Expropriation #7: Expropriation Bill V2.0 and Municipal Charges

By Chantelle Gladwin-Wood (Partner), Anja van Wijk (Senior Associate), and Marc Gevers (Candidate Attorney)

October 2020

Introduction

This article is one in a series on expropriation, which looks at some of the fundamental legal issues surrounding expropriation in the context of the revised Expropriation Bill published for comment on 9 October 2020 (“Expropriation Bill”). [1]

This instalment examines Clause 19 of the newly gazetted and revised Expropriation Bill, and the impact that this section if brought into force of law in its current form, might have on the industry and affected property owners. We would like to acknowledge and thank Associate Professor Reghard Brits of the University of Pretoria for his guidance in relation to this thorny topic and his contribution to this article.

Giving Context to the Debate

When a property is expropriated, ownership passes from the expropriated owner to the organ of state, or its nominee, on whose behest the expropriation took place. Ownership passes automatically on the date stipulated in the expropriation notice, without the need for the transfer to be registered in the Deeds Office.  The Deeds Office records are usually updated thereafter to reflect that ownership of the property has changed by virtue of the expropriation has taken place.

This is quite different to the passing of transfer through registration in the Deeds Office in the ordinary course, in terms of which the transferor is required to obtain a rates clearance certificate from the local municipality certifying that all rates, taxes and service charges incurred in the two year period prior to transfer have been paid.  This is typically referred to as a rates clearance certificate.  Without this certificate, which needs to be lodged at the Deeds Office with the other transfer documents by the conveyancer, the transfer cannot take place.

Clause 19 of the Expropriation Bill

Because registration at the Deeds Office is not required to transfer ownership in the case of expropriation, it is not a requirement in law that a rates clearance certificate be obtained in order to pass transfer, other than what is required in an ordinary transfer. For this reason, the Legislature has built special protection for the municipality in respect of payment of amounts owed to the municipality into the Expropriation Bill, in the form of clause 19.

Clause 19 provides that, if the municipality is owed anything by the owner of the property to be expropriated, it must notify the expropriating authority of same.  The expropriating authority is obliged, in terms of the Expropriation Act (and the Expropriation Bill), to give the municipality notice of its intention to expropriate and of the expropriation in advance of same, and this gives the municipality an opportunity to respond by letting the expropriating authority know how much is owed to it in connection with the property.

Owner does not dispute amounts owed

In terms of the Expropriation Bill, if the owner does not dispute the amounts owed to the municipality, the expropriating authority is authorised, but not obliged, to settle the municipality from the compensation due and payable to the owner.

In essence, the owner pays the outstanding rates, taxes and service charges in the same way as that of an owner passing transfer in the ordinary course. Clause 19(1) specifically states that the amounts to be paid to the municipality are not all charges owing – but only those required in order to pass transfer – which puts the expropriated owner in the same position as any other owner who would need to make payment to obtain a rates clearance certificate.

Owner does dispute amounts owed

There is no obligation (or even an authorisation) for the expropriating authority to withhold and pay over to a municipality any portion of the compensation due to an expropriated owner where there is a dispute in relation to the amounts owed by the expropriated owner to the municipality.

Confusion with regard to ‘abridged’ and ‘full’ figures – a word of caution

Expropriated owners, attorneys, the state and all other persons dealing with expropriation of land ought to be aware that not all amounts owed to the municipality need always be paid in full in order to obtain a rates clearance certificate.  It is trite law that transferors only need to pay the amounts incurred in the two years prior to transfer, and not amounts incurred before that time, in order to obtain a rates clearance certificate.  If the state were to withhold more than the amount required to obtain clearance (for example where there are also amounts owing to the municipality that are older than two years, and it withholds all amounts owing and not only those incurred in the two years before transfer) and pay it over to the municipality, this would give rise to a claim for damages by the expropriated owner against the state, as this would have gone beyond what is contemplated in clause 19. An alternative legal remedy for the owner would be to hold the expropriating authority liable for payment of that portion of the compensation paid to the municipality for amounts that fall outside of section 118(1), simply on the basis that the expropriating authority’s obligation to pay that compensation to the owner was never discharged by payment.

Failure by Municipality to Notify Expropriating Authority of Amounts Owed

Clause 19 provides expressly that the Registrar of Deeds is empowered to register the transfer of the expropriated property without the rates clearance certificate that would ordinarily be required if the municipality fails to notify the expropriating authority in the prescribed time of how much is required in order to obtain the rates clearance.

The expropriated owner remains liable for all amounts owed to the municipality up to the date of the state taking possession of the expropriated property, and the state automatically becomes liable thereafter for rates, taxes and service charges in connection with the expropriated property.

Comparing Security Rights of Municipality under Expropriation with instances of ‘Non-Expropriation’ – an Argument for Providing Stronger Rights to Municipalities in terms of Clause 19

The municipality’s rights to obtain payment of amounts owed at transfer are severely diluted by clause 19.  Firstly, there is actually no obligation on the expropriating authority to pay any amounts over to the municipality at all – there is only empowerment – authorising it to do so if it chooses to do so.  If the state chooses not to make such payment, the municipality simply loses its ‘embargo’ ability to prevent transfer until full payment for the rates clearance certificate has been made.  Secondly, the state is not even empowered to pay anything over to the municipality when there is a dispute in relation to the amounts owed by the expropriated owner to the municipality.  Thirdly, if the municipality fails to notify the expropriating authority of the amounts owed, it completely loses its embargo right to enforce payment before transfer.

As staunch critics of the manner in which municipalities in South Africa have, in the past, abused their rights under the ‘rates clearance laws’, we, as the authors, applaud the manner in which the Legislature is making strides to hold municipalities liable for their own failures (most notably in how clause 19 provides that a municipality that does not notify the expropriating authority of amounts owed in time, is not entitled to payment at all before transfer and the Registrar of Deeds must pass transfer without a rates clearance certificate). 

The above being said, where the municipality does take action to protect its rights and to enforce payment by notifying the expropriating authority of the amounts owed, it ought to be protected, at least to the same extent as in non-expropriation situations – unless there are policy considerations that militate against this.  Municipalities are the coal face of service delivery and require payment of amounts owed in order to carry out their constitutional obligations to the persons residing in their areas of jurisdiction.  There are compelling policy reasons for providing municipalities with protection under the ‘rates clearance laws’, and these protection measures should only be dispensed with when absolutely necessary, and when the harm caused by not dispensing with them (to the delay or frustration of the expropriation process) outweighs the benefit in complying with them (namely enabling the municipality to continue providing services and giving effect to human rights).

At the very least, the expropriating authority should be compelled (not merely empowered) to make payment of the amounts required to obtain a rates clearance certificate, from the owner’s compensation, directly to the municipality, where there is no dispute as to the amounts owed.  Where a dispute exists, the municipality should still be compelled to make payment of the amount required to obtain a rates clearance certificate, but it should be recorded that payment is made under protest such that if the expropriated owner continues with his/her/its dispute and succeeds, the owner is entitled to be refunded the amounts finally determined as not owing.

After all, owners passing transfer in the ‘ordinary course’ (where there is no expropriation) are burdened by the same dilemma where there is a dispute pertaining to the amounts required in order to obtain the rates clearance certificate.  They can either make payment under protest in order to obtain the rates clearance certificate and then finalize the dispute after transfer and claim a refund, or they can delay the transfer whilst they attempt to finalize the dispute before paying for the rates clearance figures.  The latter scenario might lead to the sale being cancelled by the purchaser or a damages claim by the purchaser, if the delay is unreasonably long. Providing that the expropriating authority is to make payment (even of the disputed amounts) and allowing the dispute to be finalized after transfer has passed is therefore no more prejudicial to an expropriated owner than it would be for an owner selling his/her property where a dispute exists in the ordinary course.

Conclusion Whilst municipalities must take responsibility for their failures and inaction, they should not be penalised to the detriment of those who live in their areas of jurisdiction by the eradication of the security that the rates clearance certificate provides to municipalities.  There are no compelling policy reasons why, in the expropriation procedure, they ought not be given at least some of the protections that exist in the ordinary course. Clause 19 ought to be amended accordingly.

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[1] *A list of the earlier articles in this series which give a chronological analyses of events as they have unfolded over the last few years in relation to the issue of expropriation, can be found at the end of this article.

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Articles in this series (in chronological order):

The Debate over Expropriation without Compensation (April 2017) available at https://www.schindlers.co.za/news/the-debate-over-expropriation-without-compensation/ 

Public Purpose and Public Interest in the Context of Expropriation (May 2017) available at https://www.schindlers.co.za/news/public-purpose-and-public-interest-in-the-context-of-expropriation-of-property/

Expropriation without Compensation? (June 2017) available at https://www.schindlers.co.za/2017/expropriationwithoutcompensation/

Expropriation #1:  Amendments to Section 25?  (Sept 2018) available at https://www.schindlers.co.za/news/expropriation-1-amendments-to-section-25/

Expropriation #2:  Tenants and Occupiers (Oct 2018) available at https://www.schindlers.co.za/news/expropriation-2-tenants-and-occupiers/

Expropriation #3:  The Land Hunger (Dec 2018) available at https://www.schindlers.co.za/news/expropriation-3-the-land-hunger/

Expropriation #4:  The Expropriation Bill of 21 December 2018 (Jan 2019) available at https://www.schindlers.co.za/2019/expropriation-4-the-expropriation-bill-of-21-december-2018/

Expropriation #5:  Proposed Amendments to Section 25 of the Constitution, February 2020, avialable at https://www.schindlers.co.za/2020/expropriation-5-proposed-amendements-to-section-25-of-the-constitution-february-2020/

Expropriation #6: Expropriation Bill V2.0 – October 2020 available at https://www.schindlers.co.za/2020/expropriation-6-expropriation-bill-v2-0-october-2020-2/