Can a local authority take ownership of excess land from a developer without the payment of compensation? These were the key questions before the Constitutional Court (the Court) in December 2014 in a matter which has implications for property developers.

The facts of the case are that the developer, Arun Property Development (Pty) Ltd (Arun) obtained various planning approvals from the City of Cape Town (the City) in accordance with the Land Use and Planning Ordinance 15 of 1985 (the Ordinance). The Ordinance requires the local authority to undertake land use planning and to adopt a structure plan, meant to reflect the local authority’s vision for the use and development of land within its jurisdiction. However, before Arun began its development, a provincial structure plan was approved in terms of which the portion of the land used for the roads, which exceeded the normal need for public streets and public places in the area where the development took place, would vest in the City. Arun then sought compensation for the excess land whose ownership would vest in the City.

In 2001, Arun instituted action against the City in the Western Cape High Court (the High Court) in terms of section 28 of the Ordinance, claiming compensation for the excess land. The High Court ruled in Arun’s favour, holding that that the excess land was vested in the City, and that Arun was entitled to compensation. The City then approached the Supreme Court of Appeal (SCA), and submitted that Arun was not entitled to compensation for the excess land vested in the City. The appeal was upheld and the decision of the High Court overturned.

Arun then approached the Court, for the decision of the SCA to be overturned and that the decision of the High Court be reinstated. 

At issue was whether a local authority which acquires land through provisions in legislation from a private owner in a planning approval process for residential development is obliged to pay compensation for the land acquired in this manner. Arun claimed compensation from the local authority for the value of the land on the basis that the land acquired was unrelated to the normal need for the provision of public streets and spaces for the residential development but was instead required for a future road network planned for the region as a whole. 

Arun contended that a proper reading of section 28 would force the City to pay compensation for excess land that was vested in it. Arun further argued that this interpretation was in line with the overall purpose of the Ordinance in procuring and facilitating the orderly and beneficial use and development of land. In addition, that interpretation was in harmony with section 25(2) of the Constitution, which provides that property can only be expropriated in terms of a law of general application, for a public purpose or interest and subject to compensation.

The City countered Arun’s arguments by stating that Arun had no right to compensation and that Arun’s interpretation of section 28 of the Ordinance was incorrect. Another argument raised was that Arun was not entitled to compensation as the 1998 structure plan was a policy and accordingly excluded by section 28. In any event, the City argued, compensation was not the proper relief for Arun. Rather, Arun ought to have sought to amend the structure plan under section 42 of the Ordinance, which reserved excess land for public roads.

On Arun’s claim that the vesting of excess land in the City was expropriation entitling it to compensation, the City’s response was that expropriation is a narrow form of deprivation. The reservation of land for public roads in a commercial development does not amount to an expropriation of property in terms of section 25(2) of the Constitution argued the City. Further, this was only a deprivation of property in terms of section 25(1) of the Constitution.  As such, concluded, the City, Arun had failed to show the deprivation was arbitrary and as such was not entitled to compensation.

The Court considered the meaning of section 28 and began by stating that its meaning could be understood from its plain language of the text, its location within the Ordinance, as well as the purpose of the Ordinance. All this, while bearing in mind section 39(2) of the Constitution, which provides that in the interpretation of any legislation, courts should promote the spirit, purport and objects of the Bill of Rights. The conclusion of the Court was that while excess land vesting in the local authority in the course of a development may be beneficial to regional roads and other public roads, this was not a compelling enough reason for acquiring the land without compensation. The Court added a proviso that local authorities can always adjust their structure plans and other land use measures in order to avoid paying compensation.

The Court then considered whether the City’s reservation of land for public roads in a commercial development that partly serves the development does not amount to an expropriation of property in terms of section 25(2) of the Constitution. The City contended that even though the public roads and public places are wider than required for that specific development, this was still a deprivation and not an expropriation. In supporting this contention, the City argued that the most important characteristic of expropriation is that it is “brought about unilaterally by state action without the cooperation and often against the will of the affected owners”.  Another contention from the City was that the vesting of land in terms of section 28 of the Ordinance was deprivation and not expropriation. On this point, the Court noted that the distinction between a deprivation and an expropriation of property had not been established in the lower courts. As such, the Court accepted the definition of an expropriation as occurring by state coercion and without the consent of the affected owner and noted that section 28 made the giving up of land compulsory at the granting of a subdivision which made it expropriation.

Moreover, the City had failed to give reasons or compelling public interest why the acquisition is with the consent of the owner. A settled rule of interpretation states that a legislative intention to authorise expropriation without compensation will not be imputed in the absence of express words or plain indication or in line with section 25(2) of the Constitution. The City had failed to explain why section 28 of the Ordinance should not be interpreted in such a manner. For these reasons, the Court found that landowners may claim for compensation where a subdivision in terms of section 28 occurs and the subdivision vests public places and streets beyond the normal need that arises as a result of the subdivision. 

The City also advanced an argument that legislative provisions allowing for the establishment of a future road network which restrained planning and development activities amounted to deprivation within the meaning of section 25(1) of the Constitution but not an expropriation requiring compensation. On this, the Court held that any deprivation beyond the normal need would take place outside of legislative authority and would thus be arbitrary and as such the developer could claim compensation.

The Court ordered that the order of the High Court be re-instated in amended form, and the order of the SCA be set aside. The amended form included that excess land vested in the City by virtue of section 28 of the Ordinance, and that Arun be entitled to compensation in respect for the excess land. Additionally, this compensation would be calculated in terms of the Expropriation Act 63 of 1975.

Importantly this case illustrates the difference between an expropriation and a deprivation. While section 25 of the Constitution enables the state to limit the use and enjoyment of property, subject to constitutional requirements section 25(1) on the other hand allows for a specific form of limitation – the deprivation of property. Deprivation does not involve the dispossession of property but rather refers to less intrusive burden on ownership than expropriation. Deprivation is generally not compensated, while expropriation is. As authorities such as Van der Walt have noted, in the more extreme cases of regulation, there may be a total destruction of property – but where the State does not acquire the property, this would still be deprivation rather than expropriation. In this instance, where the City acquired excess land – arguably the fine line between deprivation and expropriation was crossed hence the Court correctly deemed that Arun be compensated for what is evidently expropriation by stealth. The question remains however, when regulations place excessive limitations on the use of one’s property, even if the State did not intend to expropriate or to acquire property –  surely that is expropriation by stealth? 

By Phephelaphi Dube: Legal Officer; Centre for Constitutional Rights