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Property Law: Agricultural Land: Options no longer an option

The Subdivision of Agricultural Land Act[1] (“the Act”) prescribes that an owner of agricultural land must first apply to the Minister of Agriculture before subdividing such land. The purpose of the Act is manifest in that its object is to control and prevent the loss of sub-division of agriculturally useful farmland into uneconomic units.[2] Along with this physical prohibition, and for purposes of this article, section 3(e)(i) of the Act prohibits any portion of agricultural land from being sold or advertised for sale, unless the Minister has consented thereto in writing.

The prohibition of certain actions regarding agricultural land has been a controversial topic. The reason being that the extent and interpretation of section 3(e)(i) has been unclear to many. So what does this prohibition include? The true intention of the legislation must be determined with reference to the language of section 3, together with the context and the purpose of the prohibition.

Four Arrows Investments 68 v Abigail Construction CC & Another[3]  (“Four Arrows”) confirms that section 3(e)(i) must be carefully explored when parties enter into an agreement of sale of portions of agricultural land. After an evaluation of the case summary of Four Arrows, as well as an enquiry into the scope, operation and effect of the Act’s prohibiting provision, namely section 3, we will be able to provide clarity on what the legislature intended to prohibit.

Facts and orders sought

The First Respondent in casu was a close corporation, Abigail Construction CC (“Abigail”), otherwise referred to as the Seller and who had certain immovable property registered in its name. The Appellant is Four Arrows, who may also be referred to as the Purchaser. Four Arrows unsuccessfully submitted before the court a quo that an option for sale of a portion of agricultural land, does not fall within the ambit of the prohibition contained in section 3(e)(i) of the Act. Four Arrows went on appeal after it was heard in the Gauteng Division of the High Court, Pretoria. The court a quo held that the contract between the parties in fact constituted a sale subject to a suspensive condition, being the consent of the Minister. Subsequently, on the basis of Geue and Another v Van der Lith and Another[4] (“Geue”), the contract was declared void, as claimed by Abigail in its counterclaim. This then lead to the application for appeal before this court. Four Arrows firstly and unsuccessfully submitted that an option existed and that an option for sale of a portion of agricultural land, did not fall within the ambit of the prohibition contained in section 3(e)(i) of the Act. Four Arrows also submitted that the whole contract could not suffer the same fate merely on the basis that the offending clause pertaining to the prohibited act was null and void. The offending clause referring to the clause deeming the Agreement to be an option to purchase the Property.

Legal issue

The central issue in casu was whether the contract concluded between the parties conferred upon Four Arrows an option to purchase a portion of undivided immovable property or whether such contract constituted a sale of a portion of agricultural land, which was subject to a suspensive condition.

Rationale

The court in casu in dealing with the legal issue refers only to Geue, in which it considers not only the definition of “sale”, but also the implications of the prohibiting provision. It is important to consider Geue in light of the court’s finding that the outcome would be the same were a valid option to purchase the property conferred upon the Applicant. In this case, the court found that the purpose of the Act was much wider. The purpose extended to the prohibition of advertisements for sale. Based on this, the court in Four Arrows considered the definition of an option and compared it to the advertisement of sale. Although they are not one in the same, it could be argued that both are a type of “preliminary step” that could be a precursor to the conclusion of a prohibited agreement of sale.[5]

Briefly, advertise means to draw the public’s attention with the purpose of promoting sales. The Act also provides for this definition in section 1. Since advertisements promote and precede the actual sales, more specifically in this instance the actual alienation of an undivided portion, it could be inferred that the legislature intended to prohibit the alienation of such farmland, unless and until the Minister provided its consent.

An option on the other hand, confers upon the option holder a choice whether or not to enter into the main contract.[6] As more fully described in Du Plessis & Smith NNO v Goldco Motor & Cycle Supplies (Pty) Ltd[7], an option is an offer, in this instance to sell property, which cannot be revoked. An option is binding on the option grantor as he/she should keep that offer open for a certain period. The option holder on the other hand has a choice whether or not to exercise its right. With regard to this court in Four Arrows, it held that although the parties recorded that the agreement was deemed to be an option to purchase the Property, the true nature of the contract between the parties was in fact that of a sale subject to a condition, which is prohibited in terms of the Act. It further held that even if a valid option to purchase had been conferred upon the Applicant, the outcome would be the same.

Decision

The Supreme Court of Appeal (“SCA”) dismissed the appeal with costs. Four Arrows failed to prove that it was entitled to obtain transfer of the whole property. The SCA found that the contract between Abigail and Four Arrows constituted a sale subject to a suspensive conditon, that condition being the consent of the Minister being obtained for the approval of the sale of the portion of agricultural land. It further held that its outcome would be the same in the instance of an option being conferred upon Four Arrows to purchase such portion of undivided immovable property. The reason being that both fell within the ambit of the prohibiting provision found in section 3(e)(i) of the Act. The court declared the contract null and void.

Discussion 

Firslty, it is important to note that an early approach to the prohibiton in the Act, was to prepare contracts of sale in which the portion of land was sold subject to various suspensive conditions. In March 1981, a definition of  “sale” was inserted into the Act, which further included “a sale subject to a suspensive condition”.  In 2003,  the court in Geue provided further clarity on this definition. The SCA found that even conditions of that sort (suspensive conditions) were prohibited by the Act. So what other possibility is there? It could be argued that a prospective purchaser be given a binding option to purchase the portion of land once the Minister’s consent was obtained. Such possibitlity was dealt with by two unreported decisions, namely, Westraad NO en ‘n Ander v Burger and Colchester Zoo SA Investments (Pty) Ltd v Weenen Safaris CC (“Colchester”), but never dealt with in this case, Four Arrows. The Applicant in Colchester suggested that in our law, parties are free to enter into contracts and arrange their affairs so as to remain outside the provisions of statute. It is however clear after evaluating Four Arrows, that even the grant of an option would be a precursor to the conclusion of a prohibited agreement of sale, at the election of the option holder.

Commentary

Upon an evaluation of casu, other preceding case law as well as the Act, the SCA’s decision is favoured. The SCA has to an extent resolved the uncertainty concerning the Act. It can be concluded that an option clearly falls within the ambit of the prohibiton contained in the Act. No agreement of sale, inclusive of an option for the purchase of a portion of agricultural land is permitted to be concluded without obtaining the Minister’s prior written consent. This prohibition, along with that stipulated in the Act, namely the sale and advertisements for sale of portions of agricultural land, also includes sale agreements subject to suspensive conditions. Although this provision has been descirbed as too onerous on land owners in that it is time-consuming and perhaps expensive, it is important to consider the legislature’s intention. It too is important to protect useful farmland as well as promote equal rights between such owners of agricultural land.

[1] 70 of 1970.

[2] Van der Bijl v Louw 1974 2 SA 493 (C) para 499.

[3] 2016 1 SA 257 (SCA).

[4] 2004 3 SA 333 (SCA).

[5] 2016 1 SA 257 (SCA) para 10.

[6] Para 8.

[7] 2009 6 SA 617 (SCA) para 15.

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