The Commission for Conciliation, Mediation & Arbitration (CCMA) could lose R80m in a court battle after it bungled a tender with up-and-coming black real estate fund Milestone Property Group.
The dispute resolution body put its search for office space in Cape Town out to tender in 2013. Six years later, it is sitting with very expensive egg on its face.
Milestone, an unlisted black-owned and managed property investment company formed 10 years ago, beat larger, more established real estate companies, including Redefine Properties and Ascension Properties, in winning the bid.
It won a 10-year lease worth about R100m which would see the CCMA pay Milestone about R420,000 a month in rent. Milestone would refurbish the building and then manage it as the CCMA’s landlord.
But in 2017, four months after it was supposed to occupy the building, the CCMA reneged on the lease. That was the start of a battle for Milestone and its founder and CEO Oscar Phoku, which eventually landed in court in 2019.
The CCMA asked the high court to rule the lease agreement invalid.
However, judge Maletsatsi Betty Mahalelo upheld the lease and lease agreement earlier this month, and said the CCMA must pay Milestone’s legal costs.
Milestone is now baying for blood, saying the CCMA has damaged the business of an entrepreneurial, up-and-coming black-owned fund which was trying to make its mark in an industry dominated by larger property groups, in a very weak economic environment.
Phoku plans to sue the arbitration body for R80m in damages.
Milestone bought the building in Heerengracht in the Cape Town CBD using a R33m loan from Nedbank. When the CCMA decided not to move in, it said it had made mistakes with the BEE points system attached to the tender.
Phoku says he has "been through the ringer".
The CCMA has really wrecked things for my company and I believe justice must be done
— Oscar Phoku
"This process has lasted six years. We tried to get them in court and we succeeded and now we have won. "My company sent summons to the CCMA two years ago claiming damages of R80m. They tried to get the court to overturn the lease but they failed," he says.
Phoku says the CCMA may try to hold things up by appealing the judgment, but the judge made a number of things clear. Milestone won the bid and met the CCMA’s criteria, including on BEE points. It also made it clear that the building was fit for occupation.
"They suddenly said they weren’t moving in. The judge explained that they should have warned us months before that they had made an error in their opinion. They cost us a large sum of money and caused reputational damage," he says.
Phoku says Milestone had to sell the building at a loss in order to repay its loan to Nedbank.
"The building is one of the best-located office buildings in Cape Town and it was difficult to acquire. So the CCMA has really wrecked things for my company and I believe justice must be done," he says.
CCMA spokesperson, Dumisani Mavundla said it was studying the judgment.
The bungle leaves a stink at a time when black-owned and managed property funds are facing a slew of challenges to compete in SA.
Rebosis Property Fund, which was the first black-owned and managed fund to list in SA in 2011, is fighting for its survival.
The difficulties of renewing lease agreements of properties occupied by government entities have compounded its problems.
Government tenants have opted for leases with short maturities ranging from a few months to a year. As a result, firms such as Rebosis and Delta Property Fund have had difficulty providing investors with accurate and predictable earnings forecasts.
Meanwhile, many black-owned and managed property funds which were supposed to list on the JSE in the past year have failed to make it to market because they haven’t been able to secure the support of fund managers. They hoped to list at income yields which were too high in a sector that was trading at a large discount to NAV. The likes of Inkunzi Student Accommodation Fund became a casualty after it couldn’t raise the R1bn needed to acquire a student accommodation portfolio and list.
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