Putting the Expropriation Bill into perspective – it’s not the ugly ogre some make it out to be

Putting the Expropriation Bill into perspective – it’s not the ugly ogre some make it out to be

User Rating: 5 / 5

Star ActiveStar ActiveStar ActiveStar ActiveStar Active

The Expropriation Bill guarantees that expropriation can only be used as a last resort after all other attempts to buy the property have failed. The extent of expropriation is therefore not determined by any political party’s land reform targets.

So much has been written and said regarding expropriation and the Expropriation Bill over the past number of years, and yet, there still seem to be many misconceptions about the bill and what it is trying to achieve.

The possibility of government or some organ of state taking private property against the will of the owner understandably instils fear in and resistance from individuals and companies. The state is powerful and the idea of the state targeting one’s property for expropriation leaves people feeling very vulnerable.

Make sense of the climate crisis
Hear weekly from the biggest climate reporting division in Africa, reporting stories that concern you, your future and your environment.

Having said that, expropriation is internationally entrenched as a legitimate part of the functions of a state, and is recognised as such, even by the United Nations.

In the Encyclopaedia Britannica, “expropriation” is defined as follows: “expropriation implies legal process and just compensation for goods or property taken for public use, with judicial redress as a remedy for inadequate compensation. Expropriation is not ordinarily a method of supplying the common needs of the government but is directed toward the satisfaction of specific government objectives.”

Because expropriation is such a drastic intervention, its application is limited and its use qualified by international and national law. The right of the property owner to be adequately compensated for losses incurred by expropriation is recognised in international law and finds constitutional protection in many jurisdictions.

International context
Every government in the world can resort to expropriation as a means to acquire property for certain public purposes. The Food and Agricultural Organization (FAO) of the United Nations published a guide on international best practice for expropriation in 2009. In the document the FAO explains why expropriation or compulsory acquisition is important.

It states: “Sustainable development requires governments to provide public facilities and infrastructure that ensure safety and security, health and welfare, social and economic enhancement, and protection and restoration of the natural environment. An early step in the process of providing such facilities and infrastructure is the acquisition of appropriate land. That land may not be on sale at the time it is required. In order to obtain land when and where it is needed, governments have the power of compulsory acquisition of land: they can compel owners to sell their land in order for it to be used for specific purposes.”

Compensation and fair procedure lie at the heart of expropriation. The right not to be arbitrarily deprived of property and the right to fair compensation in the event of expropriation is protected in one form or another in international human rights instruments such as the United Nations’ Universal Declaration of Human Rights, the European Convention on Human Rights and the African Convention on Human Rights (African Charter on Human and Peoples’ Rights).

The modern approach to compensation is based on the principle of equality in the bearing of public burdens. This is a principle adopted by French, German and American law.

According to this approach, “where one or more individuals must bear a sacrifice (being the loss of property) for the common good, their individual and excessive burden should be compensated by the community (thus the State).”

The point of departure of the document is that forced acquisition of property is a necessary power for the state but that measures should be in place to prevent abuse. The guide requires, among other things, clear and transparent procedures for forced acquisition of property, and compensation that will ensure that the affected persons are not worse off after expropriation than they were before.

It further states that affected persons must not only be compensated for the loss of land but also for improvements made and for the disruption that accompanies expropriation. Subject to a few issues that have consistently been raised by Agbiz, the Expropriation Bill seems to incorporate these elements.

The South African Constitution
The Constitution deals with expropriation and compensation in section 25(3). Sections 25(2), (3) and (4) are of relevance and provide as follows:

“Property may be expropriated only in terms of law of general application–

(a) for a public purpose or in the public interest; and

(b) subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court.

(3) The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances, including–

(a) the current use of the property.

(b) the history of the acquisition and use of the property.

(c) the market value of the property.

(d) the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property; and

(e) the purpose of the expropriation.

(4) For the purposes of this section–

(a) the public interest includes the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources.”

There was a failed attempt from 2018 to 2021 to amend section 25 of the Constitution. This means that section 25 remains as it is and that all expropriations and expropriation legislation must be compliant with these provisions. This is very important, as the test in section 25(3) for compensation requires that it must be just and equitable and also requires that the court is the final arbitrator in any disputes regarding expropriation and compensation.

The Valuer-General attempted to implement regulations regarding compensation that were not completely aligned with the Constitution and as a result had to settle a dispute in the Melmoth restitution claim in KwaZulu-Natal and lost a case regarding the Moloto community restitution claim in Gauteng.

The Valuer-General tried to reduce the concept of just and equitable compensation to a fixed formula and bring in a concept of “current use value”, which in many cases reduced the compensation amount offered to the landowner drastically.

The Land Claims Court found that: “In the absence of any other information and satisfactory evidence upon which just and equitable compensation can be assessed, this Court is constrained to conclude that market value is, in the circumstances of this case, just and equitable compensation as the landowners contend.”

The courts will only consider factors in coming up with just and equitable compensation where there is proof of the quantum of such factors and if it is justifiable to take such factors into consideration. In this case there was no concrete proof that “current use value” was a relevant factor.

Businesses and property owners understandably seek to pin compensation to predefined norms such as “market value” while radical calls have been made for a discounted value to be paid, including no compensation. Neither option aligns with international standards nor our own constitutional framework.

Compensation is a normative judgment that looks at the subjective circumstances of the owner in addition to the objective value of the property itself to strike a fair balance between the public interest and the owner.

Advantages of enacting the bill
Firstly, it must be emphasised that we do have a current Expropriation Act on the statute books and in many respects the bill is an improvement on the 1975 Expropriation Act. It provides for a uniform process that must be followed when property is expropriated and remedies many of the deficiencies contained in the current act.

For instance, it provides for extensive consultation with affected parties, including financial institutions that hold bonds over the affected property and persons who have rights to the land but are not landowners. It also provides for a series of offers and counter-offers in an attempt to promote agreement between the owner, bond holder and authority on the amount of compensation. Should it be impossible to reach agreement, then compensation must be decided upon by a court of law.

It also contains many checks and balances, including a provision that there must be an attempt to settle before the state decides to expropriate and an opportunity to object to the intention to expropriate. This is absolutely vital as it cements the role of expropriation as a last resort.

In many respects, this provision allays fears that the state could go on a large-scale expropriation drive akin to Zimbabwe or Venezuela that threatened food security.

In fact, this provision calls into question any economic modelling done to try to predict the impact that the Expropriation Bill could have on property prices, investments or food security as there is simply no way to determine how often expropriation will be used.

The bill guarantees that expropriation can only be used as a last resort after all other attempts to buy the property have failed. The extent of expropriation is therefore not determined by any political party’s land reform targets but rather by the degree to which landowners and the state hold out in negotiations or choose to make a genuine attempt at reaching a fair settlement.

South Africa’s Expropriation Bill poses a threat to property rights for the future

Simply put, there is no way to accurately predict the impact that expropriation will have because there is no way to predict how often it will be used.

Challenges posed by the bill:
Nil rand compensation
One of the concerns regarding the Expropriation Bill is that it provides in clauses 12(3) and (4) for the possibility of nil rand compensation in certain circumstances. The clauses are worded as follows:

“(3) 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–

(a) where the land is not being used and the owner’s main purpose is not to develop the land or use it to generate income, but to benefit from appreciation of its market value;

(b) where an organ of state holds land that it is not using for its core functions and is not reasonably likely to require the land for its future activities in that regard, and the organ of state acquired the land for no consideration;

(c) notwithstanding registration of ownership in terms of the Deeds Registries Act, 1937 (Act No 47 of 1937), where an owner has abandoned the land by failing to exercise control over it;

(d) where the market value of the land is equivalent to, or less than the present value of direct state investment or subsidy in the acquisition and beneficial capital improvement of the land; and

(e) when the nature or condition of the property poses a health, safety or physical risk to persons or other property.

(4) When a court or arbitrator determines the amount of compensation in terms of section 23 of the Land Reform (Labour Tenants) Act, 1996 (Act No 3 of 1996), it may be just and equitable for nil compensation to be paid, having regard to all relevant circumstances.”

While there is certainly criticism to be levelled at this wording and some of the categories listed, it is still subject to the test of whether it is just and equitable. Awarding little or no compensation will have to be justifiable in an open and democratic society and the state will have to show exactly how and why it arrived at nil rand compensation.

It remains unclear what the impact will be of listed specific circumstances on compensation, but many of the country’s best legal minds have consistently argued that it is unnecessary and short sighted to list specific circumstances in a framework bill that will have wide application.

Any attempt to award nil compensation will have to be justified and a calculation would need to be made using the values afforded to all relevant factors to show how a nil rand value was arrived at.

The definition of expropriation
Constitutionally speaking, there are two concepts that are relevant when it comes to the taking of property, namely deprivation and expropriation. Deprivation is the wider concept, expropriation is a form of deprivation. Only expropriation attracts compensation. That is why the definition of expropriation is so important – if an action by government that has an impact on property falls outside the definition of expropriation, it will be regarded as a deprivation and no compensation will be payable.

The definition in the Expropriation Bill is very narrow and has a strong focus on the acquisition of the property by the state. It does not consider the loss that the property owner suffers. The definition reads as follows:

“‘Expropriation’ means the compulsory acquisition of property by an expropriating authority or an organ of state upon request to an expropriating authority, and ‘expropriate’ has a corresponding meaning.”

This definition may have the effect of excluding all instances where the state does not acquire the property but nevertheless limits the owners’ rights to such an extent that it becomes of no value. It opens up the possibility of all sorts of regulatory limitations on property with no compensation and of the state acquiring property on behalf of third parties, while now acquiring the property for itself.

It should be noted that this cannot be done at the discretion of an official but only through the enactment of laws or the implementation of a law that places limitations on the use and enjoyment of property by an owner.

Internationally, the concept of “expropriation” has been developed by the courts on a case-by-case basis over a considerable length of time. The majority of these jurisdictions have opted for the courts to retain the discretion as to when government action which encroaches upon an owner’s right to use and enjoy the property will amount to an expropriation. Ideally this should also be the case in South Africa.

The definition of expropriation should be scrapped from the bill to allow our courts to consider each case that comes before them on its own merits and decide whether the deprivation amounts to an expropriation or not.

Conclusion: the bill on balance
There is no doubt that South Africa needs a new Expropriation Act. It is important to note that the Expropriation Bill is merely a procedural bill, it grants no powers of expropriation to anyone other than the minister of public works and infrastructure and only for purposes connected to his/her mandate.

Powers to expropriate for various purposes already exist in more than 200 other pieces of legislation and these powers may be extended by legislation such as the proposed Redistribution Bill. Stopping this bill will not take away the state’s powers to expropriation as this originates directly from the Constitution. Should the bill fail to pass, the powers of expropriation will still exist but the processes, checks and balances in this bill will fall by the wayside.

It is very likely that there will be a lot of litigation over the nil rand compensation clauses and eventually jurisprudence will hopefully develop regarding what is just and equitable in this regard and what is not.

The definition of “expropriation” and how that will be applied and interpreted does remain a cause for concern. 

Annelize Crosby is Head of Legal Intelligence at Agbiz.