Want to sell a portion of your farm? Don’t count your chickens before you have consent

“With the continuing drought I can no longer afford to run my entire farming operation and would like to sell off a portion of my farm. However, as I understand it I may not subdivide my land. What is the legal position, and is there any manner in which I can do this?”

Subdividing agricultural land is a time-consuming, expensive and often challenging exercise, frequently resulting in no success. This can be ascribed to the provisions of the Subdivision of Agricultural Land Act of 1970 (“the Act”) which expressly prohibits the subdivision of agricultural land, to avoid such land being divided into uneconomic smaller portions. The Act determines that agricultural land may only be subdivided should the Minister of Agriculture (“the Minister”) consent thereto, with applications for consent being costly, taking two to three years to be processed, and often being unsuccessful. The Act also provides that “no portion of agricultural land shall be sold or advertised for sale” unless the Minister has already in writing consented to the subdivision of the land into portions.

For the last forty odd years a number of strategies have been utilised in an attempt to circumvent the stringent prohibitions of the Act. Initially the definition of what “sale/sold” means was not included in the Act. Accordingly contracts were drafted wherein portions of farm land were sold subject to a suspensive condition. A simplified example being: “This portion of the land is sold to X, subject to the approval of the Minister”. The reasoning behind this strategy was that until such time as the Minister consented to a subdivision, a sale did not technically exist. However, in 1981 the Act was amended by the insertion of a definition of sale, which included sales based on suspensive conditions. Despite this contracts continued to be drawn up subject to specific suspensive conditions, until the Supreme Court of Appeal handed down a judgment in 2003 expressly stating that the suspensive conditions were forbidden by the Act.

Again to try and adress this further tightening of the prohibition, a practice was then developed whereby binding options to purchase were entered into between the seller and prospective purchaser. The rationale being, that should the Minister ever grant the subdivision, then the sale could proceed, but that in the interim the prospective purchaser could pay across an amount of money in respect of the portion of the land, and utilize it for his own purposes. It was believed that this strategy was a lawful strategy to deal with the definition of “sale” which was included in the Act.

In 2015 our Supreme Court of Appeal, in the case of Four Arrows Investments 68 (Pty) Ltd v Abigail Construction CC and another, found that such a contract was worded as a sale of immovable property, and irrespective of the contract stating that it was deemed to be an option to purchase the property, substance had to be considered over form. 

In this case, the contract stated that the purchaser had to pay the purchase price in advance and there was no provision made for repayment should the purchaser not exercise the option. In substance it was clear that the parties intended to sell the property pending consent being obtained from the Minister. Accordingly, the court found that this practice boiled down to attempting to sell a portion of agricultural land without the consent of the Minister, and found it unlawful. 

This judgment clarifies the legal position, and effectively halts any attempt to manoeuvre around the provisions of the Act. It also means that without obtaining consent from the Minister, you cannot sell off a portion of land which is deemed to be agricultural land. 

August 11, 2016
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