Silence is Golden: The Lack of Direction on Compensation for Expropriation in the 2011 Green Paper on Land Reform

The government set the target for redistribution of land to 30% by 2014. They have adopted the "willing-buyer-willing-seller" model that relies on a voluntary transaction between farmers and government to acquire such land. Frustrated at the slow pace of land reform, the ruling party is starting to indicate that the state will in future rely on its expropriation powers to acquire such land. Section 25 of the Constitution makes it clear that when the state expropriates property, compensation must be paid. The current act, the 1975 Expropriation Act, determines that such compensation must be market value, while the Constitution lists market value as only one of at least five factors that must be taken into account when determining compensation. There have been various attempts at drafting legislation that will bring compensation practices in line with the Constitution, with the latest Bill published in March 2013. This article focusses on the Green Paper that preceded the Bill, and argues that not much direction is given on how compensation for expropriation should be calculated.


Introduction
When I started my doctorate in 2005, the then Minister of Land Affairs, Lulu Xingwana, had just caused an uproar by remarking that land reform will be speeded up by shortening the negotiation period for compensation for individual expropriations. 1 Farmers, concerned that South Africa would become the next Zimbabwe, 2 objected that Xingwana's statements were in conflict with land reform laws setting out the procedures to be followed for expropriation. They insisted on a reasonable commercial price for farming properties. The ministry, on the other hand, was of the opinion that farmers were making expropriation difficult by inflating property prices, 3 thereby preventing the government from successfully returning property to people who lost it under "years of racial discrimination and white colonial rule". 4 The government therefore proposed to move away from the willing-buyerwilling-seller model 5 , intimating its intention to move away from buying property from farmers through negotiations, and using expropriation as a legitimate alternative method of land acquisition instead. This resulted in fierce media debates and reports of tension between mostly white farmers and the government. 6 The farmers persistently relied on the concept of "compensation" as contained in and many instances it is bureaucratic obstacles that prevented this, but there are also instances where the land offered for sale was not suitable for the purpose it was acquired for, and in some instances the current owners demanded excessive prices for land. 18 With many landowners politically sceptical or opposed to land reform and with some loosing their faith in the process because of bureaucratic delays from the government, land reform has reached a stalemate. A possible solution lies in the state making better use of its expropriation powers by expropriating property for land reform purposes. 19 Upon such expropriation, compensation must be paid.
Does the 2011 Green Paper on Land Reform provide any guidance on the issue of compensation for expropriation? The aim of this paper is to show the potential and the shortcomings of the Green Paper with regard to compensation for expropriation in the land reform context. To do so it will start by clarifying the concept of "willingbuyer-willing-seller". Thereafter, the paper will discuss the Green Paper's stance on the issue. A discussion of compensation for expropriation under the Constitution 20 will follow, discussing the constitutional mandate to expropriate for land reform purposes, as well as the way compensation should be calculated under the Constitution. Lastly, it will conclude with an evaluation of the Green Paper on the issue of compensation for expropriation.

Terminology
The willing-buyer-willing-seller model stands opposed to expropriation as a way of acquiring land for land reform purposes. This is based on the pro-market approach the government adopted in 1994 on advice from the World Bank. 21 In terms of this approach, land is transferred by contract. It effectively leaves landowners with the discretion of whether they want to partake in land reform or not. 22 18 Manjengwa 2006 www.plaas.org.za. 19 This seems to be the opinion of the Committee on Rural Development and Land Reform, 23 May 2012 (Committee on Rural Development and Land Reform 2012 www.pmg.org.za). 20 Constitution of the Republic of South Africa, 1996. 21 Lahiff 2007 Third World Quarterly 1577. 22 Lahiff 2007 Third World Quarterly 1585. The 1997 White Paper on South African Land Policy 23 supported the willing-buyerwilling-seller model. This was despite section 25 of the Constitution that provides for expropriation of land for land reform purposes and for compensation below market prices. 24 One can only attribute this to the neoliberal and investor friendly economic strategy adopted by the ANC at the start of the constitutional democracy. 25 This approach should be distinguished from the willing-buyer-willing-seller model that is used to calculate market value compensation when expropriating property based on section 12 26 of the Expropriation Act. 27 All this is done to determine what price the property will fetch in the open market on the date of the notice. The value that property will fetch in the open market is commonly referred to as the market value. Market value as compensation norm is based on the assumption that in the property market there will always be a free interchange between supply and demand. 28 This is problematic when it comes to the (real) property market that is 23 South African Land Policy White Paper (1997). 24 See discussion that follows. 25 Lahiff 2007 Third World Quarterly 1580. 26 Section 12(1) of the Expropriation Act 63 of 1975 sets out how compensation should be calculated: 12. Basis on which compensation is to be determined.-(1) The amount of compensation to be paid in terms of this act to an owner in respect of property expropriated in terms of this act, or in respect of the taking, in terms of this act, of a right to use property, shall not, subject to the provisions of subsection (2), exceed-(a) in the case of any property other than a right, excepting a registered right to minerals, the aggregate of-(i) the amount which the property would have realized if sold on the date of notice in the open market by a willing seller to a willing buyer; and (ii) an amount to make good any actual financial loss caused by the expropriation; and (b) in the case of a right, excepting a registered right to minerals, an amount to make good any actual financial loss caused by the expropriation or the taking of the right: Provided that where the property expropriated is of such nature that there is no open market therefore, compensation therefore may be determined-(aa) on the basis of the amount it would cost to replace the improvements on the property expropriated, having regard to the depreciation thereof for any reason, as determined on the date of notice; or (bb) in any other suitable manner.

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Expropriation Act 63 of 1975. 28 In this instance, an open market must be imagined to be a place where a transaction takes place free of competition. Penny 1966 SALJ 204 writes that "[t]he 'market' or 'exchange' value of a thing is determined by its utility, its scarcity and the competitive wants of purchasers. It represents the point of equilibrium between supply and demand at any one moment. In real estate valuation, the thing to be valued is the group of rights attaching to a property. Because the term "Property" is commonly used as a convenient ellipsis for this group of rights, it should not be thought that it is the property as such which is being valued. willing-buyer-willing-seller approach with regard to compensation for expropriation, it refers to one (of many) methods to determine market value.

The problem with the market value principle
There seems to be general consensus that the willing-buyer-willing-seller model to The official grant application process requires a written agreement to sell from the landowner and an agreement from an independent valuator that the price is market related. This can take up to two years, with the risk of the funding application being turned down. Understandably, only farmers that are very committed to land reform would enter into a land reform transaction. This also means that the farmers that do enter into negotiations for selling land for land reform purposes, have a relatively strong negotiation position as there are not many farms in the market for this purpose. If the valuers (working for the Department of Land Affairs) estimate a price that is below the perceived market value, they can only make such an offer to the farmer, purchased and transferred to beneficiaries is often of poor quality and very expensive. Without a credible threat of expropriation, the status quo will continue. 40 2.2 The problem with market value and the willing-buyer-willing-seller method of determining market value when calculating compensation Market value is a problematic concept because in transactions of sale, the market is a relatively unrestrained phenomenon where sellers and buyers bargain until they reach an acceptable price level, and such bargaining is usually done without many artificial constraints. The problem thus lies in the fact that one must imagine compensating a compulsory purchase in terms of exactly the opposite, namely a free market transaction where the price level is determined by the relatively free will of the buyer and the seller. The determination of market value is therefore an informed guess. 41 The method is described as illusory, since the bargaining process is constrained by a compulsory sale, and the seller is more often than not unwilling to sell. 42 As King J stated in Southern Transvaal Buildings (Pty) Ltd v Johannesburg City Council: 43 Notwithstanding, the law enjoins me to transport myself into a world of fiction and to don the mantle of a super valuator, overriding, if necessary, the views expressed by men experienced in the valuation of property and whose views are relied upon almost daily by willing purchasers and sellers. I must at one and the same time be the willing seller and the willing buyer, both well-informed, and I must arrive at a price in a market that did not exist at the time of expropriation. This is so because I Gildenhuys 1977 TSAR 4. He also mentions the Canadian and Australian approaches that state that in cases where land has a special meaning to the expropriatee, the expropriatee can also be regarded as a hypothetical buyer. It must be treated with caution, since in such a case the expropriatee cannot be both the willing buyer and the willing seller. The English case of Sri Raja Vyricherla v Revenue Divisional Officer Vizagapatam 1939 2 All ER 317 states that the value of the property will not be increased because of such special value. In South Africa there seems to be an indication that we follow the rule that the special value would not be regarded to some extent. 49 The court in Pienaar v Minister van Landbou 1972 1 SA 14 (A) stated that market value is an objective concept that should be determined not by looking at the personal circumstances of the owner, but by looking at the property itself. This contradicts the doctrine of subjective rights that regards expropriation as the expropriation of rights to an object, as opposed to the object itself.
The market-led approach based on the willing-buyer-willing-seller method seems to stand in the way of expedient land transfers of land reform purposes. 50 Is expropriation a viable alternative, and if so, how should compensation be calculated for expropriated land? What does the Green Paper have to say about this issue?

Green Paper on Land Reform and compensation for expropriation
The Green Paper in clause 5 states that one of the challenges and weaknesses (and thus the rationale for change) is inter alia "the land acquisition strategy / willingbuyer willing-seller model". It proposes an improved track for land reform 51 that will attempt to "improve on past and current land reform perspectives, without significantly disrupting agricultural production and food security". 52 This new track will be supported, amongst other things, by the Land Valuer-General.
The Land Valuer-General (LVG) will be a statutory office that will, inter alia, be Discussion Document 53 expands a bit more on what is envisioned. According to this policy discussion document, the office of the LVG will report to an inter-ministerial committee of ministers who have land interests vested in their departments. 54 The rationale for this "office" is to provide a "hub of property values" that is reliable and comprehensive. 55 Importantly, this document raises the concern that there is no legislative framework to determine when "market value" must be one of the variables in calculating compensation, as opposed to it begin the only variable.
Therefore, one of the functions of this office will be to determine financial compensation when expropriating in line with the Constitution and other legislation. 56 Again, this document does not seem to give clear and specific direction.
What follows is an attempt to put a possible direction on the table for discussion.

Expropriation for land reform purposes
A holistic reading of section 25 makes it clear that expropriation is possible for land reform purposes. Section 25(2) states that "[p]roperty may be expropriated only in terms of law of general application (a) for public purpose or in 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) qualifies this by stating that "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 South Africa's natural resources". 57 Section 25(5)-(9) provides for land reform. was promulgated to broaden access to land and to provide security for labour tenants who in the past have been denied access to land. As opposed to farm workers, their primary reason for staying on the farm is not to earn a salary. These people are protected from arbitrary eviction and they can only be evicted in terms of the procedure described in the Act.

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The Communal Property Associations Act 28 of 1996 aims at providing communities with secure tenancy of communally held land. The Extension of Security and Tenure Act 62 of 1997, also referred to as ESTA, protects lawful occupiers of rural land against eviction. This is one of the more controversial and politically motivated land reform Acts. The Act aims to provide rural stability by providing rural land occupants with a mechanism through which they can acquire land, controlling the relationship between owners and lawful occupiers and protecting such lawful occupiers against unfair evictions. The Act is aimed at rural occupiers that has permission to reside on the land in question and that is not labour tenants. The aspect of ESTA that is particularly interesting in an expropriation context is the issue of family graves. Before it was amended, s 6(2)(d4) provided that occupiers had the right to visit and maintain family graves on the farms these family member had been buried, but the section was amended in 2001 adding the right to bury family members on the farm without consent and in some cases against the will of the landowner. This can only be done if it is part of the workers' religious or cultural beliefs and if it is an established practice to do so. The first two burial cases, based on the old s 6(2)(d4), were not decided with reference to expropriation. In Serole v Pienaar 2000  The aim of compensation under the constitutional dispensation seem to be not to let the individual carry the burden on his/her own of something that is in the public benefit, as in pre-constitutional expropriation. However, the Constitution aims to do this by balancing the interest of the public with the interest of those affected (the individual), and this might not always mean paying market value.
The fact that the interest of the individual should be weighed up against the public interest means that the centrality of market value in pre-constitutional expropriation law should be revised. Market value is only one of the factors that should be considered, and must therefore be considered alongside other factors. 76 The weight that each factor carries would be determined by the facts and the circumstances of each case. Care should therefore be taken to ensure that the Expropriation Act is interpreted in line with the Constitution, with special caution not to over-emphasise market value. 74 Section 25 (2)

Market value
Where market value plays a central role in the calculation of compensation according to section 12 of the Expropriation Act, market value is listed as just one factor amongst many to be taken into account when determining constitutional compensation under section 25 (3) husband in a family graveyard (according to an established custom), but the owner, Mr Fick, refused. Ms Nhlabathi went ahead with the arrangements to bury her husband. Nonetheless, upon return to the farm she found that the owner locked her out of the property. This prompted Ms Nhlabathi to apply for an interdict to allow her to bury Mr Nhlabathi. This interdict was based on s 6(2)(dA) of ESTA that allows burial of family members against the will and without permission from the landowner, if they were occupiers of land at the time of death and if there was an established practice on the farm. The amendment therefore added the right to bury a family member to the occupier's tenure right. This right, the court highlighted, is not absolute, and must be balanced with the rights of the owner, and is only enforceable if there is an established practice on the farm to bury members. The owner argued that s 6(2)(dA) is unconstitutional because it does not protect his property. The court, following the First National Bank of SA Limited t/a Wesbank v Commissioner for the South African Revenue Services; First National Bank of SA Limited t/a Wesbank v Minister of Finance (CCT19/01) 2002 ZACC 5 methodology, ruled that s 6(2)(dA) is a deprivation in terms of law of general application (ESTA). The court also found that it is not arbitrary deprivation because the right has to be balanced against the right of the landowner, in light of the fact that the section is enacted as part of the state's constitutional duties to provide security of tenure. On balancing the right the court found that there must be an established practice on the part of the occupier before they can bury the family members, and that such an intrusion is minor. The court then had to decide whether the burial right is an expropriation. In Serole v Pienaar 2000 1 SA 328 (LCC) the court had stated that the right to establish a grave could amount to a servitude, and when such a servitude is granted without consent of the owner, it could amount to an expropriation. In Nhlabathi the court assumed, without deciding the point, that it could be a de facto servitude, and therefore an expropriation. The court then ruled "[t]here can be circumstances where the absence of a right to compensation on expropriation is reasonable and justifiable, and in the public interest (which includes the nation's commitment to land reform)". This was justifiable under s 36 of the Constitution, which the court found to run cumulatively with the ss 25 (2) and (3) limitations. The court held that the interference with the landowner's property rights is reasonable and justifiable as per s 36 because (a) the right does not constitute a major intrusion on the landowner's property rights; (b) the right is subject to balancing with the rights of the landowner, whose right can sometimes weigh more; (c) the right only exists where there is a past practice of burials on the land, and that granting the right will provide the occupiers with security of tenure in the land since it will enable them to comply with their religious and cultural beliefs; and (d) it will enable the occupiers to comply with their cultural and religious beliefs, since they need to be close to their ancestors. The court found that, even if it amounts to expropriation of the property in order to use it for burial purposes, it does not require compensation. This is because the intrusion to the owner's property, weighed up against the gains for the occupants, is a minor intrusion. Alternatively, the absence of compensation could be justified in terms of s 36.
The Land Claims Court argued, in line with FNB, 94 that the right to bury family in a family grave does deprive the owner of his land, and could be an expropriation, but that compensation needs not be paid.
While verdict is still open on the question whether the Constitution sets a minimum or a maximum standard, what is clear is that compensation must be just and equitable, taking into account the five factors in section 25(3). The Constitution brought a new requirement, namely that compensation must be "just and equitable" by considering and weighing up a non-exhaustive list of factors to take into account.
Market value is only one of five factors listed, and therefore market value should not be the centre of the inquiry into compensation. Nhlabathi, in this context, serves as a good example of how the weighing up process works, and how compensation needs not always be market value.

The list in section 25(3)
The Constitution provides us with a non-exhaustive list of factors to take into account when determining just and equitable compensation. The first factor in section 25(3)(a) provides that the current use of the property can be a relevant circumstance that can influence the compensation amount. This subsection seems to justify cases where scarce resources, like agricultural land, might be expropriated for land reform because it is not otherwise used productively and can be used for improvements that they made with (apartheid) state subsidies, as it will not be just and equitable to do so. 105  Keiskammahoek in 1977 on the State President's order. They were moved to the old homeland of Ciskei. The apartheid state promised them compensation that they never received. They were given land in Ciskei, but it was substantially smaller and drier than the land in Tsitsikamma. The Tsitsikamma land were allocated to other people or sold to white buyers at a third of the price with a government bond covering the whole amount. In 1990, lawyers and activists became aware that many farmers intended to sell the land for great profits. The land was returned in 1994, before the elections, when Archbishop Tutu initiated a land claim on behalf of the people to the then Minister of Land Affairs and then President FW de Klerk. In terms of the settlement, the farmers were paid an amount of R35 million, while the trust that took ownership of the land got a R1,96 million award. See Everingham and Janneke 200) Journal of Southern African Studies 554; Claassens 1993 SAJHR 424. Such a discount, as well as the subsidy, should thus be taken into account when farmers who acquired their farms in such a way, is expropriated for land reform purposes. 106 Budlender "Constitutional Protection of Property Rights" 1-65. 107 The purpose of the expropriation in s 25(3)(e) is complimented by s 25(4)(a), which states that public interest includes the nation's commitment to land reform. S 25(4)(a) therefore circumscribes the content of public interest, while s 25(3)(e) is about the role that public purpose plays in compensation. This should also be distinguished from s 25(2)(a), which states that the expropriation must be in the public interest or for a public purpose, therefore public interest and public purpose as requirements for the expropriation.  (2) and (3)  The bigger questions that remain unanswered are when "constitutional compensation" should be paid, and how it should be calculated. The Constitution is the supreme law of the land, and all legislation and administrative acts should be in accordance with the Constitution. Before the Constitution, compensation was paid because it was presumed that the state will not take away rights without compensation, unless clearly stated. The Constitution requires that the interests of the individual be weighed against the interests of the public, and this means that the focus shifted to the individual holding property rights in the context of society.
Before the Constitution, compensation was deemed to be market value. Under the Constitution, compensation must be "just and equitable", an amount necessary to alleviate the burden from the individual in proportion to the gain of the public, presumably also due to the balancing required.
Courts need to be aware of what they are protecting when they order the payment of compensation. Not only does this require placing the individual's right to property in a social context, but also that courts situate the compensation question in the broader historical context and applies a proportionality test to ensure fairness. This will shift the emphasis away from market value and enable a transformative approach to the interpretation of constitutional and statutory provisions on expropriation. An individual would not be required to unfairly shoulder the burden of expropriation, but society will likewise not be held accountable for compensation at full market value in the instances where it is not justified. This can be achieved either through the courts 120 re-interpreting expropriation legislation when they are called upon for adjudicating on expropriation matters, or 120 Klare 1998 SAJHR 150. by the legislature that should give clear guidelines on how "just and equitable" compensation should be paid. The Green Paper does not provide for this.