By Ivan Ka-Mbonane and Hannah Hilson
The Expropriation Act No. 13 of 2024 (“the Act”) provides for the expropriation of land with or without compensation in certain circumstances. This article explores the key provisions of the Act and its implications.
Compensation
Compensation has been a contentious issue in discussions on expropriation. Section 25 of the Constitution establishes a framework to determine compensation that is just and equitable. Section 25(3) states:
“The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances, including—
the current use of the property;
the history of the acquisition and use of the property;
the market value of the property;
the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property; and
the purpose of the expropriation.”
These factors are not exhaustive, and the courts must consider all relevant circumstances to ensure that compensation is just and equitable.
Section 12 of the Act aligns with this constitutional framework and moves away from the market-value-centric approach of the 1975 Expropriation Act, which required compensation to be market-related with an additional amount to cover actual financial loss. The constitutional standard allows for compensation to be more or less than market value, depending on all the relevant factors. It aims to ensure that the payment of compensation is just and equitable, reflecting an equitable balance between the public interest and the interests of those affected.
There has been debate, over the years, around whether under certain circumstances, the State should be empowered to pay nil compensation where property is expropriated in the public interest. This debate has divided opinion and led to the withdrawal of the Expropriation Bill of 2008. During public hearings this issue was thoroughly debated until government decided that, having regard to all the relevant circumstances, there may be circumstances where it is just and equitable to pay nil compensation for land expropriated, when it is in the public interest.
Section 12(3) of the Act permits nil compensation where it is just and equitable when considering all relevant circumstances, including but not limited to:
Land not in use: where the owner does not develop or use the land to generate income, but merely holds is for speculative purposes.
State-held land: where an organ of state holds land it does not use for its core functions and is not reasonably likely to require the land for its future activities, particularly where the land was acquired at no cost.
Abandoned land: where the owner failed to exercise control over the land despite being reasonably capable of doing so.
State investment exceeding market value: where the market value of the land is equal to or less than the present value of direct state investment or subsidy in its acquisition and beneficial capital improvement.
Additionally, when determining compensation, the expropriating authority must consider outstanding municipal property rates, taxes, levies and charges, as well as any existing rights or mortgage bonds over the property.
Effect on foreign direct investments
Expropriation is not a new concept and has existed in South African law both before and after the constitutional dispensation. The Act merely replaces the 1975 expropriation legislation to align with the Constitution, ensuring that compensation is just and equitable and that expropriation occurs in the public interest.
The Act also introduces stringent procedural requirements, including negotiations with landowners and affected parties, before land can be expropriated, to ensure fairness and transparency. Nil compensation is not automatic and must be justified through thorough investigations and documentation. Affected parties retain the right to mediate or challenge compensation disputes in court in the event of non-settlement. Accordingly, the offer of compensation from the expropriating authority is not final.
The Act aims to address historical injustices, while maintaining transparency and fairness in the governance of property rights in line with the Constitution. If the Act is properly understood, it will have a minimal negative impact on investor confidence and future investment in South Africa.
Concerns have been raised about the Act’s impact on foreign direct investment. The, the Organization for Economic Co-operation and Development has outlined key factors influencing investor decisions, including:
a predictable, non-discriminatory regulatory environment;
a stable macro-economic environment with access to international trade;
sufficient and accessible resources, including infrastructure and skilled human capital;
effective action by authorities to meet investors’ expectations;
transparent governance, including an impartial judiciary and law enforcement;
ensuring that rules and their implementation rest on the principle of non-discrimination between foreign and domestic enterprises and are in accordance with international law;
removing obstacles to international trade;
redress the aspects of the tax system which constitute barriers to foreign direct investment;
ensuring adequate and relevant public spending; and
protection against arbitrary expropriation.
Whilst policy certainty is a critical factor in attracting investment, other determinants such as the market size of the economy, economic stability and growth, infrastructure, production costs, skills levels, strengthening anti-corruption measures, an independent judiciary, policy certainty, political stability, regular elections, and adherence to the rule of law also play significant roles. The enactment of the Expropriation Act provides regulatory clarity, which offers reassurance to investors.
Conclusion
Prior to the present constitutional dispensation, South Africa allowed Parliament to enact laws without constitutional constraints. The 1975 Act exemplified this unfettered legislative power.
Section 2 of the Constitution states: “The Constitution is the supreme law of the Republic, law or conduct inconsistent with it is invalid, and obligations imposed by it must be fulfilled”.
The repeal of the 1975 Act was necessary to align expropriation laws with constitutional principles.
The Act seeks to redress historical injustices while maintaining fairness, transparency, and legal certainty. If properly implemented, it should have a minimal negative impact on investor confidence and the future investment landscape in South Africa.