It is widely anticipated the Expropriation Bill, once passed by parliament, will be used as a catalyst to initiate large-scale expropriation of property in order to fast-track land reform in South Africa. The burning question, and the uncertainty brought about by the Bill, is whether the value of the expropriated property will be taken into consideration by the new office of the valuer-general, key to the implementation of the Expropriation Act, when determining the amount of compensation payable to the owner/holder of expropriated property.
For one thing, and for so long as s25 of our Constitution requires just and equitable compensation to be paid for expropriated property, land owners can be assured that there can be no expropriation without just and equitable compensation. However, the issue lies not with the question of whether there will be expropriation without compensation, but rather whether the compensation will be determined by application of recognised principles of valuation. In other words, will the valuer-general’s compensation be based on the market value and/or the replacement cost of the expropriated property; or will the so-called “public interest” outweigh and disregard the value of the expropriated property, including the surrounding market factors prevalent at the time of expropriation?
Impact of “public interest” on just and equitable compensation
The reasons for the anxiety is two-fold. Firstly, within s12(1) of Chapter 5 lurks an ominous qualification: the amount of compensation payable for expropriated land must strike an equitable balance between the public interest on the one hand, and the interests of the expropriated owner/holder of the other.
The concept ‘‘public interest’’ is defined in the Bill as South Africa’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.
That said, the Bill, in its current form, does not define “compensation” or “just and equitable”. Second, the Bill is conspicuously silent on the crucial issue of the value of the property to be expropriated. Experts are fearful the amount of compensation will be arbitrarily determined without compensating the landowner for the value of the property.
The concerns are well-founded. The drafters of the Bill appear to have promoted “public interest” as the overarching factor underpinning an amount of “just and equitable compensation”. The obvious question is this: is “public interest” a basis or method of valuation, and if so, how do you value “public interest” in a commercial world?
The impact is obvious: how do entities affected by the Bill, such as pension funds, property funds, listed and non-listed entities, or even a farmer, account for the value of property in their balance sheets if the Bill can ignore the market value or replacement costs of properties targeted for expropriation?
The ramifications also affect those industries that rely on the strength (and certainty) of the values placed on their balance sheets especially when relying on loan finance. The Bill threatens the values placed on these properties that can become worthless because of “public interest” considerations.
The proposed formula for determining compensation for expropriated property is set out in s12 of Chapter 5 of the Bill. Firstly, the amount of compensation for expropriated property must be just and equitable. The writer does not view this as contentious as it mirrors the requirements found in s25 of the Constitution.
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