Section 3(e)(i) of the Subdivision of Agricultural Land Act No. 70 of 1970 ("the Act") provides that "no portion of agricultural land, whether surveyed or not...shall be sold or advertised for sale...unless the Minister [of Agriculture] has consented in writing". The question that arises out of this is whether or not the Act prohibits the granting of an option for the purchase of a portion of agricultural land without Ministerial consent? This issue was recently settled by the Supreme Court of Appeal in the matter of Four Arrows Investments 68 (Pty) Ltd vs Abigail Construction CC and Another. The facts of the case were that the parties concluded an agreement containing a clause that stated:
"This agreement shall be deemed to be an option to purchase the property granted by the seller to the purchaser at the price and upon and subject to the terms and conditions hereof which option shall be exercisable by the purchaser at any time after the purchaser and the seller succeeds in obtaining the required consent to the subdivision of the property from Portion 175."
On the basis of the above clause, the purchaser attempted to argue that the agreement entered into was an option and not a sale agreement and therefore did not offend the Act and was consequently enforceable. However, a closer scrutiny of the agreement revealed that the agreement was headed "Agreement of Sale of Immovable Property" and provided that "the seller hereby sells and the purchaser who hereby purchases the property at the price of…”
The amount of R4 047.00 (being the purchase price) was paid to the seller and it was recorded as payment "in advance". There was no provision in the agreement for the repayment of the purchase price by the seller in the event of the purchaser not exercising "the option".
The Court correctly held that "the absence of this essential element precludes the creation of an option by the parties", confirming the well-known legal position that "substance rather than form has to be considered to ascertain the true nature of the transaction". The Court held that the agreement was a sale agreement subject to a suspensive condition and not an option. Accordingly, the sale was null and void as it offended the Act. The Court stated that "even if a valid option to purchase has been confirmed...the outcome would be the same…The object of the legislation was not only to prohibit concluded sale agreements, but also preliminary steps which may be a precursor to the conclusion of a prohibited agreement of sale". The Court held that the granting of an option would clearly be a precursor to the conclusion of a prohibited agreement of sale, which is prohibited in terms of the Act.
This case teaches us the following lessons:
- The option to sell a portion of agricultural land without written Ministerial consent, on the election of the option holder offends the Act and is null and void;
- Our Courts will scrutinise the agreement and look into the substance rather than form; and
- You may call your agreement whatever you want, but if its contents suggest that it is something else, the Courts would give it its true meaning (i.e. our Courts will see through contract headings).