Banks reject 99-year leases

LOCAL financial institutions are of the opinion that changes made by government on 99-year lease agreements are not enough to guarantee the issuing of loans to farmers, a development likely to result in the agricultural industry continuing to be underfunded.

By Bernard Mpofu

Banks, it has emerged, are requesting more clarity on the security of tenure while also warning that the amendments made by government could result in financial institutions engaging in non-core business.

In an effort to boost funding for agriculture, government, through the Ministry of Lands, this year amended the 99-year leases to make them bankable, but bankers believe the amendments are littered with potential legal minefields.

Although Bankers Association of Zimbabwe president Charity Jinya could not be reached for comment, bankers who attended a meeting with government last month over this issue said Section 25 of the Lands Act, which goes into detail to explain how the 99-year leasehold can be used as collateral to borrow from financial institutions, needed more tweaking to make it attractive.

Under the section, the lessee may mortgage security upon the leasehold for the purpose of securing to the lender whereupon no such cession or transfer shall take effect until the monetary obligation is discharged unless the lender agrees otherwise.

The section further states that in discharging any charge, mortgage or other security recorded upon the leasehold, the lender in whose favour such charge, mortgage or other security is recorded may cede, assign, hypothecate or enter into a partnership for the working of the leasehold. Under this clause banks are expected to engage a partner to farm the leasehold for purposes of utilising the leasehold.

“This could constitute a non-core banking business in contravention of Section 14 of the Banking Act which prohibits financial institutions from engaging in non-core business,” a banker who attended the meeting said.

“Before this meeting, banks were also worried about unclear security taking and perfection, challenges with realisation of security and marketability of the 99 year lease. Most of the issues raised by lenders were dealt with in the last consultative meeting held between the Ministry of Lands and BAZ in April 2016.

“Regarding the issue of repossession of land by government, during the said meeting it was agreed that repossession would be exercised in very rare circumstances when the state needed to exercise its eminent domain for a given ‘public purpose’.

“It was also agreed that while repossession for purposes of eminent domain were catered for in the general laws of the country, it was necessary to include a clause in the lease to provide greater security to banks as well as give certain timeframes and notifications to be observed before the state exercises such domain. The latest 99 year lease agreement has undertaken to address all these issues thereby further protecting the banks.”

The leases came as a reprieve for most farmers who benefitted from the chaotic land reform programme who have been failing to access loans due to lack of security of tenure.

In his first Monetary Policy Statement as RBZ governor in July 2014, Mangudya said there was need to expedite the issuance of bankable and transferable 99 year leases to qualifying farmers.

“It is noted that the majority of farmers have offer letters which are considered by banking institutions as a weak form of security. There is therefore need to expedite the issuance of bankable and transferable 99-year leases to qualifying farmers. Leases with such features are considered better forms of security than offer letters or leases which are not transferrable.”