Section 3 (e) (i) of the 1970 Subdivision of Agricultural Land Act states that no portion of agricultural land can be sold or advertised for sale without the consent of the Minister of Agriculture. The purpose of the Act is to control the loss or over-subdivision of farm land. 

“Sale” in the Act includes sale agreements subject to suspensive conditions. Although this is not a new piece of legislation, the question whether granting an option to purchase a portion of agricultural land is contrary to the Act has once again become a topic of debate.

Until recently, leading cases dealing with options to purchase portions of agricultural land have held that options are not prohibited under the Act. The result is that for a number of years, practitioners have advised clients that options to purchase portions of agricultural land are permitted and enforceable.

In Colchester Zoo v Weenen Safaris the seller granted the buyer an option to purchase its game farming business, which included a portion of agricultural land. The agreement stated that the buyer was only entitled to exercise the option if and when the Minister of Agriculture had approved the subdivision. The seller lodged its application for approval but then decided not to pursue the application and alleged that the option was invalid because it was contrary to section 3 (e) (i) of the Act. The buyer applied to the High Court for an order declaring the option valid.

The court of first instance held that an option to purchase a portion of agricultural land was included in the definition of sale, and therefore is prohibited. In coming to this decision, the court considered the amendments that had been made to the Act since its promulgation, and noted that the amendments widened the prohibitions. The court ascertained the intention of the legislature by looking at the wording of the section 3 prohibitions as well as the context and purpose of the prohibitions. 

The court also relied on Hirschowitz v Moolman and Others in which the court essentially held that the purpose of the option was the alienation of land, and that the grantee could, on the happening of the relevant contingencies, become the purchaser of the land in question.

The buyer successfully appealed the decision and the full bench in the KwaZulu-Natal High Court overturned the lower court’s decision. 

The appeal court concluded that options to purchase portions of agricultural land are not contrary to the provisions of the Act.  In coming to this conclusion, the court considered whether the definition of a sale in the Act would include an option. In answering this question, the court firstly looked at the legal nature of a sale and an option, and secondly, the rules of interpretation of statutes in South Africa.

In dealing with the first leg of the enquiry, it was held that a sale (whether subject to a suspensive condition or not) is qualitatively different to an option. In the case of a suspensive sale agreement, it was held that if the condition comes about, there is a binding contract between the parties. However, in the case of an option, if the option grantor acquires the requisite permission, it is still open to the option holder to elect whether to enter into a contract with the other party, who will only be bound if the option holder exercises its right.

The court went on to deal with the rules of interpretation of statutes in South Africa. The proper approach is to seek the intention of the legislature. This, the court held, is done by attributing to the words their ordinary, literal, grammatical meaning. This, coupled with the finding that sales and options are different in law, led to the court’s conclusion that the definition of sale in the Act does not include options.

The seller applied for leave to appeal the High Court’s decision, but was refused.  The seller proceeded to petition the Supreme Court of Appeal, which was also refused. The seller then applied to the Constitutional Court where 11 judges dismissed its application for leave to appeal on the grounds that the appeal bore no prospects of success. This implies that both courts agreed with the decision of the full bench in the KwaZulu-Natal High Court.

In Westraad NO v Burger the Free State High Court held that an option to purchase a portion of agricultural land is not contrary to the Act where the agreement containing the option provides that the option cannot be exercised without ministerial consent having been obtained. The rationale for this finding was that there is no sale of land until the option is exercised, by which time ministerial consent would be in place.

The abovementioned cases on this point of law have stood uncontested and have been applied in many transactions for a number of years.  However, a recent Supreme Court of Appeal decision has brought this issue back into the limelight by interpreting the Act to include a prohibition on options to purchase portions of agricultural land.

Judgment in Four Arrows Investments 68 (Pty) Ltd. v Abigail Construction CC and Another (SCA) was delivered on 17 September 2015. The pertinent issue that the court had to decide was whether the contract concluded by the appellant and the first respondent constituted an option to purchase a portion of agricultural land, or whether it constituted a sale of land subject to a suspensive condition. In applying the form versus substance test, the court found that the true nature of the agreement was that of a sale subject to a suspensive condition which is expressly prohibited in terms of section 3 (e) (i) of the Act.

Unfortunately, the court did not stop there. During the course of the judgment, the court made far-reaching comments relating to options to purchase portions of agricultural land, which are not part of the decision but cannot be ignored.  It was held at paragraph 9 that:

“[e]ven if a valid option to purchase had been conferred upon Four Arrows, the outcome would be the same”,

meaning that the option would be in contravention of the Act and accordingly invalid.  The court went on to quote Geue and Another v van der Lith[10]:

“The purpose of the Act is not only to prevent alienation of undivided portions of land.  The target zone of the Act is much wider.  This is clear, for example, from s 3(e)(i) which also prohibits advertisements for sale.  Since advertisements obviously precede the actual sale or alienation of an undivided portion, it is by no means absurd to infer that the Legislature intended to prohibit any sale of an undivided portion of farmland, whether conditional or not, unless and until the subdivision has actually been approved by the Minister.  Courts are not entitled, under the guise of absurdity, to avoid the Legislature's clear intention because they regard particular consequences to be harsh or even unwise.  Moreover, once the intention of the Legislature is clearly established, it can be dangerous to speculate as to why the Legislature would have intended a particular result…”

The Geue case revolved around the interpretation of the definition of a sale in the Act, which includes a sale subject to a suspensive condition. There was no direct reference to an option. The conclusion the court in the Four Arrows case drew from this paragraph was that the prohibition on advertising a sale of a portion of agricultural land indicated that the legislature sought to prohibit any preceding steps to a sale agreement, and not only the sale agreement itself.

The court went on to reason that in this context, an option is a precursor to a sale agreement and accordingly it falls within the ambit of the prohibitions listed in section 3 of the Act. The court bolstered this conclusion by considering the legal nature of an option and the fact that it is binding on the grantor and can be exercised at the discretion of the grantee.  But this is not the case with a conditional option, nor does the Act refer to options.

Interestingly, the court did not deal with the Colchester or Westraad judgments.  The Colchester appeal judgment is not reported and this might explain why the court did not comment on that judgment.

The Geue case is no longer good authority for how to interpret a statute. There is a wealth of case law to the effect that the “ordinary, literal, grammatical” method of interpretation (also known as the golden rule) is not good law. Courts are now enjoined to consider the words, the purpose of the clause or statute and the context.  More recently, the Supreme Court of Appeal said, in relation to the preferred method of interpreting statutes, that: “the inevitable point of departure in interpreting a statute is the language of the provision itself, read in context and having regard to the purpose of the provision and the background to the preparation and production of the document.” 

It is also settled law that courts are not entitled to act as the legislature and “fill in the gaps” where they think necessary.  The difficulty with the court’s decision in Four Arrows is that the court seems to have skipped the inevitable point of departure, being the language of the statute, which does not prohibit conditional options expressly or impliedly.

Given that the comments made in the Four Arrows judgment are non-binding, this is not the final word on the issue.  However, the comments made indicate that options to purchase portions of agricultural land may in future be held to be in contravention of the Act, and as a result void, unless the courts see the error in this reasoning.
There are obvious commercial difficulties clients will face as a result of this judgment and practitioners will need to come up with innovative ways of achieving the desired result for their clients without contravening the provisions of the Act. 

Until the law is settled, it would be safest to apply for ministerial consent in every instance involving subdivision of agricultural land.  However, the current backlog and slow processing of these applications will result in transactions being delayed which is clearly unattractive from a commercial perspective.  The useful role of the conditional option should be restored and let us hope the courts or the legislature will see it that way.


Written by Julia Randles, associate, Norton Rose Fulbright