The debate regarding compensation for land taken for land reform purposes has been raging ever since the CODESA negotiations and the initial formulation of section 25 of the Constitution.
Over the years there have been numerous attempts to give content to the provisions of section 25(3) which deal with just and equitable compensation, but without success.
The Moloto judgement
On 11 February 2022, the Land Claims Court handed down judgement in the case of the Moloto community v the Minister of Agriculture, Land Reform and Rural Development and others. [1] This judgement is an important landmark regarding the court’s interpretation of section 25(3) of the Constitution and the calculation of just and equitable compensation. The Valuer-General had a particular interpretation of just and equitable compensation based on a formula incorporated into the regulations of the Property Valuation Act of 2014. This formula, which has been widely applied makes use of the so-called “current use value”. The result of the application of this formula is generally that landowners get a lot less than market value. In this specific case, the landowners were on average offered 33,7% less than market value.
The formula
In essence, the formula states that a value should be placed both on what the property would command in the marketplace and its current use. The current use value represents the value attached to the beneficial use that the owner derives from the property. In terms of the formula, these two values are then added together, and divided by two. Thereafter adjustments can be made in terms of any acquisition benefits or other factors.
Can a current use value be quantified?
The court dealt specifically with the questions as to whether a numerical value could be attached to the current use of the property? On the question as to, whether a numerical value can be attached to current use, the court responded in the affirmative. Previous case law seemed to accept valuations that make use of the income approach where comparable sales were not available. The current use value, also known as the income-based approach is not suitable to determine the value of farms and smallholdings
The judge concluded that the authorities appear to hold, at least generally that the income method will not be used when valuing residential or agricultural property.
Importantly, this approach was used to calculate the market value and not applied separately to market value when interpreting section 25 of the Constitution. However, the court once again confirmed that the interpretation of section 25 cannot be equated to valuation. Whilst valuation practice can and should help to inform a court’s determination of compensation, section 25 of the Constitution is based on a contextual analysis of the facts and a court is best placed to do so.
The judge found that the court was unable to rely on the valuations made available to them to determine a current use value in any event. Based on the facts in this case, the court then relied on the agreed market value of the properties and found that that constituted just and equitable compensation. The judge emphasised that market value should not be given a central role in determining just and equitable compensation, but also made it clear that if any other factors are to be considered those need to be submitted to the court so that the court can have adequate information on all relevant factors.
On the subject of who bears the onus of proof, the court found that where a party raises a particular contention, such as that the income derived from the property should be calculated and considered on par with the market value, that party bears the onus of proof in respect of such contention raised.
Conclusion
This judgement is important because it deals with the interpretation of section 25(3) and the factors listed therein – something that very few judgements have done thus far. The judgement brings some clarity regarding things like who bears the onus in disputes regarding compensation, the general approach regarding the interpretation of section 25(3) and the controversial “current use value” concept. It clearly points out the limitations and shortcomings of the income method of determining compensation. It confirms the approach developed in the Du Toit case at least as far as expropriations in terms of the current Expropriation Act are concerned. Ultimately this case has once again demonstrated that each and every case can only really be analysed and decided on its own particular facts. Hopefully, this judgement will bring an end to the practice by the Valuer-General to try and apply a formula of which current use value is an element to farming properties as a general rule.
By Annelize Crosby, Agbiz head of Legal Intelligence
