Farm Property: Let’s take the bull by the horns

Have you ever felt like quitting your job, packing your things and moving to a farm? Maybe you have been renting agricultural property for your farming enterprise and have finally reached the point where you are in the market for your own piece of land. While there is probably nothing more romantic than the prospect of living and working on a farm, purchasing agricultural land is very different from other immovable property. There are additional factors to be considered and discussed with your attorney, two of which are briefly  discussed herein.

Restrictions imposed by the Subdivision of Agricultural Land Act

Arguably the most important legal limitation on farm ownership is imposed by the Subdivision of Agricultural Land Act (Act 70 of 1970). In terms hereof, consent from the Minister of Agriculture (hereinafter referred to as the Minister) must be obtained before agricultural land may be subdivided or transferred in undivided half shares to more than one person or entity. The Act effectively prohibits the sale of a portion of farm property and even goes as far as to prohibit the advertisement of a portion of farm property or the lease of a portion of farm property for a period exceeding 10 years without prior written consent from the Minister.

Although South African law provides for freedom of testation, this Act further prohibits the transfer of farm land to more than one heir in terms of a will, or in terms of intestate succession, without prior written consent of the minister. The restrictions are imposed in an effort to prevent farm property from being subdivided to a point where the remaining land is too small to be economically cultivated.

While simply obtaining a consent may seem like a fairly simple hurdle to overcome, it can be a very time consuming and demanding process without guarantee of success. The Act provides for a number of further restrictions as well as exceptions to these rules, which is why it is of paramount importance that the effects hereof be discussed with your legal practitioner well in advance.

Tax considerations

Another important consideration when agricultural land is purchased as a business enterprise is the potential tax implications. While transfer duty is payable to SARS by the purchaser on the acquisition of most immovable property, a farming undertaking sold as a going concern can be one of the exceptions to the rule. Where the seller of immovable property is a registered VAT vendor for purposes of the transaction, the Transfer Duty Act provides for a transfer duty exemption as Value added tax will be payable by the seller.  Where a farm is sold as a business enterprise by a registered VAT vendor to another registered VAT vendor as a going concern, VAT is payable at a zero rate instead of the standard 15%, should all legal requirements be met. For a farm property transaction to be zero-rated, parties must have entered a written agreement that the enterprise is being sold as a going concern and that all the assets required for the operation of the enterprise are being sold to the purchaser, among other requirements. Discussing the requirements of a zero-rated transaction with your attorneys and auditors may save both parties a substantial amount on taxes when purchasing a property. Advice from your conveyancing attorneys can further ensure that the rights of both parties are protected in the event that SARS rejects the zero-rated transaction and levies VAT at the standard rate.

Aside from the above considerations, farm property brings about considerations such as zoning restrictions, existing servitudes, ongoing labour disputes with farmworkers, farmworkers residing on the property, water permits or usage rights and countless other legal considerations. Make an appointment with our office or send us an e-mail to discuss farm property and let’s take the bull by the horns together!

Article by Aleida Kraamwinkel (LLB) – Candidate Attorney

For more information, kindly contact Aleida on aleida@rgprok.com or 044 601 9900. www.rgprok.com

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Disclaimer
Nothing contained in this publication is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This publication is intended for educational and informational purposes only.