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Free-hold title versus lease-hold title
John Robertson
August 2005

Government's proposals to replace the former freehold title to agricultural land with a 99-year leasehold system appear to offer political advantages that make the concept attractive to political authorities. These centre on features of the arrangements that permit the State:

• to retain ultimate control over the land
• to protect peasant communities from the harshness of market forces
• to prevent the development of empowered pressure groups of farmers
• to re-allocate land that officials consider is not being efficiently used, and
• to directly influence the selection of successors when existing lessees choose to vacate their properties.

In the proposed legislation to control leases, government intends to separate the land from improvements on the land. As the initial beneficiaries of land redistribution were given the land free of charge, their successors would also take over the land free of charge, but would be expected to pay the former occupant for improvements, if the new lessee agreed these were of value.

In support of the 99-year leasehold proposition, Government has cited the fact that considerable areas of land in certain developed countries are successfully leased to farmers.

Unfortunately, the conditions the Government of Zimbabwe intends to entrench in the leases make them distinctly different from those that apply in first world countries. In all the countries concerned, the land is not owned by the State, buy by a property-owning individual, family or company under title deed. In all cases the land itself has value, so each lease has a market value and is marketable as well as being protected by tenant right laws.

In the event of a lessee deciding to relinquish a lease, the market value of the remaining years will be established in the market, a buyer will be sought through the market and the transaction will be formalised and registered in the market by estate agents and conveyancers. Other than collecting transfer duties and registering the new owner, the State plays no part in the procedures.

These features make the lease not only transferrable but also bankable within a free market. Lessees wishing to invest in useful improvements on the land can therefore use the lease as collateral for a bank loan. Should the lessee fail to meet the bank's repayment conditions, the bank is entitled to foreclose on the borrower and offer the lease for resale on the market to recover the outstanding loan.

Leasehold arrangements evolved from the earlier feudal systems in Europe as landlords and tenants tried to find means of unlocking the capital value of land. As the short-comings of leasing became apparent and as the power of the landed aristocracy waned. freehold ownership rights evolved. When new areas of settlement and investment were being established in the Americas, the feudal systems of Spain and Portugal were transplanted into South and Central America and the evolving freehold land tenure systems were adopted in North America.

Today, hundreds of years later, South and Central America remains a collection of developing countries and North America encompasses the most prosperous countries in the world.

The essential difference between these two vast areas - and the essential difference between the former communal and commercial areas of Zimbabwe - is that, where they had individual title, the owners of the land used its capital value to develop its potential and their own as well. With the backing of capital, they achieved remarkable success. Their title deeds provided them with security of tenure and a powerful bridge directly into the banking sector. Their eagerness to repay their loans, plus their ability to make long term plans, drew from them resourcefulness, ingenuity and their most determined efforts to succeed.

By contrast, where the occupants of the land were tenants, their ability to raise money to carry out development work or to enhance their own skills was severely limited. Their uncertain hold on the property they occupied, but could not own, left them with little incentive to plan ahead or to invest in something that might have a pay-back only in the longer term and probably only for someone else.

Today, many South American countries are moving towards individual freehold property rights in an effort to accelerate development. China has accepted the need for individual property rights, and ownership rights are being restored to East European families that were dispossessed of properties after the USSR extended its territories after World War II.

Zimbabwe's proposals are taking the country in the opposite direction. As they will effectively eliminate the collateral value of the land, they will make development funding entirely the responsibility of the State and they will make each individual's performance dependent on State subsidies and support. Personal progress will become dependent upon political patronage rather than resourcefulness, ingenuity and hard work.

Although fixed assets of some value could be built with money loaned by a bank, the separation of land from the improvements on it makes the recovery of the debt almost impossible if the borrower defaults. This is because the farmer's right to remain on the land is conferred, not by a business procedure, but by a political act that the bank cannot challenge.

Investment is the first requirement for economic growth, and by according a capital value to land, considerable capital sums are unlocked and made available to the investment process. Individual property rights, market prices for land, transfers of ownership through the market and the official registration of ownership rights make up the essential components of the market mechanism that releases this capital onto the market.

The responsibility, accountability and legal obligations that go with individual freehold property rights quickly help communities to accept the challenges of modern economic development and they place the means of achieving profound economic empowerment within reach of the majority. A decision by Zimbabwe to revert to feudal State-ownership of land would be a massively retrograde step.

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