Valuation, the role of the OVG and a formulistic approach to applying section 25(3) of the Constitution

Valuation, the role of the OVG and a formulistic approach to applying section 25(3) of the Constitution

The origins of the Office of the Valuer-General (OVG) lie in the 2011 draft Green Paper on Land Reform. The OVG was supposed to provide fair and consistent land values for rating and taxing purposes, determine financial compensation in the case of expropriation, providing specialist valuation advice to government, set norms and standards and maintain a database of valuation information.

The Property Valuation Act was promulgated in 2014. The Act requires the OVG to value land identified for land reform not according to market value but according to the method prescribed by the Constitution to determine just and equitable compensation for expropriation

In 2018 regulations were published in terms of the Act, to try and give effect to the mandate of the OVG to set norms and standards for valuation. In the Regulations, a formula was proposed to establish just and equitable compensation. This formula was controversial even before the promulgation of the Regulations as many financial institutions and agricultural organisations cautioned against elements of the formula during consultations on the draft Regulations.

The role of the OVG in deciding compensation

A number of court judgements emerged dealing with the role of the OVG and the offers made to landowners based on the formula contained in the Regulations. The court basically found that the OVG cannot determine just and equitable compensation, in the case of a dispute over-compensation, only the court can make such a determination. In the most recent judgement in the Moloto-case1, the court confirmed that the interpretation of section 25 cannot be equated to valuation.

There is a review underway into the role of the OVG, the Property Valuation Act and its Regulations. A Ministerial committee conducted hearings in 2021 and Agbiz presented its views in this regard to the Ministerial committee. More recently, in April 2022, Agbiz was interviewed by researchers appointed by the OVG to conduct a study on the impact of the Property Valuation Act on the land reform programme in South Africa.

A mechanical approach to value at the heart of the problem….

It has proved extremely difficult to come up with a formula for the interpretation of the factors listed in section 25(3) of the Constitution and it can be argued that that is completely the wrong approach in any event. Section 25(3) does not contain a closed list of factors. It is intended to lead to a result which is just and equitable taking into account both the rights of the affected individuals and the public interest. Any relevant factor can come into play and the end result may be market value -, below market value- or above market value compensation.

The nett effect of the application of the formula and particularly the current use value element thereof, has, in practice been to drastically lower the amount of compensation offered to landowners.

There are, in our view, some fundamental flaws in the approach followed by the OVG. The first is the confusion between value and compensation. Whilst value relates to the property, compensation relates to the owner.

Secondly, the OVG cannot act as referee and player at the same time. The OVG cannot do valuations and determine compensation

Thirdly, a strict formulistic approach is not desirable and is bound to lead to unjust results in certain cases. All relevant factors should be weighed up and considered, and those that are not relevant to the case in point discounted.

Fourthly, the formula as contained in the Regulations is in itself problematic. There is no basis for this formula in the application of s25 and it is the leading cause for litigation as it results in an under-valuation.

The proposed way forward

The review process of the role of the OVG, the legislation and the study on the impact of the legislation must be welcomed. There are definite lessons to be learnt from the application of the Act and Regulations over the past 7 years, as well as from court judgements and the insights of stakeholders such as Agbiz and the valuer’s profession

We propose the following:

• The Regulations definitely require an overhaul. The formulistic approach is not ideal and there are very valid concerns regarding the current use value approach.

• The outcome of any method used for valuation should inform and offer but the final outcome must be just and equitable.

• International valuation standards should be taken into account when doing valuations in South Africa.

• The integrity of the land market must be maintained to prevent adverse impacts on agricultural finance.

• A distinction needs to be made between the concepts of value and compensation.

• The role of the OVG should be advisory in nature.

• Valuations should be done by experienced, registered valuers who should be free to use their professional training and expertise to arrive at the value of the property.

• If the OVG were to advise on compensation, it would require experts with agricultural economical and other relevant backgrounds to advise on the more subjective factors that can impact on compensation.

[1] Moloto community v Minister of Agriculture, Land Reform and Rural Development and others: LCC 204/2010