Cutting through the noise of land expropriation without compensation

In many ways, 2018 was book-ended politically and legislatively by the issue of land. In February, the National Assembly resolved to allow for expropriation of land without compensation to give meaningful effect to land reform; in December, the 2019 Expropriation Bill was gazetted — the first step towards putting that into effect.

The bill is the clearest articulation yet of just how "expropriation without compensation" will work. It’s a seminal document: once signed into law, it will provide the legal basis for the application of any amendment to section 25 of the constitution (the property clause).

As it stands, the property clause reflects a delicate balance between protecting property rights from arbitrary state interference, and ensuring equitable access to SA’s natural resources. But the slow pace of land reform has led many to argue that the state has failed to achieve this balance, and that the property clause remains skewed towards property rights over equity.

The willing buyer, willing seller approach that the government has until now taken to land redistribution is also thought to have made land reform unaffordable, forcing a rethink.

It is in this context that the bill came into being — as the key legislative tool to correct historically racially skewed land-holding patterns and expedite the land reform process.

What’s new?

By far the most significant provision in the bill is that it clearly lays out the five types of land that may be justly and equitably expropriated for nil compensation — in the public interest. This includes land that is occupied or used by a labour tenant; land held for purely speculative purposes; land owned by a state-owned entity; land that has been abandoned by its owner; and land that is of a lesser value than any state subsidies from which it may have benefited.

It is worth noting that these categories apply only to land; they do not carry to intellectual property, shares, debentures and other forms of intangible property.

Clarifying process

In addition to the categories for expropriation, the bill establishes the process by which expropriation is to proceed.

Under the bill, the minister of public works holds the power to expropriate land for a public purpose or in the public interest. The minister may also expropriate property on behalf of other organs of state, provided there is a public purpose or public-interest reason behind the expropriation. Only the state is empowered to expropriate property, and even then it may only do so in terms of the 2019 bill — action to the contrary will be open to legal challenge.

For expropriation to go ahead, a notice must be served on the owner, as well as any rights holders in the property. Rights holders include, for example, holders of servitudes or leaseholds. Importantly, the owner or rights holder is required to identify any unregistered rights holders. This means the law offers equal protection to "lesser" forms of ownership — important in a country where an estimated 60% of property ownership exists outside the formal legal system.

Anyone who may be affected may lodge an objection to expropriation (presumably this would have to be on the grounds that the action is not for a public purpose, nor in the public interest, or the authority lacks expropriatory powers). All costs involved in the expropriation — fees and transfer duties, for example — are borne by the state.

On the date of expropriation, the state becomes the owner of the property, but this doesn’t mean it is necessarily in possession of the property at that time: the former owner can reside on the property until the state takes possession of the land, and he or she will remain responsible for municipal rates and taxes until then.

In line with existing case law, owners of mortgaged properties that are expropriated will remain liable for their mortgage.

The issue of compensation

If the land falls into one of the five categories that allows for expropriation with nil compensation, this will be indicated in the notice of expropriation. The ownership of the property will pass on to the state on the date indicated in the notice, and there will be no exchange of money.

On a technical point, nil compensation is not a move away from the principle that the state should pay compensation for expropriated property. There is a long-held presumption that the legislature does not intend to take away rights without compensation. Nonetheless, the practical effect will be that owners of property that falls in the five identified categories will not receive any payment against the loss of their properties to the state.

Where monetary value is paid as compensation, the amount should be paid to the expropriated property owner or rights holder before the state takes possession of the property. A point of concern is that the 2019 bill recognises that there may be delays in payment, but does not hold that such delays should prevent the state from gaining possession of the property. This means property owners and rights holders run the very real risk of not only losing ownership of their assets, but also of not being compensated timeously after that loss.

Under case law this delay does not render the expropriation unlawful. Courts have ruled that an expropriation is still valid even where the compensation is determined on a date after the state has taken both ownership and possession of a property.

The amount of compensation that a property owner is likely to receive depends on the current use of the property; the history of the acquisition and use of the property; the market value of the property; the value of any state subsidies from which the property may have previously benefited; and the purpose underlying expropriation. This means, for example, that if the property has been the object of previous racial dispossession, if it is not being used for food crops, if it has previously received state subsidies, or if the expropriation will grant land ownership to someone without access, then the compensation is likely to be extremely low. Conversely, in other instances it may be just and equitable for market value to play the principal role in the determination of compensation.

What does this all mean?

The 2019 bill is central to how the land reform process will unfold in SA, given that it will provide the legal basis for a revised constitutional property clause.

But it’s unlikely to expedite the land reform process, given the highly technical, drawn-out process involved. As a means of acquiring property for the purpose of land reform, expropriation is certainly not the most efficient method in most instances. And it’s unlikely to be the cheapest.

The 2019 bill makes explicit the role of the courts in the expropriation process, and positions them as the final arbiter in the event of a dispute between the property owner and the state. While this is an important affirmation of the rule of law, it’s likely to result in lengthy court challenges — particularly over the issue of nil compensation — which will burden a legal system already bogged down by huge backlogs (though the provision for mediation may alleviate this somewhat).

In general, the bill provides relatively short time frames for the expropriation process — for example, 20 days for the state to decide on a compensation amount.

This is cautiously welcomed, as speedy resolution will enhance administrative justice — but the likelihood of this occurring seems unrealistic, given the intensely bureaucratic nature of state processes.

Expropriated owners may find themselves out of both house and pocket if their private properties are expropriated and the state fails to pay compensation in a timely manner.

Nonetheless, the need for a new expropriation act cannot be ignored. The current Expropriation Act 63 of 1975, which is still in force, does not reflect the spirit of the constitution. For example, it stipulates compensation to be at market value, regardless of context — something that makes land reform unaffordable for the state.

But the challenge remains of ensuring an expropriation process that protects property rights for the sake of economic development while ensuring greater access to property and entitlements for all South Africans.

Ultimately, the success of the process will turn on a capable developmental state, with a high-performing and skilled public service. As the 2018 report of the high-level panel on the assessment of key legislation makes clear, there is obvious weakness in SA’s ability to execute policy and implement legislation.

The 2019 bill may prove to be no exception: when passed into law it may only heighten uncertainty over the state’s commitment to the protection of property rights, let alone successful land reform.

The 2019 Expropriation Bill is no panacea for the land reform malaise. If anything, its implementation, or lack thereof, may weaken the protection of property rights in SA while at the same time failing to deliver on its promise of equitable access to the country’s natural resources.