4.4 Audit Exemption Criteria, Independent Reviews & Section 23 Compliance

4.4 Audit Exemption Criteria, Independent Reviews & Section 23 Compliance

Quick Summary: Under legacy estate agency legislation, every estate agency enterprise—regardless of size, operational model, or transaction volume—was legally compelled to open a statutory trust account and undergo an expensive annual trust audit. Recognizing that this requirement imposed severe administrative and financial burdens on small boutique agencies that never handle client funds, the Property Practitioners Act 22 of 2019 (PPA) introduced a progressive exemption mechanism under Section 23. Qualifying practitioners who do not receive or hold trust monies and maintain an annual turnover below R2.5 million may lawfully operate without a trust account and undergo an Independent Review instead of a full IRBA trust audit.

Section 23 represents a significant modernization in South African real estate law. It allows boutique sales agencies and consulting brokerages to structure their business models such that all client purchase deposits are paid directly into the statutory trust accounts of conveyancing attorneys. However, Section 23 exemption is not an informal waiver; it requires strict annual compliance, sworn statutory affidavits, mandatory mandate disclosures, and adherence to prescribed operational thresholds.

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1. Section 23 Exemption Criteria & Qualifying Thresholds

Two distinct statutory mechanisms under Section 23 of the PPA 2019 (read with Regulation 2 of the Property Practitioners Regulations 2022) govern exemption and review:

Mechanism A: Trust Account Exemption (Section 23(2) & Regulation 2)

A property practitioner may be exempted from operating a trust account where the enterprise does not receive or hold trust monies, or where all client monies are handled through a duly registered payment processing agent operating its own compliant trust environment (Regulation 2.4 — currently the pathway used, for example, by rental agencies processing through registered payment platforms). Typical qualifying models:

• Sales agencies that mandate that all buyer purchase deposits be paid directly into the statutory trust account of the nominated Conveyancing Attorney handling the transfer.
• Rental agencies that channel all rental monies through a duly registered payment processing agent, holding no trust monies themselves.
• Advisory or commercial brokerages operating exclusively on post-registration commission payouts.

The exemption is not automatic: the practitioner must follow the prescribed application process and obtain the PPRA's approval/exemption letter.

Mechanism B: Independent Review Below R2.5 Million Turnover (Section 23(1))

A property practitioner whose annual turnover is below R2.5 million must cause their accounting records to be subjected to an independent review by a registered accountant (with the Section 54(1)–(7) framework applied with the necessary changes), rather than a full statutory audit. Under PPRA audit-compliance guidance, a business property practitioner holding a PPRA-issued trust account exemption letter may also have its annual financial statements independently reviewed, regardless of annual revenue.

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2. Annual Section 23 Statutory Affidavit Procedure

Trust account audit exemption is not automatic or permanent; it must be formally applied for and renewed annually on the MyPPRA Portal.

The Sworn Statutory Affidavit Requirement

The principal property practitioner must execute an official Section 23 Statutory Affidavit sworn under oath before a Commissioner of Oaths (e.g. practicing attorney, SAPS station commander, or notary public). The affidavit must formally attest that:

1. The enterprise has not opened or operated any Section 54(1) or Section 54(2) trust account during the financial year.
2. The enterprise has received, held, or processed zero trust monies whatsoever during the preceding 12-month period.
3. All purchase deposits and trust funds associated with transactions facilitated by the agency were paid directly into an independent attorney's statutory trust account or processed through a duly registered payment processing agent.
4. Where the enterprise relies on the R2.5 million independent-review threshold, its annual turnover for the period did not exceed that threshold.

Portal Submission & Exemption Certificate

The signed statutory affidavit, accompanied by supporting operational bank statements for the agency's Business Account, must be uploaded to the MyPPRA portal within 6 months post financial year-end. Upon verification, the PPRA issues a formal Section 23 Exemption Confirmation Certificate, allowing the agency and its principals to renew their Fidelity Fund Certificates (FFCs) without submitting an IRBA trust audit report.

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3. Mandatory Mandate Disclosure Clauses for Exempt Agencies

Operating under Section 23 places specific statutory obligations on how an agency contracts with clients. To protect the public, an exempt agency must insert a compulsory statutory notice clause in all sale mandates, rental mandates, and transaction agreements:

"Statutory Exemption Notice: The Estate Agency Enterprise hereby notifies the Client that, pursuant to Section 23 of the Property Practitioners Act 22 of 2019, the Agency does not operate a statutory trust account and does not accept or hold trust monies. All purchase deposits, rental monies, or security deposits associated with this transaction must be paid directly by the Client into the nominated statutory Trust Account of the Conveyancing Attorney [or licensed financial institution] handling the transfer/management."

Failure to include this compulsory disclosure clause in client mandates invalidates the agency's Section 23 exemption defense and exposes the principal practitioner to sanctionable-conduct proceedings under Section 62.

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4. Independent Review vs. Full IRBA Statutory Trust Audit

While a Section 23 exempt enterprise is excused from undergoing an IRBA Trust Account Audit, the firm remains a commercial business entity subject to corporate financial reporting rules under the Companies Act 71 of 2008.

Comparative Financial Evaluation Matrix

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5. Accidental Receipt of Trust Funds & Emergency Protocol

What happens if a Section 23 exempt agency accidentally receives trust money—for example, if a buyer mistakenly transfers a R100,000 purchase deposit directly into the agency's operational Business Account?

Mandatory Statutory Emergency Protocol

1. Immediate Non-Appropriation: The agency must not spend, transfer, or clear the funds for operational business use.
2. Transfer to Attorney Trust Account: The funds must be transferred immediately (within 24 to 48 hours) into the conveyancing attorney's statutory trust account.
3. Notification to PPRA: The principal property practitioner should notify the PPRA in writing without delay, explaining the circumstances, providing proof of transfer to the attorney's trust account, and detailing corrective measures.
4. Exemption Revocation Risk: If an exempt agency repeatedly receives or holds trust funds, the PPRA will permanently revoke its Section 23 exemption. The agency will then be compelled to open a Section 54(1) trust account and submit full annual IRBA trust audit reports.