By Chantelle Gladwin-Wood (Partner) and Maike Gohl (Partner)
11 February 2021
This article takes a critical look at the City of Johannesburg Metropolitan Municipality (“COJ”)’s proposed 2021/2022 rates policy. The COJ is currently in the process of conducting public meetings relating to the proposed changes to the policy, which will take effect on 1 July 2021.
What is the Rates Policy?
The Local Government: Municipal Rates Act (“the Rates Act”) provides that the municipality must have a Rates Policy, which sets out the categories that properties can be placed into for rates purposes, and described the qualifying criteria for those categories. In addition, it will detail any rebates applicable. In essence, it is a rule book written by the City, that helps the municipal valuer determine which properties fall into which rating categories, and when rebates will apply to any particular property.
Conflict between the Rates Policy and Rates Act
Although the municipality has a lot of latitude in creating these rules, they must not conflict with the principles and laws set out in the Rates Act, because the Rates Act will overrule the policy. If any content of the Rates Policy conflicts with the Rates Act, it will not be enforceable because that content will be regarded in law as ultra vires (meaning that the municipality did not have the authority to make a rule that conflicts with the Rates Act).
What are rating categories?
Each category of property is allocated a tariff, which is a rate in the rand charge that is multiplied by the municipal valuation of the property to arrive at the amount of rates due annually for that property. Once divided by twelve, this represents the monthly rate payable by the property owner for that property. Residential properties are typically allocated lower tariffs than commercial properties, as a result of the ratios prescribed by law. This means that generally residential properties cost less from a rating perspective than a commercial property of the same municipal value would. The idea is to charge higher rates to businesses than to residential consumers, on the assumption that businesses are more easily able to afford higher rates. Each year the Rates Policy includes a list of property categories that properties can be placed into (typically in COJ’s case, in Section A). These comprise the rating categories applicable for that particular year. The policy also contains an explanation of the requirements for each category, typically in COJ’s case in Section B.
Criticisms of Proposed Rates Policy 2021/2022
- Education category excludes tutor centres and home schools
Homeschooling has become the norm for millions of South African children, where their parents were unable to afford to keep them in school or their schools shut down due to COVID. This trend will likely continue into the near future. The Rates Policy makes no concession for tutor centres, which essentially serve as schools by providing educational services to children who are in online home schools. The Policy should be amended to include tutor centres into the educational category, as it would likely be prohibitively expensive for tutor centres to have to pay business rates. Moreover, homes from which moms are schooling their children should not fall into the educational or business categories, and ought to remain residential. There is no prohibition on the use of a residential home by parents for the purposes of schooling their own children on the premises and this type of activity ought not to attract any higher rates tariff or a different category.
- Horticultural activities
Properties on which these are undertaken are put into the agricultural business category. This makes no sense, as this kind of activity is just as much farming, as growing plants in the ground, and it should be included in the farming category. There is no reason that a distinction should be made. Why should people who conduct horticultural activities pay more than farmers? The same applies to nurseries who are put into the agricultural other category. People conducting nursery or horticultural activities should not have to pay more rates than farmers. On the proposed tariff structure, nurseries will pay 4 times as much rates as farms, and horticultural properties will pay 10 times as much.
- Equestrian estates
Bona fide farmers (whatever that may mean) pay a quarter of residential rates. However, equestrian estates are not regarded as farmers. This is certainly correct if horses are not bred – i.e. farmed – on the land – and the land is used primarily for the purposes of residential living and riding a horse or keeping a horse (rather than breeding horses) is the main activity on the equestrian estate. However, where horse breeding, as a commercial farming activity takes place, and is the main purpose of the property, the property ought to be classified as a bona fide farm and not as an equestrian estate. The same applies to game farming.
- Municipal Land
No rates are payable on municipal land. Why? The government owns massive tracts of land and ought to pay rates. It used to. This has been removed to save the government money – but if the government is meant to be the main engine of change by spending in the economy, then it ought to pay property rates. It is submitted that where politicians and staff members of the government are housed at the government’s expense that the property ought to be exempted from the ‘no charge’ policy, and rates then ought to be payable on that land, by the tenant. These government staff members are getting free accommodation and are being paid by the government. They can then certainly afford to pay property rates to the government to help support service delivery, as they are themselves the very recipients of it.
- Public Benefit Organisations
The City has imposed additional qualifications for a property owner to qualify as a PBO, over and above those prescribed by our tax laws. The additional qualifications are as follows:
- The PBO must apply to the City to be recognised as such;
- The PBO must provide the City with 3 years’ audited statements and prove to the City that it cannot afford to pay the full rates;
- The PBO must provide a specified public service as set out in the Income Tax Act, but if the property is being used contrary to its zoning, then the business and commercial tariff will apply;
- If the City does not accept the PBO status then the business and commercial tariff will apply.
This places an additional burden on PBO’s to provide the City with the requested documents, and fill in forms that the City needs to make available to them. It means that there is uncertainty for these companies, who SARS has accepted as a PBO, and who accordingly need the assistance of government due to the nature of their business, as to whether they will receive the much lower rates applied to their property (being 25% of what business properties pay) from COJ, or whether they will have to find a way to make provision for rates on a business tariff.
- Private Open Space
This ought to include parks/common property areas within sectional title schemes or home owners associations, where this land is owned by the scheme/HOA. The same applies to portions of land upon which guard houses are erected.
- RE of township
When a suburb (known as a township) is developed, it starts off as a large tract of land which is carved up into smaller pieces (lots). Normally all of the lots are held by one title deed and as they are sold, the extent of the piece of land reduces over time with each lot sold. This is known as the “RE” of the township, which reduces as each lot is sold off. The RE of a township will attract rates at a ridiculous rate – as much as business rates would ordinarily be – when the township might be a residential township. There is no reason at all to penalize a developer of a residential township (or development) with business rates. Developers are also under pressure in our depressed economy from COVID and if they stop developing, our economy will slow and there will be a lack of suitable housing for our citizens. They ought to be supported, because they take the responsibility of providing services like roads and paying for infrastructure upgrades off of government’s shoulders. Residential developments should not be classified as RE and ought to pay residential rates.
- Penalty Tariff
Whilst the COJ is lawfully permitted to create a category for properties that are violating their zoning or the building laws or the advertising laws, the City is not lawfully permitted to start charging the owner of the property those rates until such time as the City has formally placed the property on the roll in the unauthorized use penalty tariff. This happens very commonly in COJ and Schindlers has been fighting this in court for many years. You can read more about this here if you are interested: https://www.schindlers.co.za/municipal-law/the-legalities-around-coj-imposing-the-illegal-use-tariff/
- Liability for Rates
Section D of the Policy states in para (e) that liability for the payment of rates is governed by the Rates Act and the City’s Credit Control and Debt Collection Policies and Bylaws. This constitutes an admission that the provisions relating to debt collection contained in the aforementioned bylaws and policy, are applicable to rates charges, as well as other services charges (such as electricity and/or water). This is a phenomenal admission for the City to make, as it has, in past years, attempted to hold rates payers who have objections or appeals that are pending and have not been finalized, liable for the rates that they are disputing that they owe. Seeing that the City’s Credit Control Policy/By-laws provide that once an amount is disputed, it need not be paid, this translates into the City admitting that it can no longer hold rates payers who are waiting for the outcomes of their appeals/objections liable for the disputed rates. Naturally, however, the rates payer must have paid all undisputed rates and the City can hold the rates payer liable for all outstanding and undisputed rates, even if there is an objection/appeal pending.
The Policy states that the City must deal with every application made in a reasonable time (which is a fantastic provision in its own right and a great admission by the City that it is bound to deal with applications as such).
- Parent and Child Properties
The City’s express inclusion of the concession that parent and child properties can be treated as one economic unit on the property roll where they are contiguous, is appreciated. It has long been the process in the COJ, but it is now codified. This enables property owners who receive a rates account for their garden, which is vacant and registered as a separate erf to their house, to apply for the garden and house erf to be considered one residential unit on the property roll, which will result in the home owner paying lower property rates on the garden portion, which will attract rates as a residential property and not as a vacant property. Read more about this here if you are interested: https://www.schindlers.co.za/2015/vacant-gardens-and-property-rates/.
For the most part the City has made strides in making the content of its Policy more accurate. However, the City ought to give additional thought to the discrepancies referred to above, as desperate consumers will battle to pay the increased rates charges all round as a result of the depressed economy and COVID.
Caveat: Please note: this article is for general public information and use. It is not to be considered or construed as legal advice. Each matter must be dealt with on a case by case basis and you should consult an attorney before taking any action contemplated herein.