The IRR’s Better Expropriation Bill
The Expropriation Bill of 2015, recently put forward by public works minister Thulas Nxesi, (the Nxesi Bill) will make it much harder to build prosperity and overcome past disadvantage by undermining property rights, deterring investment, and choking off growth and jobs, warns the IRR (Institute of Race Relations).
The IRR has thus developed an alternative expropriation bill with many advantages over Mr Nxesi’s one, says Dr Anthea Jeffery, Head of Policy Research at the IRR.
The IRR’s alternative bill deals with all the defects in the current Expropriation Act of 1975. By contrast with the Nxesi Bill, it is also fully in line with the Constitution.
Says Dr Jeffery: “Like the Nxesi Bill, the IRR’s measure allows expropriation ‘in the public interest’ as well as ‘for public purposes’. It also says that market value must be weighed against the four ‘discount’ factors listed in the Constitution in deciding what is ‘just and equitable’ compensation.” (These discount factors include the history of the property and the extent to which the State has previously funded its purchase.)
Unlike the Nxesi Bill, the IRR’s measure also says that:
- The State must obtain a High Court order confirming the constitutional validity of a proposed expropriation – and the adequacy of the compensation proposed – before it issues a notice to expropriate any property;
- The compensation payable must also include damages for consequential loss resulting from the expropriation, from moving costs to any loss of future income; and
- All the compensation due must be paid before the State takes ownership of the property, failing which the notice of expropriation automatically becomes invalid.
Adds the IRR: “The Nxesi Bill omits these safeguards against potential abuse. It is also unconstitutional in empowering the State to take ownership and possession upfront – leaving it to the owner to seek redress in the courts thereafter, if he can afford this.
“Yet even our common law bars the State from simply seizing property – even property suspected of being linked to serious crimes – without first obtaining a court order in the form of a search-and-seizure warrant.
“The Constitution adds to this common-law protection by laying down various requirements which have to be met before an expropriation can be valid. The Nxesi Bill rides roughshod over these rights, whereas the IRR’s measure gives full effect to them.
“Moreover, the Nxesi Bill seeks to oust the jurisdiction of the courts by allowing them to adjudicate solely on the compensation offered – and not on the overall validity of the expropriation. It also seeks to limit court review by giving the owner a mere 60 days to sue for additional compensation, failing which he will be ‘deemed’ to have accepted the State’s offer.”
The property rights the Nxesi Bill so fundamentally undermines are also vital to upward mobility. This is why apartheid restrictions on African land and home ownership were among the most damaging aspects of past racial discrimination. Since these restrictions began to crumble in 1975 – and were finally abolished by the National Party government in 1991 – African ownership of houses, land, and other assets has finally been able to grow, and has done so exponentially.
States Dr Jeffery: “To speed up this process, South Africa need growth at 6% of GDP a year, coupled with an upsurge in investment and employment. Instead, the Nxesi Bill threatens to reverse these gains. Under its provisions, ever more land and other assets will become vested in the State, thus disempowering all South Africans and eroding the property rights essential to individual prosperity and political freedom.
“Anyone who doubts the importance of property rights – and the dangers in allowing the State to undermine them – has only to look north to Zimbabwe, west to Venezuela, and east to North Korea to understand why the Nxesi Bill must be rejected and why the IRR one should be adopted in its stead.”
An overview of the IRR’s alternative expropriation bill, plus a more comprehensive version of it, follow below:
***
Overview of the IRR’s Alternative Expropriation Amendment Bill
Scope:
The IRR’s alternative Expropriation Amendment Bill (a framework document which is also available on the IRR website), deals with direct and indirect expropriation by all expropriating authorities – whether the minister of works or any other organ of state. It covers both movable and immovable property as well as mining and water rights; mortgages, servitudes, and other registered rights; shares in companies; and intellectual property rights, including patent rights.
Principles:
An expropriating authority must fulfil all relevant constitutional requirements, including those governing ‘just and equitable’ compensation. It must also obtain a High Court order confirming that it has done so, before it may proceed issue a notice of expropriation.
Compensation must start with the market value of the property, less the four ‘discount’ factors listed in the property clause of the Constitution. However, since expropriation places an ordinate burden of redress for past societal wrongs on the shoulders of particular individuals, compensation must also include damages for all consequential losses, including moving expenses and any loss of future income. If the property to be expropriated includes the owner’s home, his eviction must expressly be authorised by the High Court and suitable alternative accommodation may also have to be provided.
Initial processes:
An expropriating authority must start by negotiating with the owner with a view to agreeing on a voluntary purchase. If these talks fail, it must issue a notice of possible expropriation, invite objections, and give reasons in writing for rejecting any objections submitted to it. It may also investigate the value of the property.
If the expropriating authority then wishes to proceed, it must give the owner 180 days’ notice of its intention to seek a High Court order confirming the constitutional validity of the proposed expropriation.
High Court hearing on constitutionality:
The expropriating authority bears the onus of proving, on a balance of probabilities, that its proposed expropriation meets all constitutional requirements. During the court hearing, the owner’s evidence and representations must be heard in full. The expropriating authority must pay the owner’s reasonable legal costs in participating in these proceedings (on an attorney-and-client basis).
If the High Court confirms the constitutionality of the expropriation, it must issue an order dealing with all relevant issues, as listed in this Bill. Among other things, the court’s order must instruct the expropriating authority to pay all compensation due to the owner at least 15 working days before the transfer of ownership to it is due to take place.
Notice of expropriation:
If the High Court confirms the constitutionality of the proposed expropriation, the expropriating authority may thereafter issue a notice of expropriation. This notice must be in keeping with the High Court order and accompanied by a copy of it. The notice must give the owner 90 days from the date of service of the notice before the transfer of ownership to the expropriating authority may take place, and another 90 days before possession may pass. However, the owner may agree in writing to shorter periods if he so chooses.
The expropriating authority must pay all the compensation due to the owner at least 15 working days before ownership is to pass to it. If the expropriating authority cannot provide written evidence of having done so, the expropriation notice is automatically set aside and has no further force or effect.
If suitable alternative accommodation is required for an owner being evicted from his home, this accommodation must also be provided 15 working days before ownership is due to pass. The same consequences follow for any failure to do so.
The owner has the right to the use of, and income from, the property until possession passes to the expropriating authority, but must look after the property, pay municipal rates and charges (if applicable) and maintain the property’s value.
Third party rights:
The expropriating authority must pay any mortgage holder as much of the total compensation due as is needed to settle the debt; and must do so at least 15 working days before ownership is due to pass to it. On the same day, it must also pay the remaining balance to the owner. If the mortgage holder has been paid timeously and in full, the mortgage ends when ownership is transferred to the expropriating authority.
If the expropriating authority wishes to expropriate mining rights or other registered rights in land, it must follow the process set out in the Bill in relation to each rights holder. However, if the matter is particularly urgent, the expropriating authority may seek and obtain High Court authorisation to issue the same notice of expropriation to all rights holders, each of whom will be entitled to just and equitable compensation and the other protections set out in this Bill.
Incidental matters:
Further rules will apply where the owner cannot be traced, and will govern the withdrawal of a notice to expropriate. The existing Expropriation Act of 1975 (and earlier amendments to it) will be repealed when a new Bill along these lines is enacted and comes into effect.
Regulations:
Any regulations must be consistent with this Bill and tabled in Parliament for approval three months in advance.
Precedence over other expropriation legislation
To ensure that the procedures and requirements outlined apply to all expropriations, this Bill will have the capacity to trump all other laws dealing with expropriation.
IRR (Institute of Race Relations) 22 April 2015
***
The IRR’s Alternative Expropriation Amendment Bill: A Framework Document
Outline of key sections
The Expropriation Bill of 2015, which was released by the minister of public works, Thulas Nxesi, in January this year, is unconstitutional and economically damaging. This Bill should be withdrawn and replaced by a new ‘expropriation amendment bill’ which is fully compliant with the Constitution and contains adequate safeguards against any abuse of the power to expropriate. The IRR has drawn up the framework for an alternative bill, which should be worded roughly as follows:
1. Definitions
Many of the relevant definitions would be the same as those in the current Expropriation Act of 1975. Others would need to be added or amended, and these are underlined:
Constitution means the Constitution of the Republic of South Africa, 1996.
date of expropriation means the date on which ownership of the property in question is to pass to the expropriating authority under section 11(4)(b)
date of notice means the date on which a notice of expropriation is served on the owner of the property in question under section 11(2).
expropriating authority means the minister of public works or any organ of state.
expropriation means the direct or indirect expropriation of property by an expropriating authority, either for public purposes or in the public interest.
Master means the Master of the High Court having jurisdiction over the area in which the property in question is situated.
Minister means the minister of public works.
organ of state means an organ of state as defined in section 239 of the Constitution
owner, means the person who owns the property or who holds the right in question. [More detailed provisions are also needed to cater for deceased estates, sequestration, trusts, owners subject to legal disability, and the like, but these have not been included in this framework document.]
property means movable and immovable property; mining and water rights; mortgages, servitudes, and other registered rights; shares or debentures in companies; and patent and other intellectual property rights.
public interest includes the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources.
public purpose includes any purposes connected with the administration of the provisions of any law by an organ of State.
notice of expropriation means a notice contemplated in Section 11.
serve means to serve a notice or other document by delivering it by hand or registered post, or in accordance with the directions of the High Court.
2 Power to expropriate
(1) The power to expropriate vests in all expropriating authorities, as defined in section 1.
(2) Expropriating authorities may expropriate property solely for a public purpose or in the public interest, and must comply with all the requirements of this Act, especially (but not limited to) those set out in Sections 3 to 19.
3 Constitutional principles governing expropriation and the possible eviction of people from their homes
(1) All constitutional principles governing expropriation must be fulfilled, and must be confirmed by the High Court as having been fulfilled, before any expropriating authority may issue a notice of expropriation.
(2) The relevant constitutional principles are those contained in Sections 25(1), 25(2), 25(4), 25(5), 25(7) and 25(8) of the Constitution, Section 26(3) of the Constitution, and Section 34 of the Constitution.
(3) The relevant provisions of Section 25 are as follows:
Section 25(1): No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.
Section 25(2): Property may be expropriated only in terms of law of general application –
(a) for a public purpose or in the public interest; and
(b) subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court.
Section 25(4): For the purposes of this section –
(a) the public interest includes the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources; and
(b) property is not limited to land.
Section 25(5): The state must take reasonable legislative and other measures, within its available resources, to foster conditions which enable citizens to gain access to land on an equitable basis.
Section 25(7): A person or community dispossessed of property after 19 June 1913 as a result of past racially discriminatory laws or practices is entitled, to the extent provided by an Act of Parliament, either to restitution of that property or to equitable redress.
Section 25(8): 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).
(4) The relevant provisions of Section 26 of the Constitution are as follows:
Section 26(3): No one may be evicted from their home, or have their home demolished, without an order of court made after considering all the relevant circumstances. No legislation may permit arbitrary evictions.
(5) The relevant provisions of Section 34 of the Constitution are as follows:
Section 34: Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court, or where appropriate, before another independent and impartial tribunal or forum.
4 Constitutional principles regarding ‘just and equitable’ compensation
(1) Under this statute, compensation on expropriation must comply with the constitutional principles regarding ‘just and equitable’ compensation contained in Section 25(3) of the Constitution.
(2) Subject to section 13(5) below, compensation on expropriation must be based on:
(a) the market value of the property, this being the amount the property would have realised if it had been sold on the date of service of the notice of expropriation by a willing seller to a willing buyer;
(b) the current use of the property;
(c) the history of the acquisition and use of the property;
(d) the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property;
(e) the purpose of the expropriation; and
(f) an amount to make good all financial losses resulting from the expropriation.
[The words underlined are mainly the ‘discount’ factors listed in Section 25(3), the monetary value of which should generally be deducted from market value. These factors are currently not included in the 1975 Act. Since the list in Section 25(3) is expressly not a closed one, there is no reason not to retain the damages for all resulting financial losses for which the 1975 Act already provides. Section 13(5) says that the value of any suitable alternative accommodation provided to an owner who is evicted from his home as a result of an expropriation should be deducted from the compensation due.]
5 Negotiations on the purchase of the property
(1) If an expropriating authority is interested in acquiring property for public purposes or in the public interest, it must serve a notification to this effect on the owner and negotiate with him for the purchase of the property on mutually acceptable terms, including a mutually acceptable price.
(2) The expropriating authority must also inform any holders of registered rights in the property of its interest in acquiring the property, and of the terms of any agreement reached with the owner on its purchase by the authority.
6 Notice of possible expropriation
(1) If no agreement on the purchase of the property under Section 5 can be reached within 90 days of the date the notification was served on the owner under section 5(1), the expropriating authority may serve a notice of possible expropriation on the owner and on all those with registered rights in the property. [These would include a bank holding a mortgage loan, the holder of a mining right, or the holder of a servitude.]
(2) This notice must:
(a) fully describe the property,
(b) explain the reasons for the proposed expropriation, and
(c) state that all constitutional requirements for expropriation will be fulfilled and that a High Court order confirming the constitutionality of the expropriation will be sought and obtained before the expropriation proceeds.
(3) The notice must also invite objections in writing from the owner and all registered rights holders within 90 days.
(4) The expropriating authority must respond in writing to all objections and must do so within 60 days.
(5) If the owner’s objections are accepted, the expropriating authority may not proceed with the proposed expropriation.
(6) If the expropriating authority rejects the objections, it must give full reasons in writing for doing so.
(7) The expropriating authority must thereafter proceed to:
(a) seek further information relevant to the compensation that would be payable in the event of expropriation,
(b) seek a High Court order confirming the constitutional validity of the proposed expropriation,
(c) give the owner and all registered rights holders at least 180 days’ notice of these court proceedings.
7 Investigation prior to High Court application
(1) The expropriating authority must seek information from the owner and others on issues relevant to the amount of compensation payable for the property.
(2) It may require the relevant municipality to provide copies of approved plans, zoning by-laws, and similar information.
(3) A representative of the expropriating authority may also enter and inspect the property, but must have both the prior written authority of the expropriating authority and the prior written consent of the owner to do so.
(4) Any person who enters the property must carry with him both the written authority of the expropriating authority and the owner’s written consent, and may enter only at reasonable hours and by prior written agreement with the owner regarding the time and manner of his access to the property.
(5) The inspector may not dig into the property, or build weirs and the like, without the additional written permission of the owner.
(6) The owner may claim compensation for any damage caused during this inspection.
8 Notice of court hearing and compensation proposed
(1) After this investigation has been concluded, if the expropriating authority wishes to proceed with the proposed expropriation, it must serve notice on the owner of its intention to seek judicial confirmation of the constitutionality of the proposed expropriation. It must also provide details of the compensation it proposes to pay. If the proposed expropriation will involve the eviction of the owner from his home, the expropriating authority should, in addition, provide details of the suitable alternative accommodation it proposes to provide.
(2) At least 180 days’ notice of the proposed High Court application must be given to ensure that the owner has adequate time to prepare for the necessary court hearing.
9 High Court hearing into constitutionality
(1) The expropriating authority bears the onus of proving, on a balance of probabilities, that its proposed expropriation meets all the requirements for a valid expropriation under the Constitution.
(2) The expropriating authority must prove that the proposed expropriation is not arbitrary, that it is authorised by a law of general application, and that it is objectively for a public purpose or in the public interest.
(3) The expropriating authority must prove that the compensation it proposes to pay is just and equitable in all the circumstances, and complies in full with Section 4 of this Bill.
(4) If the proposed expropriation will involve the eviction of the owner from his home, the expropriating authority must provide the court with all relevant information, show that the proposed eviction is just and equitable in all the circumstances, and give details of the suitable alternative accommodation it proposes to provide.
(5) The owner has the right to obtain pleadings and other information in advance, to make representations via legal counsel, to provide his own evidence, and to cross-examine any witnesses called by the expropriating authority.
(6) The owner may claim from the expropriating authority his reasonable legal costs in preparing for and participating in this High Court hearing, as determined on an attorney-and-client basis.
10 High Court order confirming or rejecting constitutionality
(1) The High Court must decide on the constitutionality or otherwise of the proposed expropriation, the adequacy of the proposed expropriation, and whether the owner may be evicted from his home in all the relevant circumstances. It must also give full reasons in writing for its decision(s).
(2) If the High Court rejects the constitutionality of the proposed expropriation, the expropriating authority may not proceed with the proposed expropriation (unless the expropriating authority successfully appeals against the court’s decision, see below).
(3) If the High Court confirms the constitutionality of the proposed expropriation, its judgment and accompanying order must cover all relevant issues, including the amount of compensation payable for the property, which must be based on all the factors listed under Section 4 of this Bill. The order must also require payment of all compensation due at least fifteen (15) working days before the date of expropriation on which the expropriating authority is to take ownership of the property.
(4) Where this is relevant, the High Court order must also authorise the eviction of the owner from his home, failing which any eviction will be unlawful. It may also require the provision of suitable alternative accommodation.
(5) If either party seeks to appeal against the High Court order, expropriation may not proceed until the appeal has been abandoned or dismissed, or the right to expropriate the property, as well as the compensation payable, and so on, has been confirmed by a higher court.
11 Notice of expropriation
(1) Once a final court order confirming constitutionality has been obtained, the expropriating authority may issue a notice of expropriation. This notice must be fully in keeping with the court order.
(2) This notice must be served on the owner and the holder of any other registered right. [Examples would include a servitude, a mining right, or a bank with a mortgage bond over the property.]
(3) The notice must have the court order appended to it.
(4) The notice must:
(a) clearly identify the property;
(b) state the date of expropriation on which ownership is to pass to the expropriating authority, which may not be earlier than 90 days from the date of service of the notice, unless the owner agrees to an earlier date in writing;
(c) state the date on which the right to possess the property is to pass to the expropriating authority, which may not be earlier than 90 days from the date of expropriation, unless the owner agrees in writing to an earlier date for the passing of possession;
(d) promise payment to the owner (and/or a bank holding a mortgage bond over the property, if applicable) of all the compensation due, as set out in the court order, at least fifteen (15) working days before ownership is to pass to the expropriating authority under sub-section (b);
(e) where relevant, promise the provision of suitable alternative accommodation, which must be made available to the owner at least fifteen (15) working days before ownership is to pass to the expropriating authority under sub-section (b).
(5) Neither the expropriation notice nor any transfer of ownership or possession effected under it is valid unless the relevant court order and the provisions of this section, particularly sub-sections (d) and (e), have been fulfilled.
(6) The owner may seek urgent relief from the court which granted the order if any aspect of its order has not been fulfilled.
(7) If the court confirms that any aspect of its order authorising the expropriation has not been fulfilled, the expropriation notice is automatically set aside and has no further force and effect.
12 Payment of just and equitable compensation
(1) The compensation due to the owner must be provided in money and must comply in full with the court order authorising expropriation.
(2) The full amount due must be paid to the owner (or to the owner and/or the bondholder under section 16), at least fifteen (15) working days before the expropriating authority is to take ownership of the property under section 11(4)(b).
(3) If the expropriating authority cannot prove in writing that the full amount of the compensation due has been paid to the owner (or to the owner and/or the bondholder, where applicable), as required by section (11)(4)(d), the notice of expropriation is automatically set aside and has no further force or effect.
(4) Compensation may generally not include the value of any improvements made to the property after the notice of expropriation was served on the owner, provided this notice was in keeping with and accompanied by a court order confirming the validity of the expropriation.
13 Court authorisation of eviction and provision of suitable alternative accommodation
(1) The owner cannot be evicted from his home except in accordance with the court order issued in terms of section 10(4), which must expressly authorise this, failing which any eviction of the owner is unlawful.
(2) If this court order requires the provision of suitable alternative accommodation to the owner, the expropriating authority must provide this to the owner at least fifteen (15) working days before ownership of the property is to pass to the expropriating authority under section 11(4)(b).
(3) If the expropriating authority cannot prove in writing that suitable alternative accommodation has been provided to the owner, as required by section (11)(4)(e), the notice of expropriation is automatically set aside.
(4) If the alternative accommodation provided is not in fact suitable, the owner may seek urgent court relief. He may not be evicted from his home until suitable alternative accommodation has been provided.
(5) The provision of suitable alternative accommodation is not a substitute for the just and equitable compensation required on expropriation under Section 4, but its value must be taken into account in computing the amount of compensation due to the owner.
14 Passing of ownership
(1) Provided that the expropriation is carried out in accordance with the court order and the full amount of the compensation due has been paid to the owner (or to the owner and/or the bondholder, where appropriate) under Section 11(4)(d), and any promised suitable alternative accommodation has been made available to the owner under Section 11(4)(e), the transfer of ownership from the owner to the expropriating authority takes place on the date of expropriation specified in the notice of expropriation.
(2) When ownership is transferred to the expropriating authority under subsection (1), the effect of this transfer is to extinguish the owner’s prior right of ownership, but not other registered real rights in the property, except for a registered mortgage bond (see Section 16 below).
(3) Other registered rights in the property may also be expropriated by the expropriating authority for public purposes or in the public interest, but all requirements for a valid expropriation under sections 3 to 19 of this Bill must be fulfilled in relation to every such right, each of which must separately be expropriated by the expropriating authority. In cases of urgency, the expropriating authority may seek a High Court order allowing ownership and other registered rights to be expropriated in the same notice of expropriation, but all requirements for a valid expropriation under sections 3 to 19 of this Bill must be fulfilled in relation to each owner or rights holder.
15 Passing of possession
(1) If the expropriation is carried out in accordance with the court order and the ownership of the property has been transferred to the expropriating authority under section 14, the right to possess the property passes to the expropriating authority on the relevant date specified in the notice.
(2) The expropriated owner must take care of the property until possession passes and must compensate the expropriating authority for any significant depreciation in its value.
(3) The expropriated owner remains entitled to the use of, and income from, the property until possession passes, but (where applicable) must also pay such municipal rates and similar charges on the property as become due before possession passes.
16 Property subject to a registered mortgage bond
(1) If the property is subject to a registered mortgage bond, the expropriating authority must, at least fifteen (15) working days before ownership of the property is due to pass to it under section 11(4)(b), pay the registered bond holder so much of the compensation due the owner as is needed fully to discharge the mortgage debt on the property.
(2) The expropriating authority must on the same day pay the remaining balance to the owner, as required by section 11(4)(d).
(3) If the relevant payments have been made in full within the specified period, the bond is extinguished on the date that ownership passes to the expropriating authority under section 14(1).
17 Outstanding rates and other municipal charges
If rates or other municipal charges are owing on the property on the date the expropriating authority takes possession of the property, the owner remains liable to the relevant municipality for the rates and taxes outstanding on that date.
18 Compensation may be paid to the master in certain circumstances
If the owner cannot be located, or in certain other circumstances (for example, the owner is dead and his will specifies beneficiaries who cannot be identified or found), the expropriating authority must deposit the compensation due with the Master of the High Court.
19 Withdrawal of notice to expropriate
(1) If the expropriating authority decides to withdraw its notice of expropriation, it may do so, unless transfer of the property has already been registered.
(2) Any person who suffers damage as a result of such a withdrawal may claim compensation.
20 Regulations
The minister of public works may make any necessary regulations, but these must be:
(1) consistent with the provisions of this Bill;
(2) tabled in Parliament three months in advance; and
(3) approved by the National Assembly by simple majority.
21 Precedence over other expropriation laws
(1) All existing expropriation laws remain in force but, in the event of conflict between them and this statute, the terms of this Bill prevail.
(2) The terms of this Bill also prevail over any future expropriation laws, other than one seeking to amend the Constitution or this Bill.
22 Transitional provisions
This Bill does not apply to any expropriation effected prior to the date of its commencement. Any dispute over the compensation payable for such an expropriation must be determined as if this Bill had not been passed.
23 Schedule of laws repealed
The Expropriation Act of 1975 and all acts amending it (from 1975 to 1992) are repealed when this Bill comes into operation.
IRR (Institute of Race Relations) 22 April 2015
Issued by the IRR, April 22 2015
