Proposed Expropriation Without Compensation (EWC) bill: fewer demons but still flawed

Rosh Pinah Properties (RPP), in conjunction with Cliffe Dekker Hofmeyr (CDH) attorneys, recently hosted a webinar on 12 November 2020.  The webinar featured members of the CDH team, who analysed specific details of the Expropriation Bill 23 of 2020, draft legislation that covers land expropriation without compensation (EWC), a topic that has been discussed at length in the media in recent months.

Questions that need answers

René Styber, a director of RPP, started the webinar by explaining why clarity on EWC is so important in the current environment.  “There are simply too many unanswered questions in the public arena about EWC.  This has led to uncertainty in the minds of property owners, funders and lenders.  How safe are our investments?  Should we be investing more?  And when it comes to foreign investors, who look at South Africa through the lens of just another country to invest in, there are doubts.  In summary, what can we expect in the years to come in this key area?”

Burton Meyer of CDH unpacked several key aspects of the draft Bill.  “Firstly, let me say that in studying the Bill from a property-owner’s perspective, I was pleasantly surprised.  There are definitely many protective measures in place.   I believe that the negative rhetoric we have seen in the media is not entirely justified and many fears are unfounded.  Of course, there are questions to be answered and legitimate fears to be dealt with.  In general, though, the legislation refers back to the Constitution, specifically Section 25, where the rights of property owners are protected.  In this section, land can still be expropriated but compensation is always provided for.  There must be consultation and consensus and compensation must be reasonable.”

The Bill allows for property to be expropriated for three basic reasons.  “These are:  for land reform, for access to natural resources and to redress past injustices.  The Bill stresses that expropriation must be in ‘the public interest.’  There is the possibility of nil compensation to be paid, but this is only possible in a few situations, specifically when land is not being used and is being kept purely to appreciate in value, when it is State land and when the land is considered to be abandoned,” says Meyer.

Weaknesses in current draft

Meyer highlighted a particular weakness in the Bill.  “My concern relates to the transfer process between owner and the State.  The Bill provides for the actual change in ownership to precede the date of transfer from the original owner to the State, which is on the date of the notice of expropriation.  The problem with that is the State will technically own the land, but the owner remains liable for costs associated with the land before transfer has taken place.  Examples of this are rates and taxes that need to be paid between the date of expropriation/ownership and the date of possession never mind the date of transfer.  If there is a dispute and it goes to court then there will be delays.  This could take a long time.  There needs to be a clear link between OWNERSHIP and TRANSFER.  Similarly, the owner must declare unregistered rights to the State to remove the risk to him/herself.”

Bill silent on bondholders

Claudette Dutilleux of CDH then addressed the issue of how financial institutions and bond-holders with be dealt with in terms of the Bill.  “Putting it simply, the Bill is silent on bond holders and registered rights owners.  In normal property sales and transfers, these parties are essential partners and will remain so in the transfer process during expropriation from owner to State.  But the Bill is silent on the details of bonds over properties and how these will be dealt with.  Normally, title deeds remain with the bond holder and these will have to be passed to the new owner, which is the State.  The question is thus, once transfer has taken place, what happens to a registered bond and the title deeds?”

Protection for bondholders required

In the light of this, what is required in the Bill to provide protection to a financial institution as a rights holder?  Dutilleux explains, “There must be a clear definition of exactly what a financial institution/bond holder is, plus a clear obligation on the expropriating authority to purposely engage with the financial institution prior to the agreed amount of compensation.  Put simply, there needs to be protection of the bond holder through a defined process.”

Patricia Potgieter, a director of RPP, concludes, “Our thanks go to the participants from CDH for their informed and insightful contributions in this important debate.   It seems, from their comments, that the EWC process holds fewer demons than was originally anticipated.  However, it is essential that the authorities give urgent consideration to these identified risks, plus possibly others, before the Bill finally becomes law.”

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