Unit 11 Property Valuation Law (PDF) 2024

PROPERTY VALUATION LAW UNIT 11 SECOND SEMESTER 2024  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended 1.0 INTRODUCTION 2.0 THE PROCESS OF EXPROPRIATION 3.0 SECTION 12 OF THE ACT 4.0 THE APPROPRIATION OF COMPENSATION 5.0 METHOD OF VALUATION 5.1 COMPARABLE SALES (...

PROPERTY VALUATION LAW UNIT 11 SECOND SEMESTER 2024  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended 1.0 INTRODUCTION 2.0 THE PROCESS OF EXPROPRIATION 3.0 SECTION 12 OF THE ACT 4.0 THE APPROPRIATION OF COMPENSATION 5.0 METHOD OF VALUATION 5.1 COMPARABLE SALES (DIRECT COMPARISON) 5.2 VALUATION IN RELATION TO INCOME (INDIRECT COMPARISON) 5.3 THE COST METHOD 5.4 THE DEVELOPER’S RESIDUAL APPROACH 6.0 THE DETERMINATION OF MARKET VALUE 6.1 “THE PROPERTY” 6.2 “WOULD HAVE REALISED” 6.3 “IF SOLD” 6.4 “DATE OF NOTICE” 6.5 “OPEN MARKET” 6.6 “WILLING SELLER TO A WILLING BUYER” 7.0 COMPENSATION FOR FINANCIAL LOSS 8.0 STATUTORY LIMITATIONS ON COMPENSATION 9.0 EXPROPRIATION AND THE ROLE OF THE VALUER  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended 1.0 INTRODUCTION South African legislation and judgments on expropriation has played the major role in the field of legal influence on property valuation. Prior to 1975 expropriation legislation was fragmented and often contradictory. There was no consolidated basis or norm for expropriation prior to 1965 when Act no. 55 constituted the first Consolidated Expropriation Act. This has been replaced be Act 63 of 1975 which, although is does not differ materially from its predecessor, certain weaknesses of the 1965 Act have been eliminated. There are however, still a limited number of statutes that have not been repealed by this Act, while the Provincial Ordinances concerning road expropriations is possibly the most used expropriation legislation outside of the Expropriation Act. The most important section of the Act is therefore section 12 which sets out the basis on which compensation is to be determined. 2.0 THE PROCESS OF EXPROPRIATION Expropriation is usually effected by a notice of expropriation. The notice of expropriation must comply with certain requirements: 1) The property to be expropriated must be clearly and fully described. 2) If only a portion of a piece of land or a right in respect of such portion is to be expropriated, the approximate location must be shown on a sketch and the approximate extent must be indicated. 3) There must be a full and clear description of the expropriated rights. 4) The date of expropriation must be given. 5) The notice of expropriation must either state the amount of compensation offered or call upon the expropriatee to submit his claim for compensation within sixty days, After the notice of expropriation has been served the expropriator and the expropriatee must take certain prescribed steps which are mainly designed to establish an agreement on the amount of the compensation. If no agreement can be reached, the amount of compensation is determined by a Compensation Court if the amount of the claim is less than R100 000 and by the Supreme Court if the amount of the claim exceeds R100 000. The power to decide whether an expropriation shall take place or not vests in the expropriator (Theunissen Town Council v du Plessis 1954 4 SA 491 (O) 424C). The expropriator need not give any reasons for his decision. He also need not consult the owner of the property on the necessity or the desirability of any proposed expropriation. The Expropriation Act prescribes the procedures to be followed by the expropriator in order to bring about an expropriation. These procedures must be strictly complied with, otherwise the expropriation will be declared null and void. (Perumal v Minister of Public Health 1950 SA 631 (A) 644 and Durban City Council v Bacus & Hussain 1969 1 SA 118 (N) 122E). The prescribed requirements for an expropriation are strictly interpreted and full compliance therewith is required. (Durban Corporation v Lewis 1942 NPD 24 39).  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended The Expropriation Act authorises an expropriator to expropriate property for public purposes. The term public purposes is given wide interpretation. Anything which extends to the benefit of the general public will be included. Slabbert v Minister van Lande 1963 3 SA 620 (T) 621F and Fourie v Minister van Lande 1970 4 SA 165 (O) 165G. Compensation can be subdivided into three broad categories being: (a) the market value of the expropriated property, (b) an amount to make good financial loss (c) an amount for inconvenience (solatium) 3.0 SECTION 12 OF THE ACT 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— Section 12(1) (a) (i) reads: (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 ” Reference is actually being made to the concept of market value of the property. This concept is dealt with more fully hereunder with particular reference to Supreme Court and Appellate Division decisions. Section 12(1) (a) (ii) reads: “An amount to make good any actual financial loss caused by the expropriation; and” The actual financial loss can be considered in two broad categories being “severance” and the diminution in value of the remainder of the property that has not been expropriated. Severance losses occur when a property is divided into two or more portions. These losses are those caused by the loss of access, or limited access, diminution in value of the property caused by necessary uneconomic or more expensive development costs or the severance of services for example water to the severed portion. English legislation differentiates between severance and the diminution in value of the remainder (injurious affection). These concepts are very similar and there is no reason why they should be treated separately. No allowance may be made for any indirect damage in the determination of compensation payable under the Expropriation Act.  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended In Pienaar vs. Minister van Landbou 1972 (1) S.A. 14 (A) the Appellate Division held that direct loss, as against indirect loss, is loss, which flows naturally, and without any intervening cause form the act of expropriation. The loss must be natural, direct and as a reasonable consequence of the expropriation. A mere ‘cause sine qua non’ is not sufficient for a claim of compensation. In Estate Marks vs. Pretoria City Council 1969 (3) S.A. 227 (A) the Court held: “The broad concept of the statute is that monetary compensation is substituted for the property expropriated.” This means that the owner of the property must receive compensation equal to the market value of that property and direct actual financial loss. This loss must not be uncertain or speculative. (Greyvenstein & Andere vs. Minister van Landbou 1970 (4) S.A. 233 (A)). In Lochner vs. Afdelingsraad Stellenbosch 1976 (4) S.A.737 (C) it was held that compensation should be paid for the diminution in value or the remainder of the property because of the noise that would be made by the construction and also the use of the road. This approach has subsequently been rejected by the Appellate Division in Tongaat Group vs. Minister of Agriculture 1977 (2) S.A. 961 (A) where it was held that the meaning of the word expropriate does not include the concept of use of the expropriated property. The anticipated future use of the expropriated property by the State after expropriation will constitute a nova causa which is independent of the expropriation and any loss owing form such anticipated future use will therefore not be compensated. This means that although it could be expected that a certain activity will be generated on the expropriated property and that such activity might decrease the value of the remainder of the property, no claim may be made for the reduction of value of that remainder. In Minister of Agriculture vs. Federal Theological Seminary 1979 (4) S.A. 162 (E) the Court held that if a special property is expropriated, the owner cannot claim for the replacement thereof under the heading of actual financial loss. In Bouwer vs. Stadsraad van Johannesburg 1978 (1) S.A. 624 (W) the Court gave a reasonably detailed list of aspects that can be claimed under actual financial loss. As pointed out above the broad concept of the statute is that monetary compensation is substituted for the property expropriated. The nature of an expropriation itself creates abnormal circumstances and therefore certain special rules have been incorporated in Section 12 (5) of the Act. Section 12 (1) (b) reads: “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 a 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  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended (bb) in any other suitable manner. Section 12 (2) reads: “Notwithstanding anything to the contrary contained in this Act there shall be added to the total amount payable in accordance with subsection (1) an amount equal to –“ a) 10% of such total amount if it does not exceed R100 000 plus b) 5% of such total amount between R100 000 and R500 000 plus c) 3% of such total amount between R500 000 and R1 000 000 plus d) 1% of such (but not amounting to more than R10 000) if the amount exceeds R1 000 000 (3) (a) Interest at the standard interest rate determined in terms of section 26 (1) of the Exchequer Act, 1975 (Act No. 66 of 1975), shall, subject to the provisions of subsection (4), be payable from the date on which the State takes possession of the property in question in terms of section 8 (3) or (5) on any outstanding portion of the amount of compensation payable in accordance with subsection (1): Provided that— (i) in a case contemplated in section 21 (4), in respect of the period calculated from the termination of thirty days from the date on which— (aa) the property was so taken possession of, if prior to that date compensation for the property was offered or agreed upon; or (bb) such compensation was offered or agreed upon, if after that date it was offered or agreed upon, to the date on which the dispute was settled or the doubt was resolved or the owner and the buyer or the mortgagee or the builder notified the Minister in terms of the said section 21 (4) as to the payment of the compensation money, the outstanding portion of the amount so payable shall, for the purposes of the payment of interest, be deemed not to be an outstanding amount; and (ii) if the owner fails to comply with the provisions of section 9 (1) within the appropriate period referred to in the said section, the amount so payable shall during the period of such failure and for the purpose of the payment of interest be deemed not to be an outstanding amount. (b) Interest payable in terms of paragraph (a) shall be deemed to have been paid on the date on which the amount has been made available or posted to the owner concerned. (c) Any deposit, payment or utilization of any amount in terms of section 11 (1), 20 (2) or 21 (1) or (4) shall be deemed to be a payment to the owner, and no interest shall in terms of paragraph (a) be payable on any such amount as from the date on which it has been so deposited, paid or utilized. [Sub-s. (3) amended by s. 4 (1) (a) of Act No. 21 of 1982 and substituted by s. 11 (e) of Act No. 45 of 1992.] (4) If the owner of property which has been expropriated occupies or utilizes that property or any portion thereof, no interest shall, in respect of the period during which he so occupies or  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended utilizes it, be paid in terms of subsection (3) on so much of the outstanding amount as, in the opinion of the Minister, relates to the property so occupied or utilized. (5) In determining the amount of compensation to be paid in terms of this Act, the following rules shall apply, namely— Section 12 (5) (a) reads: “No allowance shall be made for the fact that the property or the right to use property has been taken without the consent of the owner in question;” The fact that the owner of a property may have been unwilling to dispose thereof is irrelevant. An owner therefore cannot claim any sentimental value, which the property may have had for him. Likewise a subjective value placed on the property by the owner is also irrelevant as was pointed out in Braamfontein Company Ltd vs. Johannesburg Municipality 1916 TPD 745 at 747. This aspect was also fully considered by the Court in Sri Raja Vyrecherla Narayana vs. Revenue Divisional Officer Vizagapatam 1939 (2) AER 317 1930 AC 302. Sub-section 12 (5) (b) reads: “The special suitability or usefulness of the property in question for the purpose for which it is required by the State, shall not be taken into account if it is unlikely that the property would have been purchased for that purpose on the open market or that the right to use the property for that purpose would have been so purchased;” If a special attribute of the property for which it is being expropriated would also have had a value or market, then the owner must be compensated accordingly. This does not necessarily mean that the compensation must be based upon a secondary use of the property, where it has been expropriated for its primary highest and best possible use. This section also does not mean that the Government itself could have been seen as a possible purchaser of the land as was set out in Minister van Waterwese vs. Von During 1971 (1) S.A. 858 (A) where the Appellate Division attached a considerable value to prices paid by the government in the area where the property was expropriated. The Court held that although in this particular valley where the farm was expropriated for the purposes of a dam, there had been no other open market transactions upon which the price of the subject property could be based. There had however, been a number of sales between willing and informed sellers to the Government. Although it was evident that if those properties had not been sold they would have been expropriated, the Court held that these purchases should definitely be taken into consideration in determining the value of the subject property. Conversely it could happen that where certain areas are being expropriated that certain owners are prepared to part with their properties at below market value because they are hesitant to be involved in long and costly legislation. The Appellate Division in van Zyl vs. Stadsraad van Ermelo 1979 (3) S.A. 549 (A) it was held that these sales should be ignored. The Court felt that in general, prices paid in expropriation cases should be investigated with  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended caution because some sellers would part with their land for less than market value, but on the other hand the Government could not object if expropriation pieces were used against it as being prices that it paid to other owners. It is therefore clear that these prices can be used by the expropriatee to show what prices he might have obtained form the Government, but the expropriator may not rely upon these prices to show which values certain owners were prepared to accept. In Todd vs. Administrator of the Transvaal 1972 (2) S.A. 874 (A) the Appellate Division held that where certain used of the property, which are so limited that only the expropriator can be considered a potential purchaser, the restriction of the above sub-section is not applicable and the value of the property must be determined as if there were several potential purchasers. In Illovo Estates vs. S.A.R. 1947 (1) S.A. 58 DCL the Court allowed a certain additional amount to the value of the property because it was particularly suitable for the purposes of being used as an aerodrome. Sub-section 12 (5) (c) reads: “If the value of the property has been enhanced in consequence of the use thereof in a manner which is unlawful such enhancement shall not be taken into account;” Although case law on this subject is limited, it is clear that the similar English concept will be followed. It therefore means that uses are contrary to a town-planning scheme or other Acts of Ordinances are to be ignored. This provision could theoretically be taken to ridiculous extents by digging up some totally unknown municipal bylaws, Provincial Ordinances or even Acts. In this regard the general concept as set out in Davey vs. Minister of Agriculture 1979 (1) S.A. 466 (N) should be followed. In this case the Court held that the actual market behaviour should be investigated and that evidence in these cases should be restricted to the activities that were actually found in the market place. If there might be an obscure bylaw which has for many years been ignored, and the use of the subject property is contrary thereto, it should be ignored if buyers and sellers in the market had for many years been ignoring such restriction. Obviously this purported illegal use would be difficult to prove, but in Canada it has been held that the onus on proving illegal use rests on the expropriator and that in certain circumstances the expropriator may be prevented form relying on such illegal use. If a particular use of the property is illegal, that use should not be totally ignored if there is a potential for the removal of such restriction or if the property has a potential to be used for that purpose. In Dormehl vs. Gemeenskaps-ontwikkelingsraad 1979 (1) S.A. 900 (T) the claimant claimed that he had a non-conforming right to use the property for industrial purposes, while the respondent denied such non-conforming rights and argued that the property should be valued as agricultural land, being the purpose for which it was formally zoned. It was held that additional industrial value over and above that of the agricultural values could only be taken into consideration if it could be proved that the land did in fact possess a potential for rezoning. Our Courts have held that the onus of proof for claiming a certain higher or better potential rests upon the owner. In this context it would therefore appear that should illegal use be claimed the expropriator would have to prove such illegal use and once this has been  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended proved, the onus of proof will shift onto the owner to show that the property has a potential to be used for such illegal use, or that the prohibitive ruling could possibly have been waived. Sub-section 12 (5) (d) reads: “Improvements made after the date of notice on or to the property in question (except where they were necessary for the proper maintenance of existing improvements or where they were undertaken in pursuance of obligations entered into before that date) shall to be taken into account;” The object of this rule is to ensure that the expropriator is obliged to pay only what has been expropriated on the date of expropriation and that improvements erected after this date should not form part of the expropriated property. The concept ‘proper maintenance’ is difficult to describe with any degree of accuracy. Regular painting of a property is normally regarded as proper maintenance. Should a property be expropriated at a time when the property requires a coat of paint, but possession of the property is only taken six months or a year thereafter, it will be questionable as to whether the owner could, during that year, have the property painted and claim compensation therefore it must be emphasized that this rule only applies to the date of expropriation. Where properties have been threatened with expropriation, as often is the case, this rule is not applicable and the owner is fully entitled to make any alterations or reparations to his property prior to receiving the notice of expropriation. Sub-section 12 (5) (e) reads: “No allowance shall be made for any unregistered rights in respect of any other property or for any indirect damage or anything done with the object of obtaining compensation therefore;” This rule should be read in conjunction with section 22 of the Expropriation Act in terms of which all unregistered rights in respect of expropriated property terminate on the date of expropriation. In Estate Marks vs. Pretoria City Council 1969 (3) S.A. 227 (A) at page 245, the Court held that property which is subject to an unregistered right, i.e. a lease, must be valued subject to the encumbrance imposed by such lease, even if the lease is terminated by the expropriation. The result is that an unregistered right in respect of other property must be disregarded while and unregistered right in respect of the expropriated property must be taken into account. An unregistered right in respect of other property may be beneficial, such as an unregistered right of access over the other property, or cumbersome, such as where the expropriated property is subject to a right of way through the adjoining property. In both cases the Act requires that unregistered rights be ignored. This is contrary to the normal principles of property valuation and is particular therefore to expropriated properties. It is also therefore contrary to the actual price that may be paid for the property by a willing purchaser to a willing seller; as such unregistered rights will normally be taken into consideration by purchasers and sellers in the open market.  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended No allowance may be made for any indirect damage in the determination of compensation payable. In this regard reference to actual financial loss in sub-section 12 (1) (a) (ii) and sub- section 12 (1) (b) must be read in conjunction with section 12 (5) (e) that no compensation may be paid for indirect loss. Direct loss flows naturally and without any intervening cause from the act of expropriation. The loss must also be a reasonable consequence of the expropriation. The provision that an owner is not entitled to be compensated for anything which he may have dome with the object of obtaining compensation is a subjective approach which primarily concerns the motivation as to why a certain act was done. It appears that this legislation is directed at acts done prior to the date of expropriation and must therefore be considered as to whether they were in the normal course of maintenance or acts that would normally have been done had it not been for the expropriation. This aspect was considered in Minister of Water Affairs vs. Mostert 1966 (4) S.A. 690 (A) at pages 702-703. The question must therefore be as to whether or not such improvements were erected for the purpose of obtaining compensation and the onus of showing that the improvements were in fact erected for that purpose rests on the expropriator. Sub-section 12 (5) (f) reads: “Any enhancement or depreciation, before or after the date of notice, in the value of the property in question, which may be due to the purpose for which or in connection with which the property is being expropriated or is to be used, or which is a consequence of any work or act which the State may carry out or perform or already has carried out or performed or intends to carry out or perform in connection with such purpose, shall not be taken into account;” This sub-section must be read together with sub-section 12 (5) (h) hereunder. The enhancement or depreciation of the value of the property may be disregarded only where there is a direct causal connection between the enhancement or depreciation and an act of the Government. In Hargovan vs. Minister of Agriculture 1971 (4) S.A. 257 (D) the Court held that where the increase in value of the expropriated property was caused by the establishment of the university some years previously, this enhancement should not be taken into consideration when the property was expropriated at a later date to increase the size of the university. This approach has subsequently been overruled in Bonnet vs. Department of Agricultural Credit and Land Tenure 1974 (3) S.A. 737 (T). In this case a portion of a farm was expropriated for a rifle range for the Air force Gymnasium. The Gymnasium had previously taken over the old Heidelberg College in Heidelberg. Shortly after their occupation of the College property values increased substantially in the area. The Counsel for the expropriator argued that this increase in value should be ignored in the determination of the value of Bonnet’s property. The Court however, held that this sub-section (12 (5) (h)) should be narrowly interpreted and held that the increase in value of properties and particularly the subject property should be taken into consideration When determining the amount of compensation payable under the expropriation. Had there been a particular value for the property as a rifle range, this could  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended have been ignored, but evidence was in fact led that the property was suitable for township development and that certain offers has already been made to the owner. Conversely, where the value of the property is decreased due to acts of the expropriating authority, such decrease should be ignored in determining the value or amount of compensation payable. In Southern Transvaal Buildings vs. Johannesburg City Council 1979 (1) S.A. 949 (W) the Court held on page 954 that: “In my view, the same as one cannot take into account any enhancement in value because of the expropriation, one must also disregard any diminution of potential because of the scheme which results in expropriation.” In van Zyl vs. Stadsraad van Ermelo 1979 (3) S.A. 549 (A) the Appellate Division investigated the increase of values of properties as a result of the establishment of an industrial area and took into consideration the provisions of this sub-section. The Railways Administration had decided to establish a large workshop at Ermelo. Consequently the Municipality rezoned a large are for industrial use. Van Zyl’s land was expropriated at a later stage and the Municipality argued that the increase in value caused by the establishment of the industrial area should be ignored. The Court held however, that the act of the Municipality in rezoning the area for industrial purposes and the acts of the Railways Administration were so interwoven with each other that they were inseparable. The Court held that any attempt of the Municipality to rely on a direct causal affect between its act alone apart from that of the Railways Administration and the increase of value was impossible and consequently that this section could not be made applicable. If a certain scheme is therefore enlarged at a later date and his property is expropriated for such enlarged scheme, he should, contrary to the decision in Hargovan vs. Minister of Agriculture be entitled to benefit from the increase in land values resulting from the original scheme. Should the Government, when contemplating future expropriation, place restrictions upon the use of land, or cause acts which decrease the value of the property prior to its expropriation, such acts should be ignored and decreases in value caused thereby should similarly be disregarded. Sub-section 12 (5) (g) reads: This section has been repealed Sub-section 12 (5) (h) reads: “Account shall also be taken of – (i) any benefit which will ensure to the person to be compensated from any works which the State has built or constructed or has undertaken to build or construct on behalf of such person to compensate him in whole or in part for any financial loss which he will suffer in consequence of the expropriation or as the case may be, the taking of the right is question; (ii) any benefit which will ensure to such person in consequence of the expropriation of the property for the use thereof for the purpose for which it was expropriated or as the case may be, right in question was taken;  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended (iii) (this section has been repealed) (iv) any relevant quantity on water to which the person to be compensated is entitled or which is likely to be granted to him, in terms of the provisions of the Water Act, 1956 (Act no. 54 of 1956), or any other law.” If any loss can be mitigated by works erected or done by the state, such as repairing or replacing fences, or the construction of subways under roads or railway lines, the benefit of such works must be set off against the compensation payable to the owner. The rights of a riparian owner in respect of water from a public stream or river are regulated by the Water Act no. 54 of 1956. Each riparian owner is entitled to a reasonable share in the normal flow of such stream and to all surplus water, which may be used beneficially, unless such water has been otherwise apportioned between the riparian owners by Water Court. Where land is situated within Government water control area, the right to use the water and the control thereof vests in the Minister of Water Affairs. The Minister is empowered to issue permits for the use of such water, but it does occur that properties are expropriated in water controlled areas where no permits have been issued. In such cases it is important to know what water rights the expropriated land would enjoy in relation to the public river or stream, because these rights may influence the value of the property. The Expropriation Act prescribes that account must be taken of such quantities of water in determining the compensation. This provision clearly places the Minister in a strong position where the likely permits to be issued may be contested. The Act requires that, if a portion of a property has been expropriated, and the acts of the expropriator increases the value of the remainder, this benefit should be set off against compensation payable. The measure of such benefits is often impossible and this is a provision, which is similar to the provisions of sub-section 12-(5) (f) above and should be interpreted narrowly. Only benefits resulting from the expropriation must be set off and if a benefit flows from a separate contract or act, which is not specifically the expropriation, there shall be no decrease in compensation. The previous Expropriation Act of 1975 did not make provision for the payment of compensation to the holders of unregistered rights. This Act now makes provision for compensation on registered rights, but this amount shall be taken into consideration in the determination of payment of compensation to the owner of the property. 4.0 THE APPROPRIATION OF COMPENSATION Ownership of expropriated property vests in the expropriator on expropriation date, free from all mortgage bonds (if any) but subject to all registered rights in favour of third parties with which it is burdened. If the expropriator requires unencumbered ownership of the property, all registered rights must be expropriated separately and the holders of such rights have separate claims for compensation. If the land which is expropriated was immediately prior to such expropriation encumbered by a registered mortgage bond subject to an agreement of sale, the expropriator may not pay out any portion of the compensation money in question, except to such person and on such terms as may have been agreed upon between the owner of such property and the mortgage  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended or buyer concerned, as the case may be. If the owner and the mortgagee or the owner and the buyer reach no agreement, the expropriator is entitled to pay the compensation money to the Master of the Supreme Court and after such payment has been made the expropriator shall cease to be liable in respect of the amount. In terms of the Expropriation Act, any person who has a protected unregistered right in respect of expropriated land is entitled to payment of compensation as if such right was a registered right in respect of the land in question which was also expropriated on the date of expropriation. The holders of protected unregistered rights are:  A lessee of land for business or agricultural purposes in terms of an unregistered lease.  A builder who holds a builder’s lien on a building which has been erected by him on the expropriated land by virtue of a written building contract.  A share cropper. The compensation money payable to the owner of the land is reduced by the amounts to which the holders of protected unregistered rights may be entitled. 5.0 METHOD OF VALUATION There exists several methods of valuation which can be used to determine the value of expropriated property. These methods of valuation are not rules of law, but processes of reasoning to arrive at a valuation. No single method, gives the exclusion of all other methods, an infallible final result. It is the duty of the valuer to value the expropriated property, and not to follow any particular valuation techniques. If the whole of a person’s property is expropriated, the whole is valued and the market value thereof is determined. If only a portion thereof is expropriated, the valuer can follow three basic approaches:  The difference between the value of the whole before the expropriation and the value of the remainder after expropriation. According to this approach a valuation is made of the whole property before expropriation and a second valuation of the remainder of the property after the expropriation. The difference between these two valuations includes the value of the expropriated portion and also the diminution (reduction) in value of the remainder. The before-and-after method of valuation is often applied where the expropriated portion does not form a separate economic unit, which will be the case when a narrow and long strip of land is expropriated for a road or a railway.  Valuation of the expropriated portion as a separate unit together with diminution in value of the remainder. This method can be applied when the expropriated portion can be an independent economic unit capable of being sold and purchased separately on the open market.  Valuation of the expropriated portion as part of the whole, together with diminution in value of the remainder. This method of valuation is often used for farm land. Farm land can be valued by placing a separate value per surface unit on various units of use in respect of the land and on the  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended improvements. In this manner farmland can, for example be divided and valued as land under irrigation at R1 000 per hectare, dry lands at R200 per hectare and grazing at R60 per hectare. By multiplying the number of hectares in each unit of use by the price per hectare, and adding the value of the improvements to the result, the value of the expropriated land is obtained. The most important methods of valuation are valuations in relation to comparable sales (direct comparison), valuation in relation to income (indirect comparison), the cost method and the developer’s residual approach. 5.1 COMPARABLE SALES (DIRECT COMPARISON) Valuation in accordance with comparable sales is based on the assumption that a purchaser on the open market will pay no more for property than the price at which he can purchase similar property elsewhere. The value of the expropriated land is determined in accordance with selling prices obtained for similar land in the same vicinity and within the same period of time. In suitable circumstances this can be the best method of valuation. 5.2 VALUATION IN RELATION TO INCOME (INDIRECT COMPARISON) The method of valuation by indirect comparison is based on the assumption that a purchaser will pay no more for property with a certain income flow than the amount for which he can obtain a similar income flow with similar risks elsewhere. The method of indirect comparison is suitable for investment properties including flats, office blocks, service stations and certain industrial buildings. 5.3 THE COST METHOD The costs method of valuation is based on the assumption that a person will pay no more for improvements than the sum for which he can erect similar improvements elsewhere. This method of valuation is applied for relatively new improvements erected in accordance with the highest and best use of the property, or in the case of exceptional properties (such as schools, hospitals and churches) for which there exists no actual open market, the costs of substitution form the ceiling value. A suitable deduction must be made for depreciation. 5.4 THE DEVELOPER’S RESIDUAL APPROACH The developer’s residual approach contains elements of the method of indirect comparison and of the costs of the approach. It can be applied for the valuation of bare land which is ripe for development or for sub-division and also for the valuation of land where the exiting improvements do not contribute much to the value thereof and will in all probability be demolished to make room for redevelopment. The basic supposition underlying the developer’s residual approach is that the property will be purchased for development purposes, and that the purchaser will pay no more for the property than the sum which he,  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended having regard to the costs of the development, can afford to invest in order to obtain a good return from the proceeds of the development. It is generally accepted that, in suitable circumstances, the value of expropriated land can best be determined in accordance with the comparable sales of similar land. (Minister van Waterwese v Mostert 1966 4 SA 690 (A) 723). A single sale is usually insufficient to give a true indication of market value. (Jacobs v Minister of Agriculture 1972 4 SA 608 (W) 6150). The price per surface unit of a small property is usually not comparable to the price per surface unit of a large property, because a small property will usually fetch a higher price per surface unit on the open market. (Van Zyl v Stadsraad van Ermelo, TPD unreported). The price at which the owner purchased the expropriated land is usually a good indication of the value thereof, provided that the land was purchased not too long before the date of expropriation. The price at which a property is sold at an auction is usually not a better or a worse indication of market value than any other comparable sale. The circumstances under which the auction took place can bring about that the price obtained is no indication whatsoever of the market value. (Katzoff v Glaser 1948 4 SA 630 (T) 637). A forced sale, a simulated sale and a family transaction do not take place under market conditions which are comparable to a free sale on the open market, and should be disregarded. Regard may be had to the price at which the expropriator obtained other properties in the vicinity, but such acquisitions do not stand on an equal footing to open market sales. Sales to the expropriator are usually not free sales because the parties are aware that expropriation will follow if agreement is not reached. (Union Government v Jackson 1956 2 SA 398 (A) and Estate Marks v Pretoria City Council 1969 2 SA 227 (A) 254. The situation may arise that the expropriator created a market value of land in a certain area by the prices at which he purchased land, the general public accept the expropriator’s prices as indicative of market value and buy and sell land accordingly. In such circumstances the prices may be used as a basis for determining compensation in the event of an expropriation (Minister van Waterwese v Mostert 1966 4 SA 690 (A) 725). 6.0 THE DETERMINATION OF MARKET VALUE In terms of the Expropriation Act 1975, compensation in respect of the expropriation of land is determined in accordance with the market value thereof. Market value id defined as: “The amount which the property would have realised if sold on the date of notice in the open market by a willing seller to a willing buyer”. The description of market value can be broken up into various components:  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended 6.1 “THE PROPERTY” The expropriated property must be valued for all uses to which it could have been put, and with due regard to all its attributes.  In determining compensation regard must be had not only to the existing uses of the expropriated property, but also to the potential of possible future development which may take place. (Thanam v Minister of Lands 1970 4 SA 85 (D) 880). Potential future development may only be taken into account if the property is worth more as a result thereof. It is the present value of possible future development which must be determined, and not the value which the future development shall have when it has been accomplished.  In any modern community planning laws set various limitations to the uses to which property can be legally put. In the event of expropriation, the property must be valued subject to all such limitations, but having due regard to the possibility of the removal or amendment of the limitations in order to obtain a more advantageous zoning for the property. (Bestuursraad van Sebokeng v M & K Trust & Finansiële Maatskappy 1973 3 SA 376 (A) 393B-394F and Secretary for Inland Revenue v Sturrock Sugar Farm 1965 1 SA 897 (A) 904-605).  In certain circumstances even speculative potential uses may be taken into account. Land situated next to a coal mine may have an increased value solely on account of the possibility that it may also have a coal deposit. Even though such possibility is totally speculative, it must still be taken into account. Vague and far fetched uses, for which no purchaser would be prepared to pay, should be disregarded.  If the value of the land must be determined in accordance with a different use to the existing use thereof, the owner can only claim compensation for actual financial loss in so far as such loss would have arisen even though the land was otherwise used. For example, if land was used for agricultural purposes by an owner who resides thereon, and the highest and best use for such land is township development, the owner shall not be entitled to claim removal costs as part of his loss, because he would not have been able to reside on the land if it had been used for township development.  Fixed improvements form part of the land and must be valued as such. It is wrong to value land and improvements separately. (Durban Corporation v Lincoln 1940 AD 36-45). No compensation is payable for loose assets which are not fixed to the land because it forms not part of the expropriated property. (Caltex (Africa) v Director of Valuations 1961 1 SA 525 (C). The ordinary standards apply to determine whether a fixture forms part of the ground or not. Regard must be had to the nature of the fixture, the method by which it has been fixed and the intention of the parties when it was fixed.  Improvements which end certain attributes to the land are not valued separately, but the land is valued with inclusion of the attributes which arise from the improvements. If irrigation equipment is installed to put the and under water, no separate value shall attach to the irrigation equipment, but the land which comes under water will be value as irrigated land. (Minister van Waterwese v Mostert 1966 4 SA 690 (A) 717-718). On the same principle improvements such as roads, fencing and drainage furrows are usually not value separately; the farm must be valued on the basis that t is properly served by roads, fences and drainage furrows.  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended 6.2 “WOULD HAVE REALISED” The transaction is a notional transaction between a notional seller and a notional buyer. 6.3 “IF SOLD” In determining market value a sale on the customary terms and conditions is postulated. The notional sale is not a transaction for which there must be an immediate buyer. The price is a price which could have been obtained if the property was exposed to the market for a reasonable time 6.4 “DATE OF NOTICE” In terms of the Expropriation Act the value of expropriated property must be determined as at the date of notice. The expropriatee can claim compensation in one single sum only. Should it later appear, after the compensation has been determined, that the expropriatee has suffered further loss, he cannot claim any additional compensation. 6.5 “OPEN MARKET” There can only be a sale in the open market if it takes place under conditions enabling every person desirous of purchasing to come in and make an offer, and if proper steps were taken to advertise the property and let all likely purchasers know that the land is in the market for sale. An open market (for immovable property) does not mean a place where possible buyers can compete for the purchase of the land. It does not refer to a notional auction. A transaction must be postulated which comes about after friendly negotiation between a willing seller and a willing buyer resulting to an agreed price. (Todd v Administrator of the Transvaal 1972 A 874 (A) 881M-882B). 6.6 “WILLING SELLER TO A WILLING BUYER” The willing seller and the willing buyer referred to in the definition of market value are not the owner and the expropriator but notional persons. (Bestuursraad van Sebokeng v M & K Trust & Finansiële Maatskappy 1973 3 SA 376 (A) 384G. A seller must be postulated who is not anxious, but willing to sell if he obtains a good price. A buyer must be postulated who is willing and financially able to buy, (Bonnet v Department of Agricultural Credit and Land Tenure 1974 3 SA 737 (T) 744H) he is not an over keen buyer or a buyer acting under compulsion. It is assumed that both the buyer and the seller are aware of all potentialities of the property which were known on the date of expropriation or which would have become known during the process of negotiation which must be postulated to be the same as that of a free sale. Facts which would not have become known in such manner and are only discovered at a later date must be disregarded.  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended 7.0 COMPENSATION FOR FINANCIAL LOSS An expropriatee is entitled to compensation for loss caused by the expropriation if the loss is of such a nature that it can be measure in money and if there exists a direct causal relationship between the act of expropriation and the loss. (Pienaar v Minister van Landbou 1972 1 SA 14 (A) 20E). Claims for sentimental loss, inconvenience, stress and mental suffering are excluded. Although such claims must be capable of being measured in terms of money, it need not be capable of exact calculation. Estimates are permitted (Lymar Investments V SAR&H 1975 3 SA 905 (N) 907-908). The expropriatee must place all possible evidence in connection with the claim before the court. The court will not be prepared to make an estimate if the plaintiff fails to present the necessary evidence. There exists no limitation on the various kinds of claims which may be brought under the heading actual financial loss. The under mentioned heads of claim received the attention of the courts from time to time.  If the owner occupied the expropriated land, his actual removal costs to other land must form part of the compensation. (Greyvenstein v Minister van Lande 1970 4 SA 233 (T)). Such costs will include adaptations and alterations to furniture and equipment, and also interim storage in respect thereof. If the expropriation makes it necessary to sell implements for less than their true value, a claim may be instituted for the difference between the selling price and the true value of such assets.  Normally an expropriatee is not compensated for the costs which he must incur to look for new land in substitution of the expropriated land. The courts take the attitude that there exists no direct causal connection between the expropriation and the search for new land. (Greyvenstein v Minister van Lande 1970 4 SA 233 (T)). Of similar nature is a claim for compensation for transfer fees and transfer duty which the expropriatee must pay for the acquisition of a new property. Such claims have regularly been refused by the courts in South Africa. (Estate Marks v Pretoria City Council 1969 3 SA 227 (A) and Minister van Waterwese v von During 1971 1 SA 858 (A)  Compensation is payable in respect of goodwill which is lost as a result of the expropriation. Certain claims in respect of financial loss arise when the expropriator expropriates only a portion of a piece of land.  Before an owner can bring his claim on the basis that only a portion of his land has been expropriated, he must show that his land (the expropriated portion, together with the remainder) formed a single unit. This includes unity of ownership as well as unity of use. All the component parts must belong to the same person, and he must hold it in the same capacity in which he holds the expropriated portion. There can be unity of use even though the different portions of the land are not physically adjacent. The different portions of the land must be situated close enough to one another in order that the joint use and control thereof may give an increased value to the whole.  The expropriation of a portion of a piece of land can cause loss in various respects. There is a possibility of diminution in the value of the remainder of the land because it is smaller,  or because it must be redesigned, (Lymar Investments V SAR&H 1975 3 SA 905 (N) 907- 908), or because it is over capitalized because the expropriated portion no longer forms part thereof or because it is divided into two smaller portions by the expropriation, and the accessibility between the two portions is difficult. (Greyvenstein v Minister van Lande 1970 4 SA 233 (T). There is furthermore the possibility of claims for additional operating costs for the utilization of the remainder, difficulty of access to a public stream, interference with the supply of water on the remainder, odours coming from sewage works, loss of beautiful view, loss of privacy and the additional costs of building a new house on the remainder after the loss off the existing house on the expropriated portion. Each claim for severance must be considered on its own merits and in accordance with the test of whether such loss is a direct result of the expropriation.  According to section 12(1) of the Act, compensation is payable in respect of financial loss only if it is caused by the expropriation. There must be a direct causal connection between the expropriation and the loss. It is not sufficient to prove that the expropriation was a causa sine quanon of the alleged loss. The expected use of the expropriated land for the purpose, for which it was expropriated, must be taken into account in determining the compensation. If, for example, the expropriator used the land for building a dam, and if the presence of the dam should increase the occurrence of frost on neighbouring land and make it less suitable for certain crops, the owner of land of which a portion was expropriated may include such loss in a claim for compensation in respect of the remainder.  An owner is not entitled to claim in advance compensation for subsequent illegal acts which he fears that the expropriator may commit, because it is presumed that the use of the expropriated land by the expropriator will be reasonable and lawful. 8.0 STATUTORY LIMITATIONS ON COMPENSATION The Expropriation Act contains a large number of directions on the determination of compensation than any of its predecessors. The effect thereof is that an expropriatee is often not restored to the same financial position in which he was before the expropriation took place. The special suitability or usefulness of the property in question for the purpose, for which it is required by the State, shall not be taken into account if it is unlikely that the property would have been purchased for that purpose on the open market.  This provision is closely related to section 12 (5)(f) in terms of which any enhancement or depreciation in the value of the property which may be due to the purpose for which or in connection with which the property is been expropriated or is to be used, shall not be taken into account in determining the compensation.  If the special suitability or usefulness of the land for the purpose of, for example, a dam or bridge also has value for possible other buyers on the open market, such value must not be taken into account in determining compensation. Account shall also be taken of any benefit which will ensure to such person in consequence of the expropriation of the property or the use thereof for the purpose for which it was expropriated.  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended  It necessarily follows that if an expropriator should expropriate a piece of land in connection with a scheme, and as a result of such scheme the remainder of the land increases in value, the owner should in equity not obtain the advantage of such increase in value while the expropriator must pay the full value for the expropriated land.  The argument is sometimes raised that advantages which are set off against an expropriatee, often endure for the benefit of the whole community, why should the compensation of the expropriatee be reduced while the rest of the community shares in the benefits. Judge Tindall disposed of this argument in SAR&H n New Silverton Estate as follows: “It is true, however, that the inequality of the respective positions of the owner whose land is taken and the owner whose land is not taken might arise, but in my opinion this inequality is not sufficient to entitle the Court to refuse to give effect to the literal meaning of section 9”. Account shall be taken of any relevant quantity of water to which the person to be compensated is entitled by virtue of the provisions of section 62(1) or 63 or by virtue of a permit issued to him under section 62(2), or will become entitled by virtue of a permit which, according to a statement by the Secretary of Water Affairs, will be issued to him, or by virtue of any scheduling which, according to such statement, will be granted to him under the said section 63, of the Water Act 54 of 1956, as the case may be:  When farm land which is riparian to a public stream is expropriated, it is of the utmost importance to know what water rights the land has in relation to the public stream, because such water rights can greatly influence the value of the land.  It is a pity that the legislature found it necessary to include this section. In expropriations where water rights are relevant, the expropriator is usually the Department of Water Affairs. This section makes the Department a judge in its own cause. There id furthermore the objection that the Secretary for Water Affairs need not give evidence personally. A statement signed by him can be produced to the trial court. This makes it almost impossible for an expropriatee to attack the statement on the grounds of bad faith or on the ground that the alleged water rights have been determined arbitrarily and without reasonable investigation. 9.0 EXPROPRIATION AND THE ROLE OF THE VALUER The authorities are spending many millions of rand per annum acquiring property, most of which is agricultural land. The present economic boom has, and is causing a substantial rise in the value of fixed property. It is important that when land is expropriated the owner should know how much he can claim. While little or no publicity is given to owners who accept low offers, thus losing substantial sums of money, our Court records reveal that other have come to grief by claming figures far in excess of the compensation payable to them. Factors that influence the value of agricultural land obviously vary substantially from farm to farm. Over and above the agricultural economic factors created by demand and supply there are numerous other legal requirements to be met in the determination of compensation in  UNIT 11 - THE EXPROPRIATION ACT NO. 63 OF 1975 as amended the case of expropriation. Detailed knowledge of the particular Act or Ordinance under which the expropriation has been executed must be backed up by a thorough knowledge of common law interpretations as set out in numerous Appellate Division and Supreme Court cases. The agricultural economic aspects as well as the method of valuation employed, play an important role in the determination of compensation. The valuer must therefore be well versed in the market value of agricultural land and have intimate knowledge of the technical approaches to the determination of market value. He should also be in a position to advise his client regarding claims for losses and must obviously know the relevant Act under which the land has been expropriated as well as all common law implications. The profession has become much more sophisticated. Gone are the days when a thumb suck estimate was made. Fully motivated valuations are required in which not only the economic factors but also the technical and legal implications are clearly set out, are required. It is for this reason that the educational standards of valuers are being scrutinized and improved regularly. It is expected that a new breed of valuer will play an important role in assisting clients with valuations and expropriation matters in the future.