sheets. It postulates a transaction in a free and open market between a willing seller to a willing buyer. Market value is established by the determination of a reasonable market rental to be paid by the notional lessee to the notional lessor. A market-related capitalisation rate is then applied to the reasonable market rental.
It would be difficult for any decision of the new office of the valuer-general to sustain Constitutional scrutiny if it fails to conduct a factual enquiry into the expropriated property and ignores relevant market factors. It could be argued that the examiner( that is, the new office of the valuer-general) must place itself in the position of a hypothetical seller and in a hypothetical buyer, acting at arm’ s length and fully informed of all the facts and information available to the notional purchaser and seller at the time.
It is the behaviour or assumed behaviour of market participants that must be taken into account( Pietermaritzburg Corporation v S. A. Breweries Ltd, 1911 AD 501 at 523( bottom) to 524). It was held in Lornadawn Investments v Minister van Landbou 1977( 3) SA 618( TPD) at 627A:
“ Die Hof is in weklikheid besig met n ondersoek na die waarskynlike gedrag en optrede van twee fiktiewe persone by wie volle kennis veronderstel moet word van alle omstandighede wat‘ n rol sou speel by die wyse waarop hulle hulle sou gedra en hoe hulle sou optree in hulle onderhandelings met mekaar; en by die vasstelling van n koopprys vir die betrokke eiendom.”
Translated as follows:“ The Court is in fact engaged in an investigation into the probable behavior of two fictional persons in respect of which full knowledge of all circumstances that would play a role in their behaviour and their negotiations with each other as well as the determination of a purchase price for the property concerned, is assumed.”
This is determined by factually establishing inter alia what is physically possible( that is, regarded as reasonable by market participants); what is legally permissible( that is, the rights prescribed by zoning or other legislation); what is financially feasible.
In many instances, the valuer-general may not be in a position to obtain all relevant information itself and will have to rely on specialised valuers to obtain and take into consideration every circumstance likely to influence the mind of the notional purchaser and the notional seller and on which to base their opinion
( Pietermaritzburg Corporation v SA Breweries Ltd 1911 AD 501 at 516; Estate Marks v Pretoria City Council 1969( 3) SA 227( A); Jacobs v Minister of Agriculture 1972( 4) SA 608( W) at 628 D-E).
The first step in the valuer-general’ s valuation is therefore that“ factual” findings have to be made on the evidence. The first question that the valuer should ask itself is what the highest and best use of the property is.
The valuer, and indeed the valuer-general, must postulate a market transaction and assume a notional willing buyer and a notional seller; who are not acting under compulsion( in other words do not need to buy or sell, but are motivated to do so); who are fully informed; and who are not holding back for better price than what is achievable in the market.
The next step is to make logical deductions from the facts. This may become extremely involved, as it is not always possible to do a valuation with mathematical precision. In such circumstances a valuation essentially falls within the realm of an estimate, although such an estimate will always have to be done in accordance with the evidence available at the time. The valuer-general will not be bound to the evidence of any one expert witness, but may accept the evidence of various experts on different issues in order to come to a valuation that is justified on the evidence( Estate Marks v Pretoria City Council supra at 253A). The question then arises how the valuer-general would know what the likely price is that would be paid for the property. This can only be achieved by way of a market related check in order to determine what a seller will accept and what a buyer will pay.
The legal position is clear: the valuer-general has to do its own valuation by making“ factual” findings on the basis of the evidence presented to it and to then make logical deductions from it in order to arrive at the value of the property.
Our Courts have repeatedly endorsed market value as the preferred basis for determining property value for over 100 years. The drafters of the Bill will be well advised to continue embracing the principles of valuation in formulating a“ just and equitable compensation” for the landowner of expropriated property. Any attempt to sacrifice value on the socialist alter of land reform expediency would not only create unnecessary carnage in the property industry but will also open up the floodgates for litigation which will, no doubt, clog up the Constitutional Court roll.
Adv Wayne Pocock is a member of the Maisels Group of Advocates in Johannesburg.
62 JULY 2017 SA Real Estate Investor www. reimag. co. za