SCA invalidates by-laws restricting the transfer of immovable property

Background to the case

Glencore Operations South Africa and other companies wanted to transfer immovable properties in the Govan Mbeki Local Municipality and the Emalahleni Local Municipality. However, in terms of section 76 and section 86 of the relevant by-laws, landowners could not apply for the transfer of immovable property without a certificate from the Municipality. This certificate verifies compliance with the requirements for spatial planning, land-use management, and building regulation conditions or approvals in terms of the relevant by-laws.

In the High Court, the companies argued that sections 74 and 76 of the Govan Mbeki Spatial Planning and Land Use Management By-law, and sections 84 and 86 of the Emalahleni Municipal By-law on Spatial Planning and Land Use Management were unconstitutional. They based this on the argument that these by-laws created obstacles to the transfer of property. The by-laws required owners to first be issued a certificate by the Municipality before making an application to the registrar of deeds to register the transfer of land. This in essence dictated to the registrar of deeds under what circumstances a transfer could take place.

The High Court agreed with the companies and held that these sections were invalid and unconstitutional on the grounds that they arbitrarily deprived the parties of their property rights in terms of section 25(1) of the Constitution. In addition, the High Court ruled that the by-laws were not permitted in terms of section 156 of the Constitution and conflicted with section 118 of the Municipal Systems of 2000, which regulates the restraint of trade. The High Court suspended the declaration of invalidity for six months to allow the municipalities to fix the defects in the by-laws. Aggrieved by this decision, the municipalities appealed to the SCA.

Arguments of Glencore Operations South Africa and other companies

On appeal, the companies reiterated their argument that the by-laws infringed on landowners’ rights in terms of section 25 of the Constitution because they placed strenuous requirements on owners before they can register the transfer of ownership of their properties. Furthermore, the companies argued that the municipalities exceeded the scope of their powers because regulating the transfer of property does not fall within the scope of “municipal planning”, listed in Schedule 4B of the Constitution. Rather, the restrictions imposed by the by-laws could only be imposed by national legislation such as the Municipal Systems Act and SPLUMA.

Arguments of Govan Mbeki Local Municipality and Emalahleni Local Municipality

The Municipalities argued that these sections were an enforcement mechanism to ensure compliance with municipal planning and land-use functions. They further argued that the relevant sections aimed to protect potential buyers from acquiring land that may have legal obstacles attached to the property.

The SCA’s decision

The Court assessed the powers of local government against the backdrop of constitutional and legislative provisions. Section 156(1)(a) of the Constitution gives municipalities the executive authority and right to administer matters listed in Schedule 4B and 5B, while section 156(2) grants municipalities the power to enact by-laws on these matters.  A municipality has the right to govern on its own initiative the affairs of its communities subject to national and provincial legislation. However, national and provincial governments are tasked with regulating the exercise of municipal powers. The SCA referred to the Executive Council of the Province of the Western Cape v Minister for Provincial Affairs and Constitutional Development and Another; Executive Council of Kwazulu-Natal v President of the Republic of South Africa and Others, where the Constitutional Court noted that municipalities have the general power to govern their affairs but subject to provincial and national supervision.

The Court examined SPLUMA, the national legislation which empowers municipalities to adopt and enforce a land-use scheme through by-laws and concluded that the Act does not permit the imposition of restrictions on the transfer of land. The Court confirmed that, while SPLUMA provides guidance on how municipalities should exercise land-use planning, the Act does not give municipalities the freedom to make any policy decisions. The Act imposes limits within which municipalities may exercise their land-use planning function. The Municipalities argued that sections 76 and 86 were an enforcement mechanism, but the Court found that the restrictions were not an effective method of preventing the unlawful use of land as contemplated in SPLUMA. The Court held that if SPLUMA intended to restrict the registration of transfer of property as an enforcement mechanism, it would have expressly done so and that no provision in the Act authorised municipalities to legislate an embargo on the transfer of property.

The Court held that regulating restrictions on the transferability of property exceeds the scope of municipal planning. The by-laws directed to the registrar of deeds under what circumstances a transfer may take place. This prevents the registrar from carrying out his or her duties in terms of the Deeds Registries Act of 1937.  The Court concluded that the by-laws did not relate to municipal planning but to the transfer and registration of property which is a concurrent competency of the national and provincial governments, as defined in Schedule 4A of the Constitution.  

Were the powers to restrict the transfer of property incidental to local government’s functions? Section 156(5) of the Constitution empowers a municipality to exercise “any power concerning a matter reasonably necessary for or incidental to the effective performance of its functions”. This refers to matters that fall outside of local government’s competency but which are crucial for the successful administration of matters assigned to municipalities. The Court noted that section 156(5) should not be used to expand local government powers in respect of its functional areas. The Court stated that the relevant provisions of the by-laws in question may only be deemed constitutional if they are necessary or incidental to the effective performance of municipalities' land-use planning function listed in Schedule 4B. The Court found that the restriction on the transferability of property is not a necessary power incidental to land use management.

The SCA agreed with the High Court’s ruling that the by-laws conflicted with section 118 of the Municipal Systems Act because they imposed liability on property sellers in addition to the liability already contemplated by section 118 and, in effect amended section 118 by creating additional terms. Section 118 of the Municipal Systems Act regulates the restraint on the transfer of property. The Court also agreed with the High Court that the by-laws unjustifiably infringed on the company’s property rights. However, the SCA set aside the High Court order regarding the suspension of the declaration of invalidity for a period of six months. The Court ruled that, since the municipalities had assumed the legislative powers of other spheres of government and that there was no adequate reason given by the High Court for the invalid by-laws to remain in effect, there was no justified cause to suspend the declaration of invalidity.

Commentary

Municipalities have the autonomy to govern themselves, legislate on matters listed under Schedule 4B and 5B, and exercise incidental powers. They may not legislate on anything else other than what is permitted by the Constitution, and national and provincial legislation.  Thus, while municipalities are exercising their legislative powers to improve land-use management, this must be done within the limits of the law and this judgment provides clarity on what some of the limits are. The Court’s ruling establishes that municipalities may not restrict the transfer of immovable property as this is national and provincial competence. 

By Marivyn-Blaire Tchoula Tchokonte, LLM student: Dullah Omar Institute