Expropriation without compensation – Should you be concerned?

17 January 2023 ,  Anelmari Truter 1284

It is necessary to consider what the impact of expropriation is on foreign direct investment (‘FDI’). Given South Africa’s high ratio of debt to GDP, it is fair to assume that South Africa is in dire need of foreign inflows. Speculating about the impact that tempestuous politics and looming expropriations has on FDI is perhaps a task better left to economists.

However, South Africa is marked with a complicated and unjust history which had many long-term devastating consequences. One field on which the unjust past had a significant impact is on property, both in terms of regulation and access. The first democratically elected government was faced, amongst many other things, with the unequal distribution of land and the question of how this issue should be addressed. A comprehensive land reform programme with a Constitutional basis was embarked on in order to address the injustices of the past, which exists of three pillars namely restitution, land redistribution and tenure security.

The current state of land and land reform in South Africa is often spoken about with many underlying emotions and frustrations, and rightfully so. Land reform has been a long and laborious process which has not brought about the necessary change, even after 29 years of being a democracy.

The property clause as it currently stands in the Constitution in section 25, carries with it a long history. This history can be drawn back to the Natives Land Act that allocated roughly 8% of farmable land to black South Africans. South Africa continued for years on a journey of separation and segregation and the aftermath was notoriously visible in the division and acquisition of immoveable property.

Notably, the Constitution specifically provides for land reform, embedded in the property clause. However, in order to give effect to the property clause, optimally, there are various factors involved. As a starting point, a policy dimension is required in terms of which legislation has to be drafted and promulgated and thereafter the legislation has to be implemented successfully in pursuit of the goals of the property clause.

Implementation should arguably also coincide with monitoring in order to ensure that the objectives are indeed achieved in practice and thereafter maintained. Unfortunately, this is easier said than done. The effective implementation of the legislative framework is subject to various administrative processes and the involvement of a variety of bodies, institutions and functionaries. For the implementation to be effective, there needs to be a systemic harmony between all of these different components. Further, the system needs to be monitored as a whole and where necessary, adjustments need to be made. Recent reports as well as case law sadly showcase flaws in all of these components.

It is fair to conclude that the land reform programme in South Africa has not been very successful thus far. The policy dimension is disarranged, the promulgation of legislation is not always in line with the Constitution and where the legislation does meet the necessary requirements, it is not implemented and monitored successfully. Land reform is a national endeavour that is encouraged by the Constitution in its preamble and in the property clause. The country invests in land reform to a great extent and the absence of a successful program has dire implications for everyone. It is thus of great significance that the land reform program is maintained and pursued meticulously. It is in this light that the possible amendment of the property clause was first approached, namely to amend section 25 so as to provide greater impetus to the land reform programme. 

At this point it is important to understand the role of legislation in giving effect to the Constitution. The Constitution is not meant to provide detailed processes or lay down hard and fast rules. The Constitution is a framework which lays down norms and principles that serve as the starting point for interpretation. The detailed rules and processes are laid down in legislation. This is why it is important that legislation such as the Expropriation Act is in line with the Constitution. 

The Expropriation Act 63 of 1975 which currently governs expropriation is outdated, predates the Constitution and has led to a willing buyer willing seller process of expropriation which is expensive and unsustainable. The Expropriation Bills are aimed at amending the 1975 Act in order to bring that in line with the Constitution. This is a separate process than the review of section 25 of the Constitution. There are thus two distinct processes which are running concurrently: amending the Expropriation Act of 1975 in order to bring that in line with the current Constitution; and then a process to amend section 25 of the Constitution to allow for expropriation with nil compensation. The conundrum is that the land reform programme has been rather slow and unsuccessful thus far. As a result, an amendment of section 25 has dominated South Africa’s public constitutional discourse since 2018.

On 9 October 2020 the draft Expropriation Bill was published. Of particular importance is section12(3) of this 2020 Bill which reads 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—

  1. 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;
  2. 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;
  3. 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;
  4. 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
  5. when the nature or condition of the property poses a health, safety or physical risk to persons or other property.
This clause has been rewritten to align expropriation with nil compensation possibility more closely with section 25 of the Constitution.  On Wednesday 28 September 2022, the National Assembly passed the Expropriation Bill, edging it closer to becoming law and replacing the 1975 Act. 

The Expropriation Bill is not without fault. It is, however, the product of a long and winding road with the input of many property law experts and academics. It is at the very least more aligned to section 25 of the Constitution than the 1975 Act.

The final Constitution Eighteenth Amendment Bill was published in September 2021. This final version provides explicitly that land which is expropriated for the purposes of land reform can be expropriated at nil compensation. The standard of compensation remains “just and equitable” so as to be in line with section 25, but this amount may be nil. In other words, there is still a duty on the state to pay compensation.  On 7 December 2021 the proposed amendment did not obtain the necessary two thirds majority vote in order to pass.

The solution to the slow pace of land reform does not lie in empty promises and the amendment of the Constitution. It also does not lie in expropriation without compensation, in most cases. The solution, at least pertaining to expropriation, lies firstly in adopting the Expropriation Bill to repeal the 1975 Act that is in stark conflict with the Constitution and thus unconstitutional. Secondly, the state has to perform under the pressure that it is currently under to ensure that the functionaries and relevant departments undertake a vigorous effort to develop and implement a realistic action plan for successful land reform. Legislation and amendments will be meaningless if the responsible role players in our state are not held accountable for inaction and apathy. 

Land reform has been sought since South Africa became a democracy and is needed in our country.  The reason why expropriation became a politically influenced issue is because the ANC did not deliver on promises made and the land reform process has been slow and almost non-existent. At this stage, the Constitution is not being amended and there is hope that the new Expropriation legislation will better inform on the processes and due diligence to be followed. Expropriation with nil compensation will only be considered in very specific instances such as abandoned land, state land, or land held for speculative purposes. A successful farming operation, family homes, legally occupied land etc. does not fall within this ambit. 

Expropriation is not a new concept and it is not unique to South Africa. It is important to read and understand the rationale behind these processes, before making assumptions and decisions which causes concern for both local and foreign investors. 

 

 
Related Expertise: Property Developments
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