HOW PROPERTY RATES ARE CHARGED
In terms of the Act a consumer’s liability for property rates is determined by two factors, the first of which is the municipal property valuation and the second of which is the rating categorization that the property is put into by the municipality. The rating categorization must be one of the listed categories in the City’s rates policy, which the City amends each year. Examples of common rating categories would be residential, vacant land, business and commercial, and multiple purpose (also known as mixed use).
City of Johannesburg Metropolitan Municipality (“COJ”) has taken the view that rating categorizations and tariffs are distinct legal concepts, and that this entitles it to change a consumer’s tariff without following the procedure prescribed in the Local Government: Municipal Property Rates Act (“the Act”), that applies to the change of a consumer’s rating categorization. This has upset the proverbial apple cart because it has resulted in thousands of consumers receiving rates bills up to four times their normal charge, and the inconsistent and opportunistic manner in which COJ is applying its policies in relation to this issue, is leaving many of those consumers in the lurch, with little or no relief in sight.
A tariff is another name for an amount charged by a municipality for a particular service. Technically speaking the law only refers to tariffs in relation to ‘services’ (like electricity and water) and not to rates, but the COJ (and most municipalities) publish a rates tariff each year, along with their rates policy. The tariff sets out the cost or price associated with each rating categorization. The amount of money that a consumer is charged for property rates, is based on a simple calculation: municipal valuation (e.g. R10,000,000) x tariff applied to rating categorization (e.g. 0.005686) = R 56,860 per annum. Divide this by 12 to get the monthly rate = R 4,738.34 per month.
A PROPERTY ZONING
Zoning is completely different. A property’s zoning is a list of rights that dictate what uses the property can legally be put to. A property’s zoning is determined by the applicable town planning scheme, and amendments made thereto. To find out what your zoning is, you need to get a zoning certificate or “pad” from the municipality’s offices. A property’s zoning determines how the property can be used in relation to several different things, including:
- what kind of uses (eg residential, industrial, commercial, cemeteries, schools, restaurants) the property can lawfully sustain;
- how much of the floor area of the property can be built upon (ie the size of its ‘footprint’ – known in zoning terms as the property’s ‘coverage’);
- how many square meters of floor area a building on the property can have (known as its ‘FAR’ or floor area ratio);
- how close to the boundary of the property buildings can be built (i.e. where its building lines lie); and
- how many buildings or dwellings can be on the property (its density).
You often find properties with a ‘label’ (for example, business) where those properties have zoning rights to be used in a completely different way (for example, to be used to build residential homes on). So a property’s zoning label is often misleading, as it does not describe the full extent of the use rights that the property is entitled to, and in fact, the label of the zoning might be completely different to the use rights given to that particular property. Common examples would include consent use rights to operate a crèche or guesthouse from the property, or restrictions on its use, such as a restriction that the guesthouse may not have more than 10 rooms, or that not more than 20% of the floor area of the dwellings on the property may be used to run a business from. The ‘label’ attached to a property’s zoning thus only describes its main legal use – for example, residential, business, industrial – but it does not describe all of the rights attached to the property.
Legal concepts distinguished
* The rating categorization is the category that the property is put into by the COJ.
* The Tariff is the price that is ‘attached’ to that rating categorization.
* Zoning is the set of restrictions placed on a property as to how it can be legally used.
COJ’s “ZONING -DRIVEN” RATES POLICY
COJ has declared that it has elected (as it is entitled to do in terms of the Act) to use a property’s zoning (rather than its actual use) to categorise properties for rating purposes. This means that the COJ looks to the underlying zoning label attached to the property and puts it in to a rating categorization that corresponds as closely as possible with that zoning.
Where the zoning and the actual use of the property are the same, this does not present a problem, but as explained above, where the zoning label of the property and its actual use are not in line (for example, where you have residential use permitted on a property primarily zoned for business purposes, or vice versa) problems arise, because the owner will be charged rates that are not in line with the use of the property – even where that use is legal.
COJ’S SEPARATION OF RATING CATEGORIZATION AND TARIFFS
The COJ has taken a decision that the price a consumer pays for rates, is not necessarily determined by the consumer’s rating categorization, but rather by the consumer’s tariff. The COJ is of the view that the two concepts can be divorced from each other when charging a consumer rates, such that the consumer’s rating categorization can be ignored because it is really the consumer’s tariff that matters.
As far as the authors can tell, the COJ began enforcing this view about 6 months ago, and this is the reason that many consumers have seen their residential rates quadrupling, because the COJ has decided that (because rating categorizations don’t matter, but tariffs do) it can simply switch consumers onto different tariffs (most notably the illegal use tariff, where consumers are not using their property in accordance with their zoning or do not have proper building plan approval, and the business tariff, where residential sectional title units are built on land that was once zoned business) without telling the consumer of the pending switch, without giving the consumer any opportunity to make representations as to why he/she/it should not be switched, and in some instances without any opportunity to object or appeal the switch.
Whilst the authors cannot say for certain why the COJ has taken this view, it appears that the COJ is trying to avoid having to follow the comprehensive objection/appeal procedure determined by the Act for the change of rating categorizations, which can take anything up to 2 – 3 years to finalize in extreme cases.
The procedure set out in the Act is carefully designed precisely to ensure that no abuses of consumer’s rights occur, because the COJ is obliged to give the consumer notice of intended changes to the property value or rating categorisation, an opportunity to object, an opportunity to appeal, and a refund if the consumer turns out to be right and the COJ turns out to be wrong at the end of the day.
COJ’s INTRODUCTION OF TARIFF APPLICATIONS
Because the COJ is now distinguishing between rating categorizations (which in its mind, appear not to carry any weight at all) and tariffs (which it is of the view, actually determines a consumer’s rates charge), it has created tariff application forms that consumers can use to apply to be switched onto tariffs that are different from their rating categorizations. As above, the authors are of the of the view that this is not legal, because the tariff is simply the price paid by the consumer for rates, based on the rating categorization that the consumer’s property falls into – the two are thus inextricably linked and cannot be divorced or applied in the absence of the other.
The City is using this to allow consumers who qualify to be charged based on the multiple purpose (or mixed use) rating categorization, on the mixed use tariff – by changing the tariff and not the rating categorization. Most people are happy with this because results in a reduction of the amount charged to the consumer on a monthly basis. However, in the author’s view this is not correct for the reasons explained above, as it is the consumer’s rating categorization that must be changed (using the procedure set out in the Act) and not actually the tariff.
The COJ has also created tariff change applications for residential sectional title property owners who find themselves in a difficult position because the underlying zoning of the erf upon which the property is built results in them being charged rates on the business tariff (because their rating categorization is determined by COJ to be business, following the zoning of the erf). The COJ allows such consumers to apply to switch their tariff from business to residential, which gives them some respite and allows them to be charged residential rates, even where their rating categorization is described as business. Again, most people do not object to this because it reduces their rates, even though (in our view) this should not be allowed
PROBLEMS WITH THE SYSTEM
The COJ’s introduction of tariff applications looks like it is working for the benefit of the public in general (which it does, to a certain degree), but because the entire system is built on a flawed premise (namely that the rating categorization and tariff can be divorced and each applied for and changed separately), several very far reaching and very serious problems have arisen There are too many to describe succinctly in this article, but the most serious consequences are the following:
1.People are using the ‘quick fix’ tariff applications to be switched onto a different tariff. This takes about three months or so and results in a quick fix change in the consumer’s billing, which usually reduces the consumer’s charges. But the consumer does not realize that the problem is not really fixed – because tariff applications have to be renewed every year (or every few years), and if the consumer fails to renew it, it will (unbeknownst to the consumer) revert to the higher tariff and the consumer will incur rates charges at a much higher rate
2.In addition, the COJ refuses to reverse rates billed retrospectively when a tariff change application is made. This means that if the COJ switches the consumer’s tariff, and the consumer only realises this several months down the line (or even several years down the line, as might occur if the consumer, thinking the problem is with the rating categorization rather than with the tariff, takes several years to try and have the problem corrected using the procedure set out in the Act), the consumer will not be entitled to a refund of any of the rates billed to it during that interim period when it was trying to have the rates corrected. This must be compared to the automatic refund that a consumer is entitled to in terms of the Act, when the objection/appeal process is followed.
3.Consumers do not generally understand the distinction between a change of rating categorization and a change of tariff and will often spend time relying on the incorrect advice from officials at the COJ telling them to follow one route to fix the problem, when in fact, the problem needed to be addressed following the other route.
4.The public is now aware of the different mechanisms that exist, and so do not know to avail themselves of them. In addition, there are no published guidelines that the public can use to determine whether their applications should be successful or not, and/or how long these applications should take to be processed. This leaves the public generally with little or no information, and little or no certainty as to what the status of their accounts are or should be.
5.The COJ sometimes refuses to change the tariff, if the consumer has already applied to change the rating categorisation. This means that the consumer who has applied to change the rating categorisation (which is actually the right way to do it) is prejudiced and cannot obtain the immediate relief of a lower monthly rate whilst the consumer who went about it the ‘wrong way’ and applied for a ‘quick fix’ gets the change, and gets an immediate reduction in rates. In our view this is
5.The municipality appears to be of the view that it can change a consumer’s tariff upon application, or simply for any other reason that it wants to. It does not regard itself as bound by the procedure in the Act that applies to the change of rating categorizations, and so it is (presumably) of the view that it can chop and change a consumer’s tariff at will, without notice to the consumer, or without giving the consumer any chance to object/appeal as per the Act. There may, however, be other ways that a consumer can challenge this change of tariff, such as by following the procedure set out for logging disputes and appeals in terms of the bylaws, or appeals in terms of the Local Government: Municipal Systems Act, but it is not clear at this stage whether this is the case
6.It is not clear whether the COJ regards itself as being able to ‘override’ a decision by the municipal valuer or Valuation Appeals Board as to what a consumer’s rating categorization should be, and thereafter simply switch the consumer onto a tariff that is different form the rating categorization decided upon by the valuer/board. This could result in consumers following one route to fix the problem (eg rating categorization objection/appeals), only to find it popping up again, based on the other (eg tariff problems). This also means that all a consumer’s efforts to correct an incorrect rating categorization by following the long and arduous procedure set out in the Act, will be for nothing, and that a municipality can simply ‘override’ the results of this process by changing the consumer’s tariff at will.
WRONG WAY ROUND
Overall, a ‘zoning driven rating policy’ is not a bad thing, if it is administered properly. The COJ must recognize that there are times when it will not be appropriate to base the rating categorization on the zoning, and in these cases, the COJ needs to provide for rating categorizations based on use, that alleviate the obvious prejudice that a ‘zoning driven rating policy’ causes consumers whose properties have an underlying zoning that does not match the actual use of that property. Simply switching tariffs to avoid having to follow the procedure in the Act for switching rating categorizations, is not a sustainable answer to the problem – in fact, it is no answer at all, as in our view, it is not legally competent, and results in unfair discrimination to certain consumers and prejudice that cannot be cured at all to other consumers.
The COJ appears to be attempting to avoid providing for this at the rating categorization level, in any way whatsoever (potentially because this would amount to an admission that its decision to use zoning rather than use as the determinant for the rating categorization is unreasonable, or potentially because it weakens the COJ’s arguments as plead in a recent case, which were focused on the principle that the COJ is entitled in all instances to base the rating categorization on the zoning). Whatever the reason, the contrived separation of rating categorizations and tariffs is, in our view, unlawful and should not be permitted.
WHERE TO FROM HERE?
The COJ is able to change a consumer’s tariff by changing the consumer’s rating categorization, if need be, by following the procedure set out in the Act. The introduction of tariff applications are unlawful and should not be countenanced, even though they have the ability to provide a quick fix solution to consumers in certain instances, precisely because prejudice caused by the existence of this system (namely that the fix is not permanent, it creates too much legal and practical uncertainty as to what applies and what should apply and how to go about changing what is being applied, and the potential for abuse of the system by the COJ in switching the tariff without any notice to the consumer or recourse by the consumer) drastically outweighs the benefits.
Consumers are advised to ‘fight’ incorrect rates charges at the rating categorization level rather than at the tariff level, and to be aware that if a decision is made to apply for a tariff change for immediate and short term relief pending the outcome of the objection/appeal process in terms of the Act at the rating categorization level, that this ‘fix’ will be only a temporary solution and will only address a portion of the problem, and that it should be utilized in conjunction with and not as an alternative to the objection/appeal procedure in terms of the Act to fix the problem at the rating categorization level.
Written by Chantelle Gladwin-Wood and Ramon Pereira