I hope every one’s has had some time over the festive season to recharge their batteries. To all our members and agents I have not personally spoken to, may 2008 be a blessed and prosperous year.

2008 has already started with a bang and if the first couple of weeks are a gauge for the rest of the year, it is going to be a demanding year. On the back of upward movements in interest rates, oil and food prices, Eskom’s current program of load shedding will have a further negative effect on the production sector of our economy. Against this background CPIX inflation is predicted to peak at well above 8% in the first quarter of 2008, well above the Reserve Bank target of 6%. This unfortunately does not bode well for interest rates over the short term.

This is not the year to sit in your office and wait for the phone to ring. Activity, activity and more activity is going to be the key to success. It is also a year in which hard work and perseverance is going to be rewarded if the fundamentals of real estate practice are followed.

As you all by now know, Jan has left us at the end of January to pursue his career with ABSA bank. We wish him all the best of luck with his new career and ventures. I am confident that Jan’s move will further cement our already amicable relationship with ABSA. The operations of Aida is currently in the safe hands of Johan Boonzaier, who oversees the day to day operational aspects, and Delport Poolman, who stands at the helm of new business development. We also wish them the best of luck.

We are currently in the process of interviewing several candidates for the Aida CEO position. Although we wish to finalise the process as soon as possible, I trust that everyone understands that the process will take some time.

One of the greatest hassles in the way of developing agricultural land is seemingly no more.

The Subdivision of Agricultural Land Act 70 of 1970 (hereafter SALA) demands of developers who wish to sell, subdivide or rezone agricultural land, to obtain the permission of the Minister of Agriculture. Agricultural land is defined as

“any land except land situated in the area of jurisdiction of a municipal council, city council, town council, village council… but excluding any such land declared by the Minister after consultation with the executive committee concerned and by notice in the Gazette to be agricultural land for purposes of this act.

Provided that land situated in the area of jurisdiction of a transitional council as defined in the Local Government Transition Act 209 of 1993, which immediately prior to the first election of the members of such transitional councils was classified as agricultural land, shall remain classified as such”.

In Stalwo (Pty) Ltd v Wary Holdings (Pty) Ltd, the Supreme Court of Appeal (SCA) effectively did away with the permission of the Minister. The purchaser acquired the land for industrial purposes, which was, at the time of the agreement, zoned as agricultural land. The local authority granted permission to the purchaser to rezone the land after he took occupation. The written permission of the Minister of Agriculture was, however, never granted.

The SCA had to decide whether the land was agricultural land, in which event the agreement would be rendered invalid because permission from the Minister had not been obtained. In answering this question, the court focused on the interpretation of the proviso in the definition which excludes land situated in an area of jurisdiction of a transitional council. From the definition we can conclude that land which falls within the jurisdiction of a local authority is not agricultural land. But now the timing of events becomes important: What if the land came under the jurisdiction of a transitional council as created by the Transition Act, and later became subject to a ‘permanent’ local authority, which inevitably, would be the case.

The property previously was agricultural land. When it became subject to the authority of the transitional council, it retained its status as agricultural land, due to the provision of SALA above. The Nelson Mandela Metropolitan Municipality (NMMM) was afterwards created as the permanent local authority. It was the local authority responsible for the property when the agreement was entered into.

Two questions arise. The court firstly decided that the NMMM was a council as meant in SALA. The court then turned to the question whether the land retained its original status as agricultural land by virtue of the proviso when the permanent municipality took over the jurisdiction, or whether it changed to non-agricultural land when the permanent municipality replaced the transitional one. The SCA determined that it changed status to non-agricultural land when the NMMM took over the jurisdiction. (The High Court found that the status of agricultural land which came under the jurisdiction of a transitional council was “frozen” as agricultural land and that, according to the proviso, it retained that status when the permanent municipality took over. The SCA found that the concept of agricultural land is a fluid rather that a static one). According to the SCA the proviso must be read in light of the Transition Act, which was in itself meant to provide interim measures. The proviso was therefore only meant to operate for as long as the land envisaged therein remained situated in the jurisdiction of a transitional council. The court is of the opinion that the Legislature would have clearly stated if it intended such land to retain its status after the transitional councils were abolished.

The court came to the conclusion that the land did not constitute agricultural land anymore, because it became non-agricultural land when the NMMM took over jurisdiction. The Minister’s permission was therefore not needed in this case, and the parties were held to their contract.

The practical implications of this judgment and the courts’ interpretation of the proviso are far reaching. It appears that there is no longer any land in our country which falls outside of the jurisdiction of a local authority. This is not a problem at all, since the whole purpose of the Transition Act was to create “wall to wall” municipalities so that no piece of land would be unregulated. However, if we accept the court’s interpretation of the abovementioned legislation (namely that the proviso only meant to operate for as long as the land envisaged therein remained situated in the jurisdiction of a transitional council), there is no longer such a thing as agricultural land. This means that section 3 of SALA is no longer applicable, because you do not need the written permission of the Minister of Agriculture to sell or subdivide non-agricultural land.

(The decision of the SCA has been referred to the Constitutional Court. The Deeds Office advised that they will, notwithstanding the judgment of the SCA, apply the provisions of SALA until judgment is delivered by the Constitutional Court).

Purchasers who want to take transfer of shares of a property-owning company, rather than the property itself, have until now often been thwarted by provisions of the Companies Act. It seems that the Corporate Laws Amendment Act (CLAA) has opened the window slightly to such transactions.

Purchasers of property owned by companies normally try to finance the transaction by registering a bond over the property. Banks have always refused such loans, as section 38 of the current Companies Act prohibits financial assistance by a company for the purchase of its own shares. (In typical legislative language the act prohibits financial assistance “whether directly or indirectly, and whether by means of a loan, guarantee, provision of security or otherwise …”).

The Department of Trade and Industry is busy effecting sweeping changes to the current Companies Act. The entire Companies Act will be replaced by new legislation. The Companies Bill is expected to come into effect on 1 January 2010. The CLAA – which will probably be promulgated at the end of October 2007 – deals with interim changes to the existing Companies Act. It is apparently the intention of the Department to implement these amendments to facilitate shareholder diversification and implementation of BEE legislation.

The CLAA allows companies to provide financial assistance for the purchase of its own shares on the following conditions:

1. The consolidated assets of the company must be more than its consolidated liabilities – “the solvency test”.
2. The company must be able to pay its debts during the transaction period – “the liquidity test”.
3. The assistance must be authorised in terms of a special resolution of share holders.

The CLAA places the onus on the company’s board of directors to satisfy itself on reasonable grounds that the company will pass the solvency and liquidity tests.

This relief will, however, be short lived, as section 40 of the Companies Bill – which comes into operation in 2010 – again prohibits direct or indirect financial assistance for the purchase of its own shares. The Bill does allow financial assistance, but only in certain limited circumstances, amongst others pursuant to an employee share scheme.

In terms of current legislation any contravention is met with criminal prosecution. The Companies Bill, in contrast, provides that any director who votes in favour of an illegal scheme is personally liable to compensate the company and any shareholders for losses due to such scheme.

The liberal approach by the legislator in both the CLAA and the Companies Bill should be welcomed by all involved. Anybody who wishes to make use of these interim measures must however be wary of the “withdrawal” of the leniency in the CLAA by the Companies Bill in little more than two years.