By Chantelle Gladwin-Wood, Partner and Anja van Wijk, Senior Associate
There are many controversial questions regarding Expropriation Without Compensation (“EWC”) doing the rounds, some of which are (purposely) being sensationalized by the media (and especially social media) to increase readership. This article is one of a series on expropriation and looks at some of the fundamental legal issues surrounding EWC, with the aim of dispelling some of the myths and alleviating some of the anxiety plaguing land owners. The focus of this article is on the rights of tenants and occupiers of a property that is being expropriated.
Current Context – Expropriation Act
At this time no amendments have been proposed to the Expropriation Act. This is the document that sets out the process to be followed when the state wants to expropriate anything or any right. If this act is amended then what is said below may no longer apply to the extent that the amendments change the situation.
Registered Right holders (other than Bondholders)
The key sections of the Expropriation Act dealing with registered rights, is section 8, which reads as follows:
“The ownership of property expropriated in terms of the provisions of this Act shall, subject to the provisions of section 3 (3), and on the date of expropriation, vest in the State, released from all mortgage bonds (if any) but if such property is land, it shall remain subject to all registered rights (except mortgage bonds) in favour of third parties with which it is burdened, unless or until such rights have been expropriated from the owner thereof in accordance with the provisions of this Act.”
Registered rights which would include but not be limited to servitudes, usufructs, long leases (i.e. that are registered for more than 10 years), mining rights and fideicommissary rights. The result of the above is that persons or organizations (other than bondholders, which are dealt with separately below) that are the registered holders of rights in property do not lose their rights if the property itself is expropriated. Their rights remain intact, and if the state wants to expropriate the registered rights too, then it must do so separately, treating those registered rights as independent forms of property which must be expropriated independently of the property itself. This is commensurate with the Constitutional Court’s approach to ‘property’ referred to in section 25 of the Constitution as being not only land, or movable property, but any form of ‘property’ recognized as value to its owners, which specifically includes registered rights in land. The registered right holder would be entitled to compensation in the same fashion as the property owner (subject to that compensation being just and equitable in terms of our Constitution). The registered right holder would receive notice of the expropriation and have all of the rights that the property owner would have to ‘fight’ the expropriation or the amount of compensation, if it chose to do so.
Unregistered Lease Holders
The news is not quite as good for unregistered right holders (such as lessees whose leases are not registered). Sections 22 and 13 of the Expropriation Act read:
“22 Termination of unregistered rights in respect of land expropriated
If a notice of expropriation relates to the expropriation of land, all rights in respect of such land not registered or recorded against the title deed thereof or in an office referred to in section 7 (4) shall terminate on the date of expropriation and the State shall, subject to the provisions of sections 13 and 19, not be obliged to pay any compensation for such rights. “
“13 Payment of compensation in respect of rights out of UNREGISTERED leases in respect of property expropriated
- A lessee whose lease has been terminated in terms of section 22 shall, subject to the provisions of subsections (2) and (3) of this section, be entitled to the payment of compensation as if his right thereunder were a registered right in respect of the property in question which was also expropriated on the date of expropriation in respect of such property.
- The Minister shall simultaneously with the notice of expropriation in question to the owner or as soon as possible thereafter, send to a lessee referred to in subsection (1) of whom he is aware a notice in which he is informed of the expropriation, and thereupon the provisions of sections 7, 9, 10 and 11 shall mutatis mutandis apply as if such notice were a notice of expropriation under section 7 (1) in respect of the rights of such lessee.
- If the owner of expropriated property fails to comply with the provisions of section 9 (1) (d) (i) and the Minister did not prior to the payment of any compensation money to the owner become aware of the existence of the lease in respect of such property the State shall not be obliged to pay compensation to the lessee concerned in respect of the termination of his rights, but such owner shall be liable to any such lessee for damage sustained by him in consequence of the termination of his rights.”
Tenants with short (unregistered) leases will thus automatically ‘lose’ their lease when the property is expropriated, but at least they will be entitled to compensation for same. If the state knows of the lease, the state must treat the lease as a registered right and compensate the unregistered lease holder for that right in the same manner as the state would need to treat the registered right holder (save that the short lease terminates at expropriation whereas the registered right survives it). The state will then ‘adjust’ the compensation payable to the owner of the property and pay a portion of it over to the lessee.
However, the state might not know about the lease because it is not registered. The owner of the property is under an obligation in terms of section 9 of the Expropriation Act to notify the state of the existence of any unregistered rights in the property (including leases) upon receipt of the expropriation notice. If the owner fails to do and as a result the state is never made aware of the lease and consequently never compensates the tenant for its loss, in terms of section 13 the tenant will have a claim against the owner for damages.
Note that section 13 applies only to unregistered leases and not other unregistered rights.
Bondholders, Lienholders and Buyers of Property
The rights of these parties are even more diluted than the rights of tenants with short leases. Section 19 expressly deals with these unregistered rights. It reads:
“19 Discharge of debt secured by mortgage bond, and payment of compensation in case of existence of certain unregistered rights
- If any immovable property expropriated under this Act was immediately prior to the date of expropriation encumbered by a registered mortgage bond or to the knowledge of the Minister the subject of an agreement contemplated in section 9 (1) (d) (ii) or any building thereon was then subject to a lien as contemplated in section 9 (1) (d) (iii), the Minister shall, subject to the provisions of subsection (3) of this section and sections 20 and 21, not pay out any portion of the compensation money in question, except to such person and on such terms as may have been agreed upon between the owner of such property and the mortgagee, buyer or builder concerned, as the case may be, and as the Minister may have been notified of by them.
- If an owner of property fails to comply with the provisions of section 9 (1) (d) (ii) or (iii) and the buyer or builder concerned in consequence thereof does not receive any portion of the compensation money by virtue of the provisions of subsection (1) of this section, the owner shall be liable to the buyer or builder, as the case may be, for any damage which the buyer or builder may have sustained in consequence of the expropriation, and the Minister shall not be obliged to pay compensation in respect of that damage.
- If the owner and the mortgagee, buyer or builder, as the case may be, fails to conclude an agreement contemplated in subsection (1), any of the said persons may apply to the court referred to in section 14 (1) for an order whereby the Minister is directed to pay out the compensation money as the court may determine, and the court may on such application issue such order, including an order as to costs, as the court may deem fit.”
In short, the Expropriation Act provides that bondholders, lienholders and buyers who have not yet taken transfer should also get some form of compensation, but the amount must be agreed upon by the owner and these parties. Should the parties not reach agreement, a court can be approached to determine this amount. The Minister must then pay a portion of the compensation due to the owner, to these parties, in terms of the agreement or the court order. Again, if the owner fails to notify the Minister of the existence of these rights and the Minister consequently doesn’t pay anything to these parties, they have a claim for damages against the owner.
To the extent that a court finds that these unregistered rights (short leases, the rights of buyers and lienholders and mortgage bondholders) constitute rights in land capable of protection by section 25 of the Constitution, these provisions may be found to the unconstitutional because they do not give the same protection to these parties as other provisions of the Expropriation Act give to other rights holders. If the Expropriation Act is not amended it is likely that we will see a court challenge in regard to this in the near future.
The Expropriation Act does not provide protection for unlawful occupiers. Their rights are rights to remain in the property until evicted in terms of a court order (which are constitutional and administrative law rights to fair process and dignity and equality). Their rights are not rights to remain in the property itself in the same way that a tenant would have such a right. These rights thus would not qualify as ‘property’ in terms of section 25 of the Constitution and as such would likely not need to be compensated in terms of section 25. Their occupation would not be terminated (in the same way that a tenant’s lease is terminated) upon expropriation, however, because they cannot be forcibly removed without a court order, so if the state expropriated a property with unlawful occupiers on it the state would still have to evict those persons lawfully through the courts.
Parties (other than bondholders) with registered rights in property are well enough protected, but parties with unregistered rights (such as short term leases, liens, and buyers) arguably receive insufficient protection inasmuch as if the owner fails to notify the state of the existence of these rights and disappears, these parties will be left with only an empty right of recourse against the owner.
They also have to rely on the goodwill of the owner in terms of an agreement to share the compensation with them, which will likely end up in court in the event of a dispute. Bondholders are in a particularly vulnerable position because although their rights are registered, and our Constitutional Court has held that to remove or lessen the bondholder’s right of security would be unconstitutional (meaning that it most certainly qualifies for protection as ‘property’ in terms of section 25 of the Constitution and thus deserves protection and compensation. In such a case, they too must rely on the goodwill and honesty of the owner, failing which a court, in order to extract their pound of flesh from the compensation money available. Bondholders too have an argument that the provisions of the Expropriation Act are unconstitutional inasmuch as they arbitrarily discriminate against them, as they are treated differently from other registered right holders without adequate reason therefore. No doubt this will be the subject of a court challenge soon enough unless we see substantial amendments to rectify this.
Caveat: Nothing in this article is to be understood as legal advice given to any person in any circumstances. The content hereof is merely an expression of the legal opinion of the authors based on laws as they stand at the time of publishing and possible future consequences, and any person who needs specific legal advice in relation to the issues discussed herein should contact the authors for same. Any specific references to the sources of the laws quoted herein can be obtained directly from the authors upon request.
 Act 63 of 1975