Strict BEE laws in South Africa declared invalid and set aside
The High Court has ruled that Black Economic Empowerment (BEE) compliance rules in South Africa’s property sector are unconstitutional and invalid, setting them aside.
The rules in question relate to operating licences or Fidelity Fund Certificates (FFCs), which must be issued for property practitioners to operate in the country.
Operating without an FFC is a criminal offence.
The Property Practitioners Regulatory Authority (PPRA) operationalised a policy in April 2024 where FFCs would be denied if applicants did not meet specific BEE requirements.
Specifically, the authority warned practitioners that they would not be issued certificates unless they met the “accepted level of compliance” of 40 points or more (BEE Level 8).
This was “non-negotiable”, it said.
The need for a BEE certificate has been part of the Property Practitioners Act (PPA) since it was enacted in 2022, in section 50(a)(x).
However, until April 2024, FFCs were issued based on the requirement to have a valid BEE certificate, not necessarily on BEE compliance.
The new rules faced immediate backlash from the property sector, and business group Sakeliga launched legal action against the PPRA to prevent the authority from blocking the issuance of certificates.
Sakeliga argued that the requirement of a “valid BEE certificate” cannot be construed with “BEE compliance” at any specific level.
The PPRA then hit reverse in August 2024, stating that it would not withhold the certificates. This was because it had been advised that “valid” did not mean “compliant”, echoing Sakeliga’s point.
However, Sakeliga continued its court battle, challenging the rules as a whole, homing in on section 50(a)(x) and what it said was an overbroad definition of a property practitioner.
In the new ruling, issued on 8 September, the business group secured a major victory.
“The Pretoria High Court has declared unconstitutional the requirement that estate agencies and other property businesses possess a BEE certificate to obtain permission to operate,” the group said.
This “immediately frees all those defined in the legislation as property practitioners from compulsion to participate in BEE, and saves millions of rands in resources that would otherwise be wasted on BEE compliance and certification,” it said.
Fundamental section invalid
In its ruling, the High Court struck down section 50(a)(x) of the Property Practitioners Act 22 of 2019, saying that it creates too much uncertainty.
While the objective of the rules is clear, the wording, definitions and requirements are not.
This was demonstrated by the PPRA adopting two contradictory interpretations of the rules within just a few months, the court said.
Not even the authority responsible for the rules knew what was meant.
Section 50(a)(x) provides that the Authority may not issue a Fidelity Fund certificate to “any person” who is not “in possession of a valid BEE certificate”. However, the PPA does not define that expression.
“Neither the PPA nor the applicable statutory framework identifies with reasonable certainty what document is required, from whom it is required, or what substantive standard must be satisfied for the document to be ‘valid’,” it said.
“Those affected by the provision, and the Authority charged with administering it, cannot determine those matters from the legislation with reasonable certainty…s 50(a)(x) therefore fails the requirement of legal certainty inherent in the rule of law.”
In its order on remedy for this, the court said that “Section 50(a)(x) cannot be cured by severance or reading-in.”
This would require the court to select the relevant proof of B-BBEE status, identify the person or entity from whom this is required, and determine the applicable substantive standard.
Those, it said, are legislative choices, not matters of interpretation, and supplying them would create a new compliance mechanism and exceed the limits of permissible reading in.
Because of this, the entire section has been declared invalid, leaving Parliament to decide whether, and on what terms, a transformation-related condition should attach to Fidelity Fund certification.
Because continued enforcement would permit certificates to be withheld under a constitutionally defective provision, the court said the declaration should not be suspended.
The declaration of invalidity should operate prospectively and not affect Fidelity Fund certificates already issued, it said.
Immediate relief
Sakeliga said the impact on affected individuals and businesses is immediate.
“The PPRA may not refuse a Fidelity Fund Certificate on the grounds that an applicant does not hold a BEE certificate,” it said.
Other victories in the case related to the “overbroad” definition of property practitioners, which caught many small businesses and private individuals in the net.
“Effective immediately, private owners, certain advertisers, and persons dealing with specified property interests outside the ordinary course of business are no longer regarded as ‘property practitioners’,” Sakeliga said.
Since the judgment concerns findings of unconstitutionality of an Act of Parliament, it will be referred to South Africa’s Constitutional Court for confirmation.
Upon confirmation, Parliament will have 24 months to correct the overbroad definition. It will be up to legislators to decide how to move the certificate issue forward.
Sakeliga added that not all of the relief it sought was granted. To this end, it said it was “assessing further legal options” and committed to continuing to fight similar laws.
“Sakeliga considers the use of licensing for race-restrictive purposes an unacceptable barrier to and infringement on the freedom to trade,” it said.
“This victory demonstrates that compulsory BEE is not an inevitable condition of doing business.”
The full judgment can be read below:
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