Expert warns on land reform proposals

2014-06-26 17:51
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Cape Town - Government's proposal that a maximum share of 50% of farm land be allocated to farmworkers will, if enacted, require some big changes to current laws, a legal expert warned on Thursday.

The 1970 Subdivision of Agricultural Land Act specified that agricultural land "shall not be subdivided", Johan Jacobs, a partner at law firm Hogan Lovells, said in a statement.

He was reacting to government's recently released policy paper on land reform and restitution - titled "Strengthening the Relative Rights of People Working the Land" - which has sparked alarm and uncertainty among farmers across the country.

The document proposes that farm labourers assume ownership of half the land on which they are employed.

This would be "proportional to their contribution to the development of the land, based on the number of years they had worked on the land".

The "historical owner" of the farm "automatically retains" the other half.

According to the proposals, tabled by Rural Development and Land Reform Minister Gugile Nkwinti, with a deadline for feedback of April next year, government would pay for the 50% to be shared by the labourers.

This money would not be paid to the farm owner, however, but go into an investment and development fund (IDF), to be jointly owned by the parties constituting the new ownership regime.

"The government will deposit its contribution into the IDF, not to the farmer, for that would be double compensation. He/she will benefit, like all others, from dividends allocated by the IDF.

"With that contribution, the government earns the status of ex-officio member of the management of the fund, and should be entitled to a single representative on it."

‘Force joint ventures’

Jacobs said the proposal, if enacted, would obviously require the Subdivision of Agricultural Land Act to be scrapped or amended to make provision for the co-ownership of agricultural land.

He said the reason the act had been promulgated originally was to stop farm land being subdivided into uneconomical portions, and/or to prohibit more than one person becoming the registered owner of agricultural land, which in itself affected the economic viability of a farming enterprise.

"The question that needs to be asked is, what has changed in the economics of farming operations since 1970?

"Does the minister believe that by enacting legislation to force joint ventures, subdivisions, or co-ownership of agricultural land, it will actually benefit the country by making the farms more productive?"

Other issues would also affect the land registration or title deeds of affected properties.

"Should a mortgage bond be registered against the farm at the date the co-ownership is to be registered against the title, one would expect the government to reduce the loan by the percentage allocated to the farmworkers."

This, however, raised further problems.

"Co-ownership of title is undivided ownership, and the bond registered against the farm remains registered against the title of the co-owners, notwithstanding the fact that the loan has been reduced by the percentage allocated to farmworkers."

What goes to who?

While some might argue that the answer lay in subdivision of the farm, the question then was what portion of the farm went to whom.

Jacobs said many farm titles were registered in the names of family trusts.

"Many of the benefits under these trusts have vested in the beneficiaries thereof. How will the government deal with the various beneficiaries who need to be consulted to achieve transfer of the percentage ownership allocated from the trust to the farmworkers?"

Jacobs further warned that the SA Revenue Service (Sars) also stood to lose income.

"The fiscus, and in particular SARS, receives millions of rand per annum from the payment of transfer duty when ownership of immovable property changes hands.

"All this income will be lost as the farmworkers will no doubt be exempt from payment of the percentage portion of the farm in respect of which transfer is taken," he said.

Another problem with Nkwinti's proposal, if it was enacted, was that the marketability of farms would become a near impossibility.

"Who will be prepared to purchase the farmer's undivided share in the title to the farm, or the shares in the company that owns the farm, where the government, through an appointed agent or department, controls the purse strings of the other percentage owner?"

Jacobs said this would probably result in government being forced to take transfer of the remaining percentage of the title or shares in the farms, and then dealing with them as it deemed best.

He said the proposals raised a host of legal and commercial issues.

"The moral basis for the proposal as contained in the... proposal document is well founded. There remains a lot to be done to deal with the legal and commercial issues raised in the proposal."

- SAPA
Read more on:    sars  |  gugile nkwinti  |  cape town  |  parliament 2014  |  land
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