators and more. It does not however include property enterprises operating outside of South Africa or property financing such as mortgage loans, loan securitisation or even properties that are owned, leased or used for the conducting of the business of an enterprise, such as a subsidiary property company owning the business properties of the enterprise.
Importantly, the Code, previously only a transformation charter, has now been promulgated as a sector code of good practice. BEE verification agencies have to apply the Code to property enterprises that fall within its ambit. In practice there is usually some delay between the promulgation of a new sector code and the ability of verification agencies to verify entities under the new code. In the interim the default Department of Trade and Industry Codes of Good Practice (“Generic Codes”) will still be applied by agencies until they are qualified to verify enterprises under the new Code.
The Code states a number of transformational objectives, similiar to many of the other sectoral codes and charters. The primary intent of the Code can be found in its stated objectives read with the scorecard elements and essentially aims at increasing property ownership and control by Black people and Black women in both the residential and commercial property sector in addition to establishing a broad-based element in general property development as well as property development in under-resourced areas.
In furtherance of this aim, the Code introduces a unique additional element to its BEE scorecard, namely “Economic Development”. This element measures the scope of investment in developments in under-resourced areas and requires property developers to commit to spend up to 10% of their new development budget in under-resourced areas. Additionally, it requires enterprises involved in property disposals to dispose up to 35% of its properties to Black owned enterprises.
The Code provides a sector-specific delineation as to which enterprises are deemed to be Exempted Micro Enterprises (EME) and which are Qualifying Small Enterprises (QSE). This delineation differentiates between 1) asset based enterprises, 2) service based enterprises and 3) estate agents/brokers.
The following table shows which type of enterprise (depending on predominance) will qualify as a QSE under the Code:
A QSE however must obtain a certificate and must select any 4 of the available 8 elements of the Property Scorecard when being verified.
A generic enterprise i.e., an enterprise with net assets or turnover exceeding that for a QSE (as per the above table) must comply with all 8 elements of the scorecard which totals 107 points, unless exempted from an indicator in terms of the Code.
The Code recognised the peculiarities of the divergent enterprises operating in the property sector, and acknowledges this multiplicity by allowing enterprises to be addressed differently through the different indicator exemptions available to different types of enterprises. Careful scrutiny of the Code is necessary for each enterprise to ensure that they are exempted where appropriate, but flexibility is available for each property business to be addressed according to its type.
The Code contains the expected targets and deadlines for ownership and management transformation, in essence requiring enterprises to achieve 25% Black ownership over the next 5 years and 50% management control in the hands of Black people over the next 10 years.
The monitoring structure under the Code is the Property Sector Council (“the Council”) as a representative body of sectoral stakeholders. The Code requires enterprises in this sector to annually submit a verified BEE report to the Council which report will be made publicly accessible. No consequences for failure to comply is indicated, and it appears that submission is required for monitoring of progress in the sector, with a review of the Code scheduled in 5 years time.
In respect of estate agents, it is interesting to note that a number of exemptions apply to assist the smaller residential estate agencies in complying with the scorecard. However, the threshold for an estate agent to qualify as a QSE under the Code has been reduced from R5m under the Generic Codes, to R2.5m, thereby only exempting small agencies.
In general the Code provides more of the same as with the other sectoral charters. Although stringent targets for BEE compliance are established, much will be in the hands of the sector itself to create initiatives and mechanisms for achieving these targets. The Code is detailed and provides scope for flexibility, yet guidance and clarification will be needed from the Council and verification agencies verifying enterprises under the Code to ensure that the detail of what is expected from all stakeholders is fleshed out and clearly understood.
For guidance on whether your business resides under the Code and what the implications may be for your business, please consult with a BEE specialist or attorney to ensure that you prepare and proactively plan for compliance with the Code requirements.