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Expropriation bill set to face constitutional challenge

The Expropriation Bill, which provides in certain circumstances for expropriation of property with nil compensation, is set to be challenged in the Constitutional Court if it is passed in its current form by the National Council of Provinces (NCOP) and signed into law.

This follows the National Assembly on Wednesday considering and passing the bill.

Agri South Africa executive director Christo van der Rheede and Democratic Alliance (DA) Shadow Minister of Public Works and Infrastructure Samantha Graham-Maré confirmed on Thursday that they intend to challenge the constitutionality of the bill if it is passed by the NCOP in its current form and assented to by the president.

However, Graham-Maré expressed the hope that this will not be necessary and the DA will be able to bring enough pressure to bear to amend the bill before it is enacted.

Van der Rheede said the National Assembly on Wednesday did not use the debate on the bill to engage with the serious flaws which remain in it and “missed this opportunity to mitigate its likely harm to the agricultural sector and wider economy should the bill in its current form be adopted”.

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‘Disastrous impact’

He said Agri SA’s position remains that the inclusion of the nil compensation clause will undermine access to capital and capital formation for the sector and economy.

Examples from similar land policies implemented in countries like Zimbabwe and Venezuela illustrate the potentially disastrous impact these policies can have on agriculture, the broader economy and society, he said.

Van der Rheede said another significant issue with the bill is how it defines expropriation itself, which Agri SA believes is too narrow.

He said this essentially opens the door to a form of indirect expropriation through the limitation of property rights without compensation being payable.

“These issues will have a negative impact on our shared national commitment to building a more inclusive agricultural sector.

“It will weaken the protections afforded to private property and this could see an exodus of capital from the agricultural sector and the broader economy.”

He said the anticipated loss of jobs and investment will impact both emerging and established farmers alike.

“A further assault on the certainty of property rights will only add to a climate that deters investment in, among others, the agriculture sector, which will undermine the country and region’s food security.”

‘Sneaking in through the back door’

Graham-Maré said the bill seeks to undermine private property rights in favour of state ownership by sneaking expropriation without compensation through the back door inside of ordinary legislation.

The DA therefore believes the bill is unconstitutional and violates Section 25 of the Constitution, she said.

Graham-Maré said Minister of Public Works and Infrastructure Patricia de Lille’s response was that the independence of the judiciary would ensure that compensation would be fairly determined.

However, she said the average person is not able to afford the costs of litigation, particularly against the state which has access to vast legal resources and no limit on expenditure.

“Litigation should be the very last resort, not the preferred method, for determining just and equitable compensation.”

Issues for banks

A number organisations have previously criticised and voiced their opposition to the bill, including the Banking Association of South Africa (Basa).

Attempts to obtain comment from Basa on Thursday were unsuccessful.

However, the association highlighted a number of concerns about the bill in a submission released last year, including:

  • Property owners with mortgages and other bonds on property that may be expropriated at below market value or without compensation will still be liable for the full debt on a property, even if the underlying asset has been expropriated at below market value or without compensation.
  • Banks had extended R1.6 trillion in residential, commercial and agricultural mortgages to borrowers and many other forms of credit are premised on a customer’s financial standing, which in the majority of cases is supported by the equity in their property. Any legislation that threatens the repayment of loans owing to banks would undermine a critical sector of the economy and put depositor’s funds at risk.
  • Banking crises often start with a decline in the value of land-based property and the impact this has on market confidence, as was evident in the global financial crisis of 2008.
  • The South African Banks Act and its regulations require that banks have sufficient capital and liquidity to return depositors’ and investors’ funds with interest on demand but if the value of land is reduced by expropriation to nil compensation, or below market value, banks will have reduced capital against which to extend credit for entrepreneurs and personal development and will have to adopt more conservative loan policies. This will affect all credit extension, not just property.
  • Section 12 of the bill, which seeks to identify five instances where nil compensation may be justified, is ill defined and given that the preamble to this section states “but is not limited to” makes this section irrelevant. As a principle, Basa is opposed to the inclusion of this section as it represents a dilution of property rights.

The purpose of the bill is to repeal the existing Expropriation Act of 1975 to provide a common framework in line with the Constitution to guide the processes and procedures for the expropriation of property by organs of state.

It also provides for several circumstances where it may be just and equitable for nil compensation to be paid where land is expropriated in the public interest.

These include 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.
  • 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.
  • An owner has abandoned the land by failing to exercise control over it.
  • When the nature or condition of the property poses a health, safety or physical risk to persons or other property.

Parliament previously said the introduction of the Expropriation Bill should not be confused with the Constitution Eighteenth Amendment Bill, which was proposed to amend Section 25 of the Constitution to allow for expropriation without compensation.

The Expropriation Bill seeks to outline how expropriation must be done and guides the processes and procedures for expropriation of property by organs of state.

The Constitution Eighteenth Amendment Bill in December 2021 failed to receive the required number of votes in the National Assembly to be passed.

Listen as Fifi Peters talks to Bulelwa Mabasa from Werksmans about the bill (or read the transcript here):


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