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30 Jan 2019

CHANGES TO PROCEDURE TO REPLACE LOST OR DAMAGED COPIES OF TITLE DEEDS OR BONDS

In order to transfer or cancel any real right that is registered in the deeds office one has to lodge the original holding deed, such as a title deed or mortgage bond. It frequently however happens that these have been lost or destroyed and then the person in whose name the deed was issued, simply signs an affidavit (signed in front of a commissioner of oath) stating that the document has been lost etc; we lodge this at the deeds office with a copy of the deed (obtained from the deeds office which has digital copies), and they then let us have a certified copy, which then replaces the original. Clean and simple.

Now it is about to change! As from 25 February 2019, the affidavit will have to be signed in front of a Notary Public. Not all conveyancers are Notaries and not all offices (especially branch offices) of law firms have Notaries on site, so this is sure to create a slow down as appointments will now have to be scheduled at different offices. Secondly, notice of the intention to apply for a certified copy must be placed in the Government Gazette, and the application must then lie for inspection at the affected deeds office for 2 weeks so that any affected person may object, before one may lodge the application at the deeds office.

Heaven alone knows why anyone would want to object. The changes do not tell us what were to happen if someone were to object or how they are to object and how it must then be dealt with! And it is not uncommon for the Government printers to forget to place an advert once you have booked and paid for it, and they only appear on Fridays – so then you may lose yet another week.

Sadly, this change is now going to cause a delay in transfers, and there will be an additional cost to publish this in the Gazette.

With respect to the authors of this new piece of legislation, this is a really unnecessary change because the existing procedure has worked perfectly well to date.

Robert Krautkramer
Miltons Matsemela Inc
30 January 2019

23 Jan 2019

COMMENTARY ON THE PROPERTY PRACTITIONERS BILL OF 2018 – PART 3

THE PROPERTY PRACTITIONERS FIDELITY FUND

In just the same way as the Property Practitioners Regulatory Authority will take over from the Estate Agency Affairs Board, the Estate Agents Fidelity Fund will now become the Property Practitioners Fidelity Fund.

All of the income of the PPRA will be paid into the Fidelity Fund. This will include all fees, investment income, any claims, any insurance payouts and all interest.

THE PURPOSE OF THE FUND

The main purpose of the Fund is to reimburse people who suffer the loss as a result of theft of trust money by a Property Practitioner who was holding a Fidelity Fund Certificate at the time of the theft, and those people who suffer loss as a result of a Property Practitioner not keeping a trust account or not depositing trust money into the trust account.

If a person has a claim against the Fidelity Fund, they must give notice of the claim within three years and they must have responded to any written request that the Fidelity Fund might make for any such proof, within this three-year period. If these requirements are not met, the claim against the Fidelity Fund will just lapse. If the Fidelity Fund repudiates the claim, the claim will prescribe (become extinguished as a result of the passing of time) unless the claimant issues a court summons within a period of 3 years from the date of the repudiation.

CONTROL AND MANAGEMENT OF THE FUND

The PPRA will now have control over the management and administration of the Fidelity Fund. The PPRA will also have the power, with the approval of the Minister, to outsource the management and administration of the Fund to any portfolio management company or financial institution. This is where the control of the Fidelity Fund is taken from the industry and where the Minister is given the ultimate say over who looks after the money. Previously this discretion rested solely with the EAAB. Now it rests with their political master. I doubt whether this additional political control will be good for the Fund.

To give you an idea of the amount of money in the Fidelity Fund, it currently has assets of just over R610 000 000, R550 000 000 of which is in the form of investments. In the 2017 tax year it spent R6 700 000 on “Transformation Activities” and R7 250 000 on “Consumer Education and Awareness”. Its’ administration fees ran to more than R52 000 000. These amounts are sure to grow. The contract to administer these funds will obviously be very lucrative.

The income from contributions for FFC’s was only R1 475 000. Now that so many more players will require FFC’s to operate, this income will increase.

CLAIMS AGAINST THE FUND

Before anybody can lodge a claim against the Fidelity Fund they must have laid criminal charges against the Property Practitioner who was guilty of the offence. Previously, the person making the claim had to have exhausted all legal rights and remedies to recover the money from the estate agent. I prefer this new approach as often claimants were unable to afford the cost of legal proceedings which would generally not have resulted in the recovery of anything from the fraudulent estate agent in any event. Now all a claimant must do is lay criminal charges.

This should substantially speed up the recovery of losses suffered by the public from the Fidelity Fund. This will however not be the case if the Fund decide to wait until the criminal prosecution has been finalised before conducting their own inquiry into the claim.

PAYMENTS FROM THE FUND

The Fidelity Fund is mandated to pay for the following:

  • All claims established against the Fund. The Minister does however have the power to cap the amount payable in respect of any category of claims, to protect the Fidelity Fund against insolvency.
  • Contributions to the costs incurred by a claimant (in the discretion of the PPRA);
  • All the Fidelity Fund’s legal, accounting and other expenses;
  • All insurance premiums for indemnity insurance – in this regard, the PPRA has the authority to arrange a group insurance scheme to cover Property Practitioners against claims made by the public on the grounds of malpractice, up to an amount determined by the PPRA. In this way the Fidelity Fund will be able to provide wider insurance cover for Property Practitioners for their benefit and for the benefit of consumers. This is to be welcomed;
  • All costs for the management, control and administration of the Fidelity Fund;

The Fidelity Fund may also pay out grants for these purposes:

  • Research into fields of activity relevant to Property Practitioners;
  • To maintain and promote standards of conduct and education and training;
  • Transformation of the property sector.
  • To ensure the continued operation of organisations similar to the Institute of Estate Agents, or REBOSA;
  • For the purposes of advertising and promoting public awareness in the industry and in consumer rights relating to immovable property.

FEES PAYABLE TO THE FUND

As expected, all Property Practitioners will need to pay fees to the Fidelity Fund for their Fidelity Fund Certificates (FFC’s). The Fidelity Fund is now also entitled to collect money from Property Practitioners under another Section of the Act. This is any amount that the Minister may decide, in consultation with the Minister of Finance and the board of the PPRA. This looks a little ominous.

COOPERATION BY CLAIMANTS

Anybody who lodges a claim against the Fidelity Fund has to co-operate to enable the claim to be properly investigated. This cooperation extends to giving assistance to SAPS and the prosecuting authority and to the PPRA to recover payments made from the guilty party. If you fail to cooperate, the Fidelity Fund can withhold payment of your compensation.

If the Fidelity Fund deny your claim, and you feel that you are entitled to be compensated by the Fund, you have a period of three years to issue summons against the Fund to enforce payment.

No loss of support claims may be made against the Fund.

A person can also not claim against the Fidelity Fund in respect of damages suffered as a result of the criminal conduct of a person’s business partner, co-director of a company, co-member of a close corporation, co-trustee, life partner or employee. Compensation payable from the fund is therefore limited to reimburse members of the public who have suffered loss as a result of the actions of a Property Practitioner.

This ends the commentary on the sections dealing with the Fidelity Fund. In the next part of this series, which will be published later this week, I will deal with Property Practitioners and Fidelity Fund Certificates, a subject that will be far more interesting and relevant to the day to day operations of Property Practioners.

Deon Welz
Miltons Matsemela Inc
18 January 2019

16 Jan 2019

COMMENTARY ON THE PROPERTY PRACTITIONERS BILL OF 2018 – PART 2

TRANSFORMATION OF THE PROPERTY SECTOR

You might recall that the property sector has a Transformation Charter which was finalised in 2017.  In chapter 4 of the new Act it is confirmed that this Transformation Charter applies to all Property Practitioners. When procuring services from Property Practitioners, all organs of state are obliged to use the services of practitioners who comply with broad-based black economic empowerment and employment equity legislation and policies.

The Property Practitioners Regulatory Authority (PPRA) is also obliged to assess the state of transformation within the industry and take steps to speed up transformation.

To fund these efforts, the PPRA has to create a Property Sector Transformation Fund.  The money in this fund can be used in numerous ways to promote the interests of the historically disadvantaged, including providing for training and development.

The Act also establishes the Property Sector Research Centre.  The purpose of this centre is to increase research, promote innovation, develop human potential and generate new knowledge.  The Research Centre is intended to be the central repository of expert knowledge in the property sector.  It is also intended to “support the realisation of South Africa’s transformation into a knowledge-based economy in which the generation of knowledge translates into socio-economic benefits.”  It must also promote consumer awareness and education.

I’m not sure how to interpret this part of the Act.  The ideas seem noble, but whether the PPRA and the Property Sector Research Centre are ever going to be able to do anything to achieve these lofty ideals is yet to be seen.  I fear that this part of the Act might turn out to be a platitude, with very little positive effect.

COMPLIANCE AND ENFORCEMENT

The Act will be policed by inspectors who will have wide-ranging powers of search and seizure.  They will have to identify themselves with certificates of appointment or identification cards.

Inspectors will be entitled to enter business premises (not private residences) without a search warrant and demand access to the business records or other documents.  If an inspector wishes to have access to a private residence from which a business is being conducted, the inspector must give advance notice.

The inspectors’ powers are even greater with a search warrant.

Inspectors are entitled to confiscate and remove records or data which might be used in legal proceedings against the Property Practitioner.

The Act goes into substantial detail as regards the procedures that need to be followed in obtaining and executing a search warrant.  The inspector is entitled to rely on the assistance of the South African Police Services, who can use force to overcome resistance, or to gain entry.

It is intended that the Minister will publish regulations which will distinguish between contraventions of the Act that are of a minor nature and contraventions which are of a substantial nature.  Minor offences can be dealt with by using compliance notices and fines.  There would be no criminal prosecution for these minor contraventions.

The Minister must also set the limits of fines that will have to be paid for contraventions of the Act.  All fines will be paid to the PPRA.

The PPRA will have the authority to utilise any part of the fine to pay compensation to any person who has suffered loss as a result of the conduct of the Property Practitioner.

THE PPRA’S DUTY TO ADJUDICATE ON DISPUTES

The PPRA is also obliged to deal with any complaints that might be lodged against Property Practitioners.  The scope of the PPRA is however limited to complaints relating to financing, marketing, management, letting, hiring, sale and purchase of property.  Once again, it seems as if the business brokers are excluded from this part of the Act.

The Act sets out time limits for the procedures which the PPRA has to follow once it has received a complaint.  Firstly, it has to acknowledge receipt within 7 days and issue a case number.

The PPRA can then either refer the dispute to mediation or adjudication.  If the dispute goes to mediation, the PPRA must appoint a mediator within 7 days and the mediator has a further 7 days to set a date for the mediation, which must be within a 30 day period.

The Act specifically makes provision for the PPRA to deal with disputes between Property Practitioners, on a “cost recovery” basis. It therefore seems that Property Practitioners will have to pay to have their internal disputes resolved in this forum.

For matters where a Property Practitioner fails to comply with a compliance notice, or fails to pay a fine, or where mediation has failed, or where the complaint/contravention is of a serious nature, the PPRA must have the matter adjudicated.

The adjudication will take place before an independent, legally qualified person who may also appoint independent assessors for assistance.

Once appointed, the adjudicator will have 14 days to set the matter down for hearing and this hearing must take place within 60 days.  While the Act specifies that the PPRA must appoint a mediator within 7 days, the Act is silent on how long the PPRA has to appoint an adjudicator.

The decision of the adjudicator will have the same force as a judgement of the Magistrate’s Court.  The adjudicator also has the authority to order the PPRA to pay up to 80% of any fine to the complainant as compensation.

The Act makes provision for an appeal process if any of the parties disagree with the decision of the adjudicator.  The adjudication appeal committee will consist of three independent suitably qualified persons who will have 14 days to set the matter down for hearing.  This hearing must take place within 60 days.

While the drafting of these sections dealing with non-compliance and disputes could have been better, the Act does place a premium on the speedy resolution of matters and this can only be good for the industry.

FINANCES

The Act sets out where the PPRA will be getting its funding from.  This money will come from Parliament, from fees paid by Property Practitioners, from interest generated from the investment of surplus funds, and any other source.

The Act envisages that money or property might be donated or bequeathed to the PPRA.  This seems highly unlikely.

The Act also gives the PPRA the authority to recover costs that it has expended in carrying out inspections, investigations and disciplinary proceedings, or in carrying out audits on trust accounts from the Property Practitioner in default.

The financial year end of the PPRA will be 31 March of each year.  It is strange that the financial year end is not going to coincide with the national tax year end.

 

This ends Part 2 of this commentary on the Property Practitioners Bill.  In Part 3, I will be dealing with the Fidelity Fund and Fidelity Fund Certificates.

Deon Welz
Miltons Matsemela
January 2019

11 Jan 2019

COMMENTARY ON THE PROPERTY PRACTITIONERS BILL OF 2018 – PART 1

As mentioned in my last Newsflash of 2018, this Bill is about to become the law that will replace the Estate Agency Affairs Act, that has regulated the profession since 1976. The Bill has been passed by Parliament and now only has to pass through the National Council of Provinces before it is signed into law by our President. I see no obvious obstacles that will prevent this from taking place before our elections in May. The new Act will substantially change the profession.

The new Act is a substantial piece of legislation, comprising 38 pages and 77 sections. It deals with all aspects of the profession. It is therefore impossible to give it proper coverage in a single Newsflash.

My intention is therefore to break the Act up into sections and to deal with each part in a separate Newsflash. This is the start of our journey.

PART 1

STATED OBJECTIVES OF THE ACT

The stated objectives of the Act go far beyond the old legislation and are ambitious to say the least. They are stated in Section 3 and can be summarised as follows:

  • To regulate “Property Practitioners” – this term is defined later on;
  • To replace the EAAB with another body, the Property Practitioners Regulatory Authority, which will have wider jurisdiction over more players in the property industry;
  • To better protect consumers;
  • To provide for internal dispute resolution in the property market;
  • To provide for education and training;
  • To regulate licensing of Property Practitioners;
  • To create a just and equitable legal framework for the industry;
  • To transform the industry by promoting the interests of historically disadvantaged individuals and small and medium sized enterprises;
  • To create a fund for transformation;
  • To promote home ownership in the affordable and secondary housing market;

INTERPRETATION/DEFINITIONS

The Act starts off with its usual flowery introduction and moves swiftly on to the section which defines terms which are used in the legislation. The definitions make it clear that we will still be dealing with issues relating to “candidate property practitioners”, a “code of conduct”, the Property Practitioners Fidelity Fund, (previously the Estate Agents Fidelity Fund), Fidelity Fund Certificates and Registration Certificates.

More notable however is the definition of a “Property Practitioner”. It is with this definition that the scope of the Act is widened to include a whole host of other people in addition to estate agents. The definition extends over one and a half pages and includes all of those who were previously regulated under the old act.

The expanded definition of Property Practitioner means that commercial brokers who sell businesses will also be included under the umbrella of this Act (although the fact that the Act applies to them is soon forgotten by the draftsman), so will mortgage bond brokers and people who provide bridging finance (unless they work for registered financial institutions).

Also included are property valuers, people doing home inspections for purchasers before a sale, property managers, agents involved in the selling of timeshare and fractional ownership, and anyone else who facilitates or acts as an intermediary with the primary purpose of bringing about a sale of a property or a business.

The definition goes on to include people who manage the business of a Property Practitioner. This will obviously include office managers. It might also include personal assistants.

The definition also specifically includes digital portals that publicly exhibit properties (or businesses) for sale or for rent using electronic means. The definition will therefore bring Private Property and Property 24 under the ambit of the Act. It also includes companies that receive rentals on behalf of others. This might include PayProp.

Also included are employees of Attorneys who act as estate agents, even though they are also covered under the Attorneys Fidelity Fund.

Finally the definition also purports to include persons who were Property Practitioners at the time when they committed an offence under the Act. I believe the purpose of this is to enable a person to be sanctioned under the Act, even after they have left the industry.

The new Act also makes provision for specific exclusions from the definition of Property Practitioner. These are:

  • A person who does not carry out any of these functions “in the ordinary course of business”;
  • A natural person who sells their own property, even if it is in the ordinary course of business. It is notable that the exemption does not specifically extend to the sale of a business or the leasing of a property by the owner thereof, although this might be covered in the first category;
  • Attorneys and Candidate Attorneys and the Sheriffs of the Court.

APPLICATION OF THE ACT

Section 2 of the Act, which is entitled “Application of Act” sums up quite succinctly the broad application of this new law, it reads as follows:

  • This Act applies to the marketing, promotion, managing, sale, letting, financing and purchase of immovable property, and to any rights, obligations, interests, duties or powers associated with or relevant to such property.

But what about businesses? Perhaps the drafters only wanted the new Act to apply to business brokers when the business included rights in immovable property, but they have not said this.

By casting its net so wide the new Act will have the potential to bring in more money to the new regulating Board of Authority that will take over from the EAAB. With all these new people to regulate and police however, I can see that this organisation is going to struggle to act efficiently and to meet its objectives.

THE ADMINISTRATION OF THE ACT

The Act will be implemented through a body called the Property Practitioners Regulatory Authority. This body will replace the Estate Agency Affairs Board. The duty of the PPRA will be to:

  • regulate the conduct of property practitioners and ensure that they comply with the Act;
  • protect and educate consumers;
  • provide for education, training and development of property practitioners; and
  • champion the transformation of the property sector.

The PPRA will be overseen by a board of between nine and twelve non-executive members and the CEO. This board must have a combination of financial and legal experience, and experience as property practitioners. There must also be experience in rural and land reform and consumer interests. With all the skills required. The possibility exists that the board will be dominated by people with little experience in the estate agency field.

The CEO will be responsible for the day-to-day running of the PPRA. This person will be appointed for five years at a time and can serve two terms. The CEO will hire a staff complement to enable the PPRA to carry out its functions.

In the next part of this series, which will be published next week, I will deal with the transformation of the property sector, compliance and enforcement issues, the PPRA’s duty to adjudicate on disputes and the Fidelity Fund.

Deon Welz
Miltons Matsemela Inc
8 January 2019

08 Jan 2019

CASE LAW UPDATE: TRADING WITHOUT A FIDELITY FUND CERTIFICATE – CLAIMING COMMISSION AND ENFORCING A RESTRAINT OF TRADE

There have been two recent cases dealing with agencies that traded without Fidelity Fund Certificates (FFC’s) which we thought would be of interest to you. Here are summaries of the two cases:

CLAIMING COMMISSION WITH AN FFC THAT WAS BACKDATED

What are an estate agent’s rights to claim commission when they have complied with all the requirements but have still not been issued with a valid FFC? This is the question that was decided in the Cape High Court case of SIGNATURE REAL ESTATE (PTY) LTD v CHARLES EDWARDS AND OTHERS in December 2018. In this case the estate agency had applied for the re-issue of its FFC in good time and met all the requirements, but the FCC had not been issued at the time that the lease was concluded. Thereafter the EAAB issued the FCC and back dated it to a date before the lease agreement was concluded. Was this sufficient to enable the agency to succeed with a claim for their share of the commission?

The answer is a resounding NO! The judge found that because the agency did not hold the FFC at the time of the lease it was unable to sue for commission, and the agency was unsuccessful. The Estate Agency Affairs Act sadly does not allow for any leeway. If there is no FFC at the time of lease or sale, that is the end if the matter! The judge was of the opinion that the appropriate thing for any agency to do, when it realizes that an FFC is late, is to bring an application to the high court to force the EAAB to issue an FFC in terms of the Promotion of Administration of Justice Act (PAJA).

The message is therefore clear. If the agency does not have a FFC at the time of the lease (or the sale) of the property, the agency will not be able to sue for any commission, or even a share of the commission where the full commission was paid to the listing agency.  This is the law even if it is the EAAB’s fault that the FFC has not been issued.

This judgment is apparently being appealed and we will advise you if the outcome changes.

ENFORCING A RESTRAINT OF TRADE WHEN AN AGENCY IS NOT IN POSSESSION OF A VALID FFC

Another interesting FFC related judgment was issued in the Bloemfontein High Court on 6 December 2018, in the matter of TRIA REAL ESTATE (PTY) LTD t/a PAM GOLDING v MANDY LABUSCHAGNE, whereby the agency sought to restrain Ms Labuschagne from trading as an agent, in terms of a restraint of trade she had agreed to at the time of her employment.

The crux of her defence was that TRIA was not in possession of a valid FFC. TRIA had converted from a CC to a (PTY) LTD some years ago, but had continued to receive FFC’s in the name of the CC. The CC had however ceased to exist when it was converted to a (PTY) LTD.

The court refused to accept the argument that by having converted to a (PTY) LTD, the FFC (in the name of the entity as a CC) was the same as being issued to the (PTY) LTD. The case was dismissed. The court relied heavily on section 26 of the Estate Agency Affairs Act which states that if an agency is a company, every director of the company must also have a valid FFC. A director of a company and member of a CC are not at all the same thing and hence the court came to a very quick conclusion, that the agency had no legal standing to enforce any rights in terms of the restraint.

In making his finding the judge declared the contract of employment, and particularly the restraint of trade, to be unenforceable.

What we conclude from this is that any agency which is not in possession of a valid FFC at the time of instituting an action, whether it be to enforce a restraint or any other claim or right, which seeks to protect its business, may very well face the same dilemma, regardless of the reason for the FFC not having been issued.

In making his finding the judge declared the contract of employment to be invalid, null and void and therefore unenforceable. In our opinion this judgment goes too far, as the Estate Agency Affairs Act already sets out penalties for trading without an FFC, and the invalidity of all contracts entered into by the agency is not one of these. This decision might therefore be overturned on appeal. Until then however it is an important precedent that other courts might well follow.

For this reason, any agency which is not in possession of a valid FFC at the time of bringing an application to enforce a restraint may very well face the same dilemma, regardless of the reason for the invalidity / absence of the FFC.

Robert Krautkramer and Deon Welz
Miltons Matsemela
January 2019

03 Jan 2019

EXPROPRIATON BILL PUBLISHED FOR COMMENT!

Dear all

Government published a draft Expropriation Bill for public comment on Friday 21 December 2018. We have until 19 February 2019 to comment on it. Follow this link to add your comments https://dearsouthafrica.co.za/expropriation-bill/

For a full executive summary of the Bill, please visit our website at www.miltons.law.za

Very shortly, the Bill addresses expropriation with compensation, and without compensation.

Property may also only be expropriated if this is for a “public purpose” or in the “public interest”, and these terms are then defined. The Bill sets out what procedure an expropriating authority must follow before it can firstly decide whether to expropriate, and for how much, if anything. The Bill also caters for the manner in which compensation will be payable, if anything.

Very briefly:

  1. The bad news is that it does not limit the nature of land which may in principle be expropriated and all land is therefore potentially, (in theory) subject to expropriation, including residential land.
  2. The good news however (as far as residential land is concerned) is it does seem that Government will only be interested in land which is abandoned or owned “solely for speculative” purposes but it fails to define what exactly “speculative purposes” is intended to include! If this therefore becomes law in its present format, many mountains remain in Government’s path when (not even “if!”) this is challenged in the Constitutional Court.
  3. The other good news is that it also confirms that no decision to expropriate (save for urgent circumstances due to disaster management needs) may be enforced, without a court order, and anyone affected by an expropriation decision may challenge it in court. Hence the interests of both property owners and the holders of rights (such as bond holders and tenants, or even possibly a former spouse who stands to take transfer by virtue of a divorce settlement agreement), are catered for and protected.

We urge all recipients of this Newsflash to share it; to read the Bill, and to participate in the commentary procedure!

Kind Regards
Robert Krautkramer
021 521 1300 / 082 823 6781

03 Jan 2019

Executive Summary of the Expropriation Bill, with AND without compensation. What you need to know.

Government has published a draft Expropriation Bill for public comment on Friday 21 December 2018. (Follow this link to add your comments – closing date for comments is midnight 19 February 2019) https://dearsouthafrica.co.za/expropriation-bill/

The Bill addresses expropriation with compensation, and without compensation (EWC)

The Bill does not limit the nature of land which may in principle be expropriated without compensation, and thus it may also include residential property. This, to date, was not anticipated. The good news however, is that Government seems to only be interested in certain categories, which are dealt with below. This is not to say they are limiting it to these types of properties, but it appears to be the case.

The Bill also brings much needed comfort, because it provides that no decision to expropriate (save for urgent and temporary expropriation due to extreme circumstances such as disaster management) may be enforced, unless it is by mutual consent, or with a court order. Furthermore, anyone who has an interest in an expropriation (for example a former spouse who stands to take transfer by virtue of a divorce settlement agreement; a tenant; a beneficiary in a deceased estate) may approach the court to challenge any decision to expropriate, and / or the amount offered for compensation, if any.

Herewith a summary of the Bill:

Purpose of the Act if this Bill becomes law:

To provide for the expropriation of property (which includes land) for a public purpose or in the public interest, in accordance with the Constitution.

One must bear in mind that although section 25 of the Constitution Act says that no one may be expropriated save with compensation, section 36 of the Constitution Act also states that any right in the Bill of Rights (such as the right not to be expropriated without compensation) may be limited (i.e. infringed upon), if it is deemed to be fair; justifiable and reasonable, and taking into account all relevant circumstances. It is therefore already actually (at least theoretically) possible, for Government to expropriate without compensation, if it can prove to the Constitutional Court, that it is justifiable under the circumstances, whatever they may be in any given instance. However, the current (and very outdated Expropriation Act) obviously needs to be changed to now make provision for EWC, which is why we now see this Bill for comment. It is against this backdrop that this proposed legislation is to be applied and interpreted.

How are “public purpose” and “public interest”, defined?

These terms are defined to mean that they include “any purposes connected with the administration of the provisions of any law by an organ of state” and to “include the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources in order to redress the results of past racial discriminatory laws or practices”, respectively. So then to build schools; roads; hospitals and to address racial discrimination from the past (think about the land redistribution programme we have seen take shape over the past few years) etc. Land may not be expropriated for any other reason.

Who pays all the legal costs of giving effect to a decision to expropriate (i.e to transfer the property and maybe cancel existing bonds)?

The relevant organ of state which expropriates.

How does government intend to go about expropriating land?

  • Once property is earmarked for expropriation, the expropriating authority must ascertain the existence of registered and unregistered rights in such property and the impact of such rights on the intended use of the property, and may, only with either the consent of the owner (which includes a lawful occupier), or a court order, enter the property to conduct a full investigation, to determine the suitability of the intended expropriation, and value of the property. The local municipality must also be advised and consulted. The owner is required to then cooperate. Any organ of state which has a material interest in the intention to expropriate that piece of land, must then also be notified to allow for input.
  • If an expropriating authority intends to expropriate property, it must amongst other things, publish a notice in the Government Gazette, two local newspapers circulating in the area where the property is situated, and serve a notice of intention to expropriate, on the owner (which includes anyone with a registered real right over the property) and any known holder of an unregistered right in the property. Notices must be hand delivered or sent by registered mail or in such manner as a Court deems appropriate. This notice and publication, must, amongst other things, include a description of the purpose for which the property is required and the intended date of expropriation, and extend an invitation to any person who may be affected by the intended expropriation to lodge objections and submissions within 30 days (not specifically defined, thus calendar days), and it must include a directive, amongst other things, to provide the details, names and addresses of any holders of unregistered rights (i.e. of which no official, public record exists – such as a lease agreement, and details of the right and the holder thereof) together with input on the amount claimed by the owner or holder of unregistered rights, as reasonable compensation; details of any improvements made to land which should affect the proposed compensation sought; details of any sale agreement, if the property has been sold but ownership not yet transferred, with details of the purchaser, and finally, if a builder’s lien exists over the property, details of the builder and the lien.
  • Within 20 days of receiving a response from an owner or rights holder, the expropriating authority must then inform the relevant owner or rights holder of whether the amount of compensation claimed, is accepted, and if the amount of compensation claimed is not accepted, indicate the amount of compensation offered, if anything, by, furnishing full details and supporting documents in respect thereof.
  • If no agreement on the amount of compensation payable has been reached between the expropriating authority and the owner or the rights holder within a further 40 days of the expropriating authority receiving a response from an owner or rights holder, the expropriating authority must decide whether, or not, to proceed with the expropriation. If the expropriating authority decides to proceed to expropriate; or to continue with negotiations on compensation; or not to proceed with the expropriation of the property, it must then inform the owner or rights holder of its decision, “within a reasonable time“. Sadly, this is not defined. It is therefore not at all clear how long this process can take which may present a Constitutional challenge.
  • All organs of state that have a material interest in any intended expropriation must also be notified of the expropriating authority’s intention and this in the writer’s view means that the deeds office will also have to be notified. This may very well result in an interdict being registered against the property called a “caveat”, which could hold up any potential transfer of such land for “a reasonable time”. It also means that one cannot do anything with that land – transfer; bond; subdivide etc. This could also present a Constitutional challenge if I interpret this part correctly.

How is compensation determined?

The amount of compensation to be paid to an expropriated owner or expropriated rights holder must be just and equitable reflecting an equitable balance between the public interest and the interests of the expropriated owner or expropriated holder, having regard to all relevant circumstances. This may include the current use of the property; the history of the acquisition and use of the property; the market value of the property; and the purpose of the expropriation.

When may land be expropriated WITHOUT compensation?

All the Bill states in this regard (literally only 12 lines are dedicated to this out of the entire Bill) is that it may be just and equitable for nil compensation to be paid where land is expropriated in the public interest, having regard to all relevant circumstances, including but not limited to:

  • Where the land is occupied or used by a labour tenant, as defined in the Land Reform (Labour Tenants) Act, 1996 (Act No. 3 of 1996) (i.e. farm labourers occupying cottages – here, a portion of the farm might be subdivided; title deeds issued and each labourer becomes the owner of a cottage. The Bill allows only a portion of land to also be expropriated and does not require the entire land to be expropriated);
  • Where the land is held for purely speculative purposes; (i.e. I imagine this to mean where one has bought with the intention of selling quickly at a profit – How exactly Government intends to determine one’s intention in this regard remains unknown as this is not defined);
  • Where the land is owned by a state-owned corporation or other state-owned entity;
  • Where the owner of the land has abandoned the land; (this word has also not been identified so one must wonder how Government intends to prove this)
  • where the market value of the land is equivalent to, or less than, the value of direct state investment or subsidy in the acquisition and beneficial capital improvement of the land. (This seems to refer for example, to farms which were expropriated with compensation; redistributed; the state subsidised the new farming operation but where farming operations have failed. Here Government may want to take it back and redistribute a second time with the hope that it will become operational and profitable.)

It is important to note that the above is not a closed category of land that may be earmarked for EWC, however, it does not appear that they are interested in any other land, else why make special mention of these categories?

Disputing compensation or ignoring expropriation notices

The Bill proceeds to say that the owner or a holder of an unregistered right who receives a notice of expropriation must accept or contest any such notice, whether subject to or without compensation, and if contested, what information to provide and how to go about trying to reach a settlement.

Ultimately it also states that even if the owner or holder fails to respond to an expropriation notice, no decision to expropriate can be made final until either the owner or holder agrees to this, and also, to the amount of compensation to be paid, or until a Court makes an order enforcing it, where no agreement can otherwise be reached.

However, if the only dispute centres around the amount to be paid, an owner or holder can still be expropriated, and ownership can be transferred. The issue of compensation can then be determined separately.

Payment where property is bonded, or has been sold, or is subject to another’s rights

If property that is expropriated is encumbered by a registered mortgage or subject to a deed of sale, or builder’s lien for example, the expropriating authority may not pay out any portion of the compensation money except on such terms as may have been agreed upon between the expropriated owner or expropriated holder and the bond holder, or buyer or builder concerned, as the case may be.

Failing such agreement reaching the authority within certain time frames, it may deposit the compensation money with the Master of the High Court, and any of the disputing parties may apply to court for an order directing the Master to pay out the compensation money in such manner and on such terms as the court may determine.

What about rates clearance to enable transfer?

Once expropriation is a certainty the municipal manager must, within 30 days of receipt of a copy of the notice of expropriation, inform the expropriating authority in writing of any municipal charges owing. The expropriating authority must inform the expropriated owner or expropriated holder of any outstanding charges and if the said amount is not disputed within 20 days of the notification, the expropriating authority may utilise as much of the compensation money in question as is necessary for the payment, on behalf of the expropriated owner or expropriated holder, of any outstanding charges. The Bill does not tell us what is to happen where no compensation is payable. One must assume that the land owner will remain liable given that liability arose during the time of ownership, or that the government will not expropriate land where there are debts like this without paying at least the amount needed to settle these debts.

If the municipal manager fails to inform the expropriating authority of the outstanding charges within the time it has, the expropriating authority may pay the compensation to the expropriated owner or expropriated holder without regard to the outstanding municipal property rates or other charges, and in such an event the Registrar of Deeds must register transfer of the expropriated property and the expropriated owner or expropriated holder, as the case may be, continues to be liable to the municipality for the outstanding rates and charges calculated up to the date of registration of the expropriated property in the name of the expropriating authority.

Urgent temporary expropriations

In the event of for example a natural disaster, property may also be temporarily expropriated for up to 12 months – (such as hotels, to accommodate people who lose their properties in a flood) subject to compensation and payment of any repairs or maintenance required, which arises as a result of the expropriation. But only if suitable property held by the national, provincial or local government is not available. A court may extend the 12 months if necessary or allow for urgent temporary expropriation under other circumstances, if circumstances justify it.

In closing then:

What we read into this Bill, and despite a few possible constitutional challenges, is a bona fide attempt by Government to regulate a highly sensitive issue. There is no proof at all of any attempt to just take land away left, right and centre. Instead, we see a concerted effort to regulate the matter in an orderly fashion. It is a pity that they have included land held for speculative purposes as a category of land that might be earmarked for expropriation without compensation because that may tend to put some investors off, but the reality is that even if this remains in the final Act, speculative buyers make up a tiny percentage of buyers of land in this country so the effect will be minimal. Secondly, according to the Davis Commission on Tax Reform, in the 2017 tax year SARS collected R8.7 billion just from transfer duty alone. Government cannot dare to bring about legislation which will cause the property market to crash, and in the process, lose billions in revenue! They could rather use the money collected to pay proper compensation to expropriated landowners.

So, in conclusion, we do not see any reason for panic or concern at all, and in fact, welcome this Bill as one that seems to deal with this matter as well as anyone could possibly have hoped for.

We will keep you posted on any further developments once the Government has finished with the public participation process.

Kindest regards

Robert Krautkramer
Miltons Matsemela Inc

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