The Expropriation Bill - Why is everyone focusing on expropriation without compensation and not on the major land reform issues?

A shortened version of this brief appeared in the “Daily Maverick” of 26 March 2021.

An introduction to the Expropriation Bill

The Expropriation Bill has been submitted to Parliament for its consideration. 

The main provisions are:

• no expropriation may be done arbitrarily or for a purpose other than a public purpose or in the public interest[1];
• expropriation of property may not take place unless an attempt to reach an agreement on reasonable terms with the owner, was unsuccessful;
• the suitability of the property must be ascertained for the purpose for which it is required and the notice of expropriation must include a description of that purpose and the reason for the expropriation;
• compensation must be just and equitable reflecting an equitable balance between the public interest and the interests of the expropriated owner, having regard to all relevant circumstances, including the current use of the property, the history of its acquisition and use, the market value, the extent of state investment in the acquisition and improvement, and the purpose of the expropriation[2];
• nil compensation may 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 not being used and the main purpose is speculative;
  • if it is owned by a state-owned corporation which is not using it for its core functions and if it was acquired for no consideration;
  • if the land has been abandoned;
  • where the market value is equal to or less than state investment or subsidy in its acquisition and improvement;
  • where the condition of the property poses a health, safety or physical risk; or
  • the acquisition of ownership of land which a labour tenant is entitled to occupy in terms of the Land Reform (Labour Tenants) Act.
    (Note that the Expropriation Bill determines that nil compensation “may” be paid in these circumstances, not that it “will” be paid. In addition, it provides that nil compensation is not limited to the specific cases mentioned. However, it is assumed that a court would see the ambit of expropriation without compensation as restrictive in extent, as a result of the type of property that is mentioned in this context.)
• if no agreement is reached on the amount of compensation, the expropriating authority and the owner may attempt to settle the dispute by mediation and if that is not successful, either party may approach a court to decide on the compensation. Should the disputing party request it to do so, the expropriating authority must institute such legal proceedings.

While ‘property’ is defined as meaning property contemplated in Section 25 of the Constitution (ie. not limited to land), it must be noted that Section 12, which outlines circumstances where compensation may be nil, explicitly refers only to the expropriation of land. 

The basis on which property could be expropriated up to now has been subject to what it would fetch in the open market on a “willing seller/willing buyer” basis. This provision does not appear in the Constitution, but is to be found in the Expropriation Act of 1975 (which the Expropriation Bill is to replace), where it is used to place a ceiling on the price to be paid on expropriation (and not to determine the actual amount). The Expropriation Bill does not contain similar provisions. The fact that Government is only now engaged in changing the expropriation principles of an Act which was passed in 1975, is in itself noteworthy, as it provides further evidence of the lack of political will in executing a meaningful land reform programme.

How are holders of mortgages on land affected by expropriation?

The Expropriation Bill provides that notice of expropriation must be given to the holder of a mortgage bond registered in a Deeds Office and that an expropriated property remains subject to all registered rights in favour of third parties, with the exception of a mortgage. On expropriation, a mortgage holder therefore loses the rights in respect of the mortgage - but this would obviously not affect whatever obligations may be due to the mortgage holder in respect of the principal debt.

Given the relatively limited circumstances in which nil compensation may be payable, it is assumed that the potential exposure by banks to the consequences of such expropriation, is similarly limited.

How should we view the provisions of the Expropriation Bill?

We see the Expropriation Bill as being in keeping with the Constitution as it stands now, especially if the wording of Section 25(8) of the Constitution is taken into account:

“No provision of this section may impede the state from taking legislative and other measures to achieve land, water and related reform, in order to redress the results of past racial discrimination, provided that any departure from the provisions of this section is in accordance with the provisions of section 36(1).” (Note: the latter proviso refers to laws of general application).

We remain of the opinion that the Constitution does not have to be changed to make provision for expropriation without compensation, within the parameters mentioned above.

Against this background, the question obviously arises as to why a change to Section 25 of the Constitution is still deemed necessary. The reasons for the proposed change lie in internal ANC dynamics and the emotionally charged public debate. The focus on a change to the Constitution has also provided the ANC with an opportunity to try to avoid blame for its lack of action on land reform over more than two decades. For its part, the EFF has found it to be a useful means of attempting to raise its own public profile. 

The proposed change to Section 25 of the Constitution provides that “a court may, where land is expropriated for the purposes of land reform, determine that the amount of compensation is nil”, providing further that “the amount of compensation 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.” This wording clearly limits the state’s ability to expropriate land for no compensation.

How are property owners’ rights to be protected?

The Expropriation Bill expressly states that expropriation cannot be implemented unless the expropriating authority has attempted to reach an agreement with the owner on reasonable terms, but without success. This makes it legally impermissible for expropriation authorities to attempt to use their powers without an attempt to reach such an agreement. Legal recourse is provided for in the Expropriation Bill, in the event of any disputes.

As a last point on the subject of owners’ rights, the Expropriation Bill states that a dispute on the compensation which is payable in the event of expropriation, will not on its own, preclude the act of expropriation. However, this would not prevent dissatisfied property owners seeking legal redress to prevent expropriation, quite apart from any disputes on compensation.

Why is there such a lack of focus on the major land reform issues?

The concept of expropriation without compensation has fuelled a heated public debate over more than two years, between those who are militantly in favour and those who are appalled at the prospect. The Expropriation Bill will not satisfy the militant supporters of expropriation without compensation, but then neither does it play into the alarmist narrative of the other extreme. However, both these extremes have focused on expropriation without compensation as the main issue in the broader land reform debate - for the one, it appears to solve all the problems, whereas for the other, it represents an apocalyptic outcome.

Neither of these extremes seems to be able to accept that expropriation without compensation is not the main issue - especially not because the Expropriation Bill, in remaining within the confines of Section 25 of the Constitution, is not an aggressive piece of legislation and manages to deal with the issue in a restrained manner. Even if Section 25 of the Constitution is changed, as proposed, it will not make a material change to the situation.

Land reform’s problematic issues go far beyond expropriation without compensation. Prior to an overall legislative, administrative and financial framework for land reform being established, clarity first has to be obtained on a number of different issues which may have a direct or indirect effect on any expropriation process. The very extensive range of issues which need to be addressed are illustrated by the following questions (which are by no means exhaustive)[3]:

• How will decisions be taken on land that is to be expropriated? What criteria are relevant in any decisions? Who will take the decisions? How is a transparent and effective decision-making process to be run, given the “increasing evidence of corruption by officials, the diversion of land reform budgets to elites, lack of political will and lack of training and capacity”?[4]
• Who is to be given the expropriated land? Who will decide on who is to be a beneficiary? On what criteria? Will the policy be targeted to benefit the poor? 
• How much land is to be targeted for land expropriation?
• What should the balance be between urban and rural land reform, since it appears that the main demand is in urban, not in rural areas? What are the needs for each category? Will any land redistribution be subject to feasibility studies which set out what can realistically be achieved in any specific case? Have the environmental implications been taken into account in an adequate manner? If urban development is foreseen, will it fit into larger urban development programmes (including transport and basic infrastructure)? 
• Is post-settlement support by Government to be provided, or will beneficiaries (presumably mainly the poor) be left to their own devices?
• On what legal basis is the land to be held by beneficiaries? With full legal title or through a lease from a local authority? If it is the latter, what security of tenure will beneficiaries have? Is any form of tenure reform envisaged by Government for this purpose?
• Will the process be managed by an adequately resourced and staffed land reform agency? Will appropriately qualified staff be available for this? This question arises against the background of a recent Constitutional Court judgment which described the Department of Rural Development and Land Reform as having “displayed a patent incapacity or inability to get the job done”[5] - and as a result, the Constitutional Court had no alternative in that case but to approve the out-sourcing of certain functions of that Department for the basic task of processing thousands of labour tenants’ claims.
• Will Government be able to fund this whole undertaking, in stark contrast to the purely nominal funding dedicated to land reform up to now? According to National Treasury’s 2021 Budget Review, land reform, restitution and farmer support takes up only 0.35% of total Government expenditure (including debt service) for 2021/22. This tells a story of its own.

It is striking that these issues are given no prominence in the emotionally charged public debate. The focus has been almost exclusively on the principle of expropriation without compensation and the supposed need for the Constitution to be amended to cater for it.

Little attention has been paid by Government to concerns raised about blows to investor confidence. There seems to be no grasp in Government of a very basic rule: investors do not mind taking risk, but they require a minimum level of certainty and predictability to be able to take a decision. If investors are clearly told what will and what will not be done (and set out in legislation and relevant regulations), they will assess the risk and will make their decisions accordingly. However, in the absence of clarity (see all the unanswered questions above), it is to be assumed that investor confidence will suffer.

Any land reform programme which does not address the issues which are set out in this piece, however well-meant it may be in principle, will not succeed. Unless land reform is dealt with on a holistic basis, with an appreciation of all its aspects (including potential expropriation), Government will be confronted with a myriad of troublesome legal and administrative issues which will be difficult or impossible to resolve.

Anton van Dalsen
Helen Suzman Foundation
anton@hsf.org.za

[1] “Public purpose” is defined as including any purposes connected with the administration of the provisions of any law by an organ of state. “Public interest” is defined as including “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.”