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Property Sector – BEE Ownership Element

1. Introduction and Applicability

  • 1.1 Sector Code Overview: The Amended Property Sector Code provides a framework for measuring B-BBEE compliance specifically within the property sector in South Africa. It aims to address the unique characteristics of this sector, including its significant contribution to the economy, the historical disparities in property ownership, and the long-term nature of property investments.
  • 1.2 Scope of Application: The Property Sector Code applies to a wide range of property-related activities, including:
    • Commercial property ownership and management
    • Residential property development and management
    • Property valuation
    • Estate agency services
    • Property development
    • Facilities management
    • Asset management (related to property)
    • Property investment
    • Excludes construction activities (covered by the Construction Sector Code) unless those activities are integral to the property company’s operations.
  • 1.3 Legal Basis: Section 9(1) of the Broad-Based Black Economic Empowerment Act (No. 53 of 2003, as amended) and the Amended Property Sector Code (Government Gazette No. 40910, 09 June 2017).
  • 1.4 Effective Date: 09 June 2017.
  • 1.5 Precedence: This Sector Code supersedes the Generic Codes for entities within its scope.

2. Ownership Scorecard and Thresholds

IndicatorWeightingTarget
Exercisable Voting Rights (Black People) 4 points 25% + 1 vote
Exercisable Voting Rights (Black Women) 4 points 10%
Economic Interest (Black People) 4 points 25%
Economic Interest (Black Women) 4 points 10%
Economic Interest (Black Designated Groups/Broad-based schemes) 4 points 10%
Net Value 11 points See Below
Subtotal 31
Bonus Points: Economic Interest (Black New Entrants) 2 points 2.5%
Total 33 points
Net Value Target: Based on a phased-in approach, linked to “years of recognition.” The target is expressed as a percentage of 25%.
  • 2.1 Ownership Scorecard: As above
  • 2.2 Priority Element Status: Ownership is a priority element.
  • 2.3 Subminimum Requirements: 40% of the Net Value points (i.e., 40% of 11 points = 4.4 points).
  • 2.4 Entity Size Thresholds:
    • EME Threshold: Annual Total Revenue and/or Total Asset Value of R2.5 million or less. Note: This is different from the Generic Codes, which only use Total Revenue.
    • QSE Threshold: Annual Total Revenue and/or Total Asset Value between R2.5 million and R35 million.
    • Generic Threshold: Annual Total Revenue and/or Total Asset Value above R35 million.
  • 2.5 Automatic Recognition for EMEs/QSEs:
    • The usual automatic levels apply (Level Four for EMEs, Level One/Two for 100%/51%+ Black-owned EMEs and QSEs).
    • Crucially: Are there any conditions or restrictions on this automatic recognition? No. The Property Sector Code does not have a similar provision to the Construction Sector Code’s Clause 3.1.3 (restricting automatic recognition for BEPs).

3. Specific Ownership Requirements and Interpretations

  • 3.1 Unique Ownership Targets: The Property Sector Code has a higher overall points allocation for ownership (31 + 2 bonus points) compared to the Generic Codes (25 points). The targets for voting rights and economic interest are generally aligned with the Generic Codes (25% + 1 vote and 25%), but there’s a strong emphasis on Black women’s ownership (4 points for 10%) and participation by Black designated groups (4 points for 10%).
  • 3.2 Flow-Through and Modified Flow-Through: Standard Flow-Through and Modified Flow-Through Principles apply.
  • 3.3 Exclusion Principle: Standard Exclusion Principle applies.
  • 3.4 Treatment of Specific Entities: The Property Sector Code provides specific recognition criteria for:
    • Broad-Based Ownership Schemes (BBOS): Must meet specific criteria.
    • Trusts: Must meet specific criteria.
    • ESOPs: Must meet specific criteria.
  • 3.5 Multinationals: No specific provisions beyond the Generic Codes. Equity Equivalents would likely apply as usual.
  • 3.6 Ownership by Qualified Professionals/Specific Roles:
    • Not a specific requirement.
    • Crucially: Are there any requirements for ownership to be held by individuals in specific roles (e.g., executive management, as in the Construction Sector Code for BEPs)? Are there penalties for not meeting these requirements? No.
  • 3.7 Sale of Assets: No specific deviations from the Generic Codes.
  • 3.8 Private Equity Funds: Ownership by B-BBEE compliant Private Equity Funds is possible under the Property Sector Code, provided the fund meets the requirements outlined in the Generic Codes (Statement 100, paragraph 3.10). No specific provisions prevent or modify this.
  • 3.9 Other Unique Provisions:
    • Asset Value Threshold: The use of both Total Revenue and Total Asset Value for determining EME/QSE/Generic status is a significant difference from the Generic Codes. This is particularly relevant for the property sector, where asset values can be high even with relatively low revenue.
    • Property Ownership vs. Management:.

4. Areas of Uncertainty and Interpretation

  • 4.1 Ambiguities: As with the Generic Codes, valuation methodologies (particularly for property assets) and the application of the Flow-Through Principle can be areas of interpretation. The specific rules for BBOS, Trusts, and ESOPs may also require careful interpretation.
  • 4.2 Industry Practice: Industry practice is developing, and engagement with the Property Sector Charter Council is important.
  • 4.3 Potential Disputes: Valuation disputes, challenges to the legitimacy of ownership structures, and interpretation of the specific rules for various entities.

5. Deal Process, Parties, and Costs

  • 5.1 Typical Deal Structures: Direct ownership, trusts, BBOS, and ESOPs.
  • 5.2 Key Parties Involved: Property companies, developers, Black investors, community trusts, legal advisors, financial advisors, B-BBEE verification agencies.
  • 5.3 Deal Process Overview: Similar to the Generic Codes: due diligence, valuation, negotiation, legal documentation, and implementation.
  • 5.4 Cost Considerations: Similar to the Generic Codes: legal fees, valuation fees (including property valuations), advisory fees, B-BBEE verification fees, and the cost of the ownership transaction itself.

6. Gotchas and Best Practices

  • 6.1 Common Mistakes: Failing to meet the Net Value subminimum, inadequate documentation, fronting, not understanding the specific rules for BBOS, Trusts, and ESOPs, incorrectly classifying the entity based on Total Revenue and/or Total Asset Value. (Pay particular attention to any specific requirements like those for BEPs in the Construction Code). Not applicable here.
  • 6.2 Fronting Risks: High risk.
  • 6.3 Best Practices: Thorough planning, expert advice, genuine commitment to transformation, careful structuring of ownership deals, ongoing monitoring of compliance.

7. Alternatives to Ownership
Other elements include:

  • Management Control
  • Skills Development
  • Enterprise and Supplier Development
  • Socio-Economic Development
  • Economic Development (unique)

8. Conclusion

The Property Sector Code builds upon the Generic Codes but introduces several important distinctions, including a higher overall points allocation for ownership, a strong emphasis on Black women’s ownership, and the use of both Total Revenue and Total Asset Value for determining entity size. Crucially, it does not impose restrictive ownership requirements based on professional registration and executive management roles, unlike the Construction Sector Code for BEPs. The specific requirements for BBOS, Trusts and ESOPs should be carefully considered.

Please contact us for a confidential discussion around your unique BEE ownership needs.

Chapter: Sector codes:
Chapter: Sector codes:
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