Alternatives to purchasing immovable property in South Africa
Alternatives to purchasing immovable property in South Africa
Despite the failure by Parliament to successfully pass the Constitution Eighteenth Amendment Bill, 2021 (the Bill), aimed specifically at making provision for land expropriation without compensation, the Justice and Correctional Services Minister, Ronald Lamola, stated during the debate before voting on the Bill that several other bills are already before Parliament or yet to be introduced which will be used to give practical effect to the issue of accelerated land reform.
At a glance
- The purpose of this article is to briefly unpack some alternatives to property ownership while still affording security in carrying out commercial affairs.
Although this is by no means an exhaustive analysis, our focus will be on the registration and use of personal or praedial servitudes and long-term leases over immovable property to in effect reap some rewards afforded by ownership.
This policy position, combined with the precarious fiscal conditions in which many property owners find themselves, has left South African property owners, contemplating their land use and ownership options in structuring their financial affairs.
The purpose of this article is to briefly unpack some alternatives to property ownership while still affording security in carrying out commercial affairs. Although this is by no means an exhaustive analysis, our focus will be on the registration and use of personal or praedial servitudes and long-term leases over immovable property to in effect reap some rewards afforded by ownership.
One does not necessarily have to own immovable property to be afforded certain rights and entitlements to the use and enjoyment of the property. The content of such rights and entitlements will, however, differ depending on the selected option.
An example is the use of servitudes. Servitudes are limited real rights which are registrable over an immovable property at the Deeds Office by means of a notarial deed, the most common being personal or praedial servitudes.
With respect to agricultural land, in terms of section 6A of the Subdivision of Agricultural Land Act 70 of 1970 (Act), servitudes over agricultural land may not be registered without ministerial consent unless they fall within the exceptions listed in section 6A.
The exceptions listed in section 6A include servitudes on agricultural land which relate to a right of way, aqueduct, pipeline or conducting of electricity with a width not exceeding 15m; a servitude which is supplementary to the listed servitudes not exceeding 225m2, which adjoins the area of any of the aforesaid servitudes; and a usufruct over the whole of the agricultural land in favour of one person or in favour of that person and their spouse if they are married in community of property.
Although personal and praedial servitudes are both registrable over immovable property, a personal servitude is registered in favour of a specific person or legal entity and is usually created for a specific period or for the lifetime of the beneficiary. Furthermore, a personal servitude cannot be transferred.
The most widely used personal servitude is the usufruct, which entitles one to use and enjoy the property of another and its fruits for a specified period or their lifetime, and where the usufructuary is a juristic person, the usufruct is terminated upon dissolution of the juristic entity or the lapse of 100 years. After this period, the property is to be returned in the condition in which it was found, bearing in mind fair wear and tear.
Another example of a personal servitudes is that of use (usus). This closely resembles a usufruct, but the holders’ rights are more restricted in that the holders of the servitude of use may use and possess the immovable property but may not make use of the fruits in excess of what they need, nor can they sell any of the fruit nor grant a lease over the property, which a usufructuary would be entitled to do.
The most restricted personal servitude is the habitatio which only allows the holder of the right to occupy the property.
In contrast to a personal servitude, a praedial servitude is created by granting rights and entitlements over one property in favour of another property, and consequently the rights and entitlements attach to the land and not to a person. As the servitude attaches to the land and not to a person, the rights and entitlements can therefore be transferred to the successors in title of the land until the servitude is either cancelled or lapses.
Examples of the most common forms of praedial servitudes include a right of way, a pipeline servitude or a servitude allowing the right to draw and transport water. Such rights can therefore afford one the use and enjoyment of another’s property without the need to own the land, or they can be an additional source of income for landowners.
Another commercially viable option with the necessary protection of making use of immovable property without necessarily owning it is through the use of a long-term lease.
A long-term lease, which can range from anything between a period of 10 to 99 years and is registrable at the Deeds Office, affords the lessee a limited real right over the property for the duration of the lease.
With respect to long-term leases over agricultural land, it is important to note that in terms of section 3(d) of the Act, no lease shall be entered into, unless the Minister of Agriculture has consented in writing thereto, in respect of a portion of agricultural land of which: the period is 10 years or longer; or is for the natural life of the lessee or any other person mentioned in the lease; or which is renewable from time to time at the will of the lessee either by the continuation of the original lease or by entering into a new lease indefinitely or for periods which together with the first period of the lease amounts in all to not less than 10 years.
Failure to comply with obtaining such ministerial consent results in the lease agreement being void.
Where a long-term lease has been validly concluded and the necessary consents obtained, the failure to register such a long-term lease at the Deeds Office will not invalidate the lease agreement. The benefit of registration of such a lease agreement is that it offers the parties additional protection in that the lease will also be valid against the creditors and successors in title of the lessor.
Although ownership is the strongest entitlement to property, it is by no means the only method of enjoying some of the rights and entitlements to immovable property and, depending on one’s requirements, there are various alternatives that could be used to achieve some of the advantages of ownership without some of its burdens, especially in our current climate of policy uncertainty in light of the current land debate.
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