From the CEO

Competition Commission Code of Conduct

On 6 October 2019, the Competition Commission released a draft “Code of Conduct”, requesting members of SAPOA to sign it

This document suggests that the Commission may be moving away from trying to engage in direct rental regulation. However, we are concerned that the document still contains a number of problematic provisions, and would purport to bind the entire industry on a “voluntary basis” or risk facing regulation. SAPOA obtained an opinion from CDH and sent a letter to the Commission on 11 September 2019, advising the Commission that it is very concerned by the Grocery Retail Market Inquiry’s (GRMI’s) initial findings on rentals and the decision to issue the Code of Conduct with such limited opportunity for engagement by affected parties.

We have concerns regarding the process adopted in relation to both the Code and the GRMI’s consideration of rentals in the market for lettable retail property. At the outset, SAPOA disagrees that the market for lettable retail property is characterised by structural competition concerns, discriminatory rentals or the prevalence of unfair practices engaged in by owners of lettable retail property against tenants and prospective tenants.

The leasing practices of owners of lettable retail space, and specifically rentals, escalations and related contractual arrangements, are complex matters distinct from the issue of lease exclusivity in retail property as identified in the terms of reference and statement of issues published by the GRMI. SAPOA was not aware that interventions in rental pricing were being considered within the context of the GRMI. Had there been notice that rental pricing formed part of the GRMI process, we have no doubt that our members would have participated vigorously and constructively in the GRMI process on rentals, escalation rates and related contractual arrangements.

We are of the view that by not formally expanding the scope of the GRMI to consider rentals, escalations and related contractual terms, the GRMI has missed an opportunity to properly consult and gather facts from stakeholders. Although we are aware that some of our members have now, at a very late stage in the GRMI process, received requests for information regarding rentals after the publication of the preliminary report, this process has not afforded stakeholders sufficient time to appreciate the full import of the Commission’s process and the basis for the findings about inequity in the market for lettable retail property insofar as rentals, escalation rates and other contractual arrangements are concerned. We do not believe it is reasonable of the GRMI to expect parties to comment on the Code within a period of four business days. Stakeholders must be given an opportunity to meaningfully engage with the issues underlying the

Code. The Code will have a fundamental impact on the market for lettable retail space, and there are many difficulties with the current draft from a practical and legal perspective. There are also many areas of the Code that need to be explained by the GRMI before stakeholders can meaningfully engage with it.

We are fully aware of, and support, the imperative for South African businesses to support small, medium and blackowned businesses in order to grow the economy and create jobs. We are, however, concerned that the Code in its current form has not been prepared based on enough empirical data to ensure that no unintended adverse consequences arise, both for the economy and jobs and for the “designated class” of more vulnerable tenants.

Material concerns harboured by SAPOA include the potential that the Code may result in higher prices where tenants are no longer able to aggressively negotiate for differential terms. In addition, the requirement to give transparent insight into how a given firm’s rentals are determined, differences in rental levels and a push by the Code to ensure escalation uniformity may well have the effect of reducing competition in what is currently a very competitive market.

There are examples where measures imposed in the UK energy market aimed at increasing price transparency and uniformity in the pursuit of increased “fairness” have resulted in significant harm to users of electricity by increasing overall energy prices. Intervention in the mechanisms for determining prices (rentals and escalation rates) in a dynamic and competitive market for lettable retail property should be done

with great circumspection and based on credible and wide-ranging empirical economic assessment

We submitted that the GRMI’s preliminary report does not contain a proper basis to justify any intervention, and questioned the need for a Code of Conduct to achieve this where there is no evidence of widespread mala fides by property owners and where there are other pieces of legislation administered by specialised regulators that would offer more effective protection to members of the designated class, including the Consumer Protection Act, No. 68 of 2008. We also stated that we wish to engage with the Commission further on this very important matter, and would therefore request that the Commission not seek to address rentals, escalation rates and related contractual terms within the very limited amount of time remaining in the current GRMI process.

The Commission responded by advising that they would like to engage with SAPOA, and a meeting was held with the Commission on 18 September 2019. At this meeting, SAPOA asked the Commission to engage with its members directly, and a meeting was held with SAPOA members at Head Office on 30 September to facilitate an informal discussion. After hearing the concerns, the Commission advised that SAPOA should draft a document and present it to the Commission.

We have sent out an invitation to our members to be nominated to a Task Team, and the Task Team was established to discuss the way forward and to consider a Code of Conduct or a best practice document.

The danger facing members is that, should only a few of the members sign the Code, the Code would be binding on only those members who sign it. It would result in an anomalous situation of some members being bound by the Code and some members not.

PROPERTY REVIEW

ON THE COVER As we head towards the annual property sector shutdown, we take a look at what is affecting the industry. Legal matters give an overview of the Property Practitioners Bill, David Green, SAPOA's President outlines some of SAPOA's achievements during the first half of his tenure. This year we feature some of the industry's CSI initiatives. The voice for the industry

3 From the CEO

6 From the Editor’s desk

8 David Green Public partnerships, the answer?

16 Legal update A brief overview of the Property Practitioners Bill

28 Eskom The roadmap for Eskom 2019,

and its impact on the IPP industry

32 CSI Abcon Group Foundation driving transformation`

46 Property market overiew Residential property market

is beginning to stabilise

61 Cost report Operating Cost Report

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State of city finances Financing climate adaptation

and resilience in South African cities

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82 Howmuch.net Visualise the entire world’s wealth inequality

Networking

Off the wall Holograms You Can See, Hear, and Feel

Published by SAPOA, Paddock View, Hunt’s End Office Park, 36 Wierda Road West, Wierda Valley, Sandton PO Box 78544, Sandton 2146 t: +27 (0)11 883 0679 f: +27 (0)11 883 0684 FOR EDITORIAL ENQUIRIES, email mark@mpdps.com

Editor in Chief Neil Gopal Editorial Adviser Jane Padayachee Editor Mark Pettipher Copy Editor Ania Rokita Taylor Public Relations Officer Maud Nale Production Manager Dalene van Niekerk Designer Fanie van Niekerk Sales Pieter Schoeman: pieter@mpdps.com Finance Susan du Toit Contributors xxxx xxxx xxxx xxxx xxxx Photography Mark Pettipher DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright South African Property Owners’ Association (SAPOA). All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from SAPOA. The publishers are not responsible for any unsolicited material.

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1 BCX Head Office. Architects: SVA International 2 Akwa Hotel. Architects: SAOTA 3 Menlyn Learning Hub. Architects: Boogertman + Partners 4 West Hills Mall in Ghana. Architects: ARC Architects

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