03 Jan

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

Despite the ANC’s desire to address expropriation without compensation (EWC) by amending the Constitution Act, (rather than just bringing out legislation to deal with the matter), Government has nevertheless (very quietly I may add) 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 so read it and have your say! Click here: https://dearsouthafrica.co.za/expropriation-bill/

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

The bad news is that it does not limit the nature of land which may, in principle, be expropriated, and thus it also, in principle, includes residential property for EWC – which to date, was not anticipated.

The good news however, is that, as far as residential land is concerned, it seems Government will only be interested in land which is owned “solely for speculative” purposes. It also brings much needed comfort, because it provides that no decision to expropriate (save for urgent circumstances due to disaster management needs) may be enforced, without a court order (if contested) and 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) may approach the court to challenge any decision to expropriate, and / or the amount offered for compensation, if any.

And if this becomes law, (and should the Constitution Act be left alone), many mountains remain in Government’s path, because this proposed legislation, will still be subject to the ConCourt’s blessing, if (and as a certainty no doubt, when) certain parts of it, are challenged, because it has certainly left some questions that need answers.

Herewith a summary of the Bill:

    1. 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 – which, by way of reminder, actually prohibits EWC (save, to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors) – and, which Constitution, guarantees administrative action that is lawful, reasonable and procedurally fair, as well as the right, to have any dispute resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum. It is against this backdrop that this proposed legislation is to be applied and interpreted.
    2. 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.
    3. 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.
    4. 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 then required to cooperate.
      • 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. 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.
      • No offer of compensation is therefore made in this first letter. The owner or holder of rights must first say, how much he or she wants.
      • To be noted is that once the authority has published the notice and served it on owners and known holders of unregistered rights, it is not required to then also still make contact with holders of unregistered rights, of who it only becomes aware, once it receives a response from the owner to the above notice of expropriation. In other words, publication in the Gazette and newspapers, is deemed sufficient notice to all holders of rights, of which the authority is not aware, when the process commences. Given that there is always an official public record of mortgage bonds, banks will always be likely to receive notice. Landlords would thus be well advised to ensure that if the authorities come knocking, to conduct an investigation, and to inform them of the existence of a lease, and to also notify the tenant, of the notice to expropriate. The tenant should then also give input, depending on the purpose of the intended expropriation.
      • 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 40 days of the expropriating authority receiving a response from an owner or rights holder, the expropriating authority must decide (no time frame is given) 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”.
      • This part of the Bill needs serious attention. As I understand it, it effectively means that the matter can go into limbo for months or even years, because “reasonable time” can mean anything! And no doubt that where property was earmarked for expropriation, the deeds office will have been notified of this and an interdict will have been registered against the property, and this could hold up any potential transfer of such land (if it had coincidentally been sold), indefinitely, and force the land owner to go to court.
      • If the expropriating authority decides to expropriate a property, it must cause a notice of expropriation (containing full particulars, including the compensation to be offered) to be served on the owner and all known holders of rights; the holder of a mortgage bond registered in the Deeds Office; the buyer of property if it had been sold, or the builder, if it was subject to a lien. The expropriating authority must also publish a notice in the Government Gazette and two local newspapers circulating in the area where the property is situated. It may also decide to only expropriate a portion of land, not an entire erf. Compensation is also payable to the holders of rights. (Tenants may therefore also be compensated if they are left without an abode.)
    5. 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.
    6. Now for the question you have all been waiting for: When may land be expropriated WITHOUT compensation?
      • The Bill states 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 (i. e. ALL LAND IS SUBJECT TO THIS):
        • 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).
        • Where the land is held for purely speculative purposes. (This once again, includes any land.)
          • This clause is certain to receive the most attention.
          • “Speculative” is not defined but if its ordinary meaning is to be applied, it would mean land which was acquired with the intention of selling quickly again, at a profit. i. e. Properties intended to be renovated and sold, or, “flipped”.
          • But how exactly Government intends to figure out which properties a person owns, are for speculative purposes, as against investment (medium or long term) is a complete mystery (assuming Government intends to acknowledge a difference between the two.)
          • Unless they intend sending notices to all persons who own more than one property, to force them, to disclose their intention. Who knows, but leaving “speculative” undefined, is most undesirable and unfortunate.
          • 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;
          • 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. (Commentary I have read on this part of the Bill suggests that Government is referring here, to farms which were redistributed, but where farming operations then failed, despite heavy state subsidising. Here Government may want to take it back and maybe give it to someone else who can hopefully make it operational and profitable.)
    7. Disputing compensation or ignoring expropriation notices
      • The Bill then 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.
      • But 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 centers 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.
    8. 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 lien, 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. Talk about passing the buck!
    9. 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 such charges will be paid by the authority or written off.)
      • 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.
    10. Urgent temporary expropriations
      • In the event of for example a natural disaster, property may also be temporarily – up to 12 months – expropriated (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:

It is of concern, that speculative ownership has been specifically targeted with no compensation. This may result therein, that multiple property owners will try to mortgage their properties to the hilt and simply take their money off shore – if they can find a bank of course, which will agree to lending them money, until we have certainty of what “speculative” is intended to all include!

But on the bright side, Government will have no right, in terms of this proposed legislation, to expropriate anyone without compensation, nor to enforce expropriation per se, without a Court order.

Kindest regards

Robert Krautkramer
Director
Miltons Matsemela
021 521 1300 / 082 823 6781