COJ’s Change of Multipurpose Categorization for Mixed Use Buildings

/ / News, 2021, community Schemes, COVID-19

Article written by Maike Gohl, Partner and Chantelle Gladwin-Wood, Partner at Schindlers Attorneys

24 August 2021

Introduction

The City of Johannesburg (“COJ”) revised its 2021/2022 rates policy during April/May 2021 (as it does every year), and the new revised version came into effect on 1 July 2021. What seems to have slipped through unnoticed is a drastic and detrimental change in the ‘multipurpose’ (also known colloquially as ‘mixed use’) category, pertaining to properties that have more than one use (usually a mix of residential and business, but it could apply to any property with any kind of use mix). This article discusses how this change occurs, the impact of same, and what the legal remedies, to address any disadvantage that has arisen from this change, might be.

Comparing COJ’s 2020/2021 Rates Tariff to COJ’s 2021/2022 Rates Tariff

In the 2020/2021 tariff (which applied from 1 July 2020 up to 30 June 2021), the COJ had two different multipurpose categories, one called multipurpose residential and the other called multipurpose business.  In short, a property owner with a building that was more residential (or residential ‘heavy’, as it is colloquially known) than commercial/business, would be put into the multipurpose residential category, and similarly a building that was business/commercial heavy would be put into the multipurpose business category. This method of categorising buildings based on their dominant use was (and remains) lawful. This method of categorising properties was particularly beneficial to property owners whose buildings were residential heavy, because the tariff (the rands and the cents amount payable for property rates, based on the property category of multipurpose residential) was a residential tariff, and much less than a business tariff would have been.

In the 2021/2022 Rates Policy (which applies from 1 July 2021 to 30 June 2022) the City has done away with the multipurpose residential and multipurpose business categories entirely. It has simply replaced both of these with a category called ‘multipurpose’. It has created a simple rule for which properties belong in this category – any property with multiple uses. The City’s 2021/2022 Rates Policy stipulates that the ratio and tariff which will apply to the property for the purpose of charging rates will be in accordance with the “multiple purpose defined in the Act”. What this means is almost impossible to understand, when viewed simply in light of the wording of the new Rates Policy. However, when viewed in light of the manner in which the City has started to invoice the owners of mixed use buildings since July 2021, the City’s intention becomes clearer.

What is the City doing, to rate mixed use buildings, since 1 July 2021?

The City is splitting the valuation of the property into two components, one for residential and one for business.  It is attributing a valuation to each component, and then it is charging rates on the residential component on the residential tariff, and charging rates on the business component on the business tariff. This is an entirely lawful methodology for the City to employ, in theory.

Is the City’s new methodology for rating and billing mixed use properties since 1 July 2021, lawful?

In short, although the method of valuation and charging for rates is lawful, the procedure followed by the City to bring about this change is unlawful. In terms of the Rates Act, the City is obliged by law to put a property onto a property roll (or at least follow the procedure set out in section 78(5) of the Act), which results in the property owner being notified of the change in categorisation proposed by the City, and telling the property owner what the new valuation/categorisation would be.  This gives the property owner the chance to investigate whether they will suffer any disadvantageous consequences as a result of the change, and allowing them to object if they are dissatisfied with the proposed change. 

Having your Say – Important Principle in Law

This process follows the principle in law known as ‘audi alterum partem’, which means ‘let the other side be heard’. It is a principle in our law that a person who is going to be disadvantaged should be able to ‘have their say’, and their concerns considered by a decision maker, before the final decision is made. This is echoed in our Constitution, which protects just administrative action, as well as legislation specifically enacted to protect just administrative action (the legislation is known colloquially as PAJA – the Promotion of Administration of Justice Act). This allows a decision maker to be alerted to any mistakes that they might be making, before the consequences of the mistake come into operation.

Mistakes in New Categorisation and their Consequences

Imagine that you own a building and that it is categorised as multipurpose residential (being 90% residential, and 10% commercial). In the past, up to 30 June 2021, you were charged multiple purpose residential rates, on the residential category, for 100% of the value of your building.  Suddenly, on 1 July 2021, this changes, without any notice to you.  You receive rates invoices from the City charging you residential rates on 50% of your building and charging you commercial rates on 50% of your building.  Your rates bill has now almost doubled, without you being given any notice or opportunity to object.  Although the change in billing methodology is, in theory, lawful, the process through which the City has carried it out is unlawful, because you were not given any notice or any right to object to this change.  In particular, you were not alerted to the fact that the City planned to split your building’s components as it did (50% residential and 50% business). This is incorrect, as your building is 90% residential and if you had been given an opportunity to object, you would have advised the City of this. Now you are receiving inflated and incorrect bills, and the onus is on you to fight the City to keep the lights on, in respect of charges that are incorrectly and unlawfully billed to your account.

The above illustrates the position that many building owners are finding themselves in. The impact is very real in financial terms.

What can be done to ‘fix’ the incorrect split in the new categorisation?

(i) Class action

There will be thousands (if not hundreds of thousands) of property owners who are affected by this.  Undoubtedly this will cause significant financial harm to thousands who find themselves in the situation where the City has incorrectly allocated the split of the building between the residential and commercial components. A class action, to compel the City to scrap this implementation of this new category, which has been done unlawfully, and to follow the prescribed legal procedure, which entails bringing out a supplementary roll and putting all of the affected properties onto the roll, thereby giving people advance notice and the opportunity to object/make the City aware of errors before the decision is implemented, would be best to rectify this at the least cost, with the most efficiency, for the greatest number of people.  Contact us if you are affected and interested in joining such a class action.

(ii) Objecting via the City’s prescribed dispute resolution process

This entails logging a query and thereafter writing a letter of complaint and appeal, if your grievance is not addressed. As this problem stems from the proportions in which the City has split the property between two components (residential and business), in our view, it is unlikely that this will address the situation, because the City officials with whom the issue is raised will likely advise customers simply to ‘raise it with valuations’.

(iii) Filing a formal objection to the City’s residential/business split, as against the COJ’s 2018 General Valuation Roll

This may result in the outcome that you desire, but it will likely take a least two years, and there is more than one application required (the first application being through section 78, to get the property onto the next supp roll, and the second thereafter, if/when the property appears on the roll, to object or file an omission objection.

Conclusion

Understanding a COJ invoice can be challenging at the best of times, and the manner in which the COJ is invoicing by changing the category of mixed use properties, is especially confusing. Although the City is lawfully entitled to change its methodology, it is not entitled to implement the new category in the manner that it has, without any warning and without giving people an opportunity to understand the implications for them and object to the component split. A class action would be best to nip this in the bud, and compel the City to put the affected properties onto a supplementary roll, which would allow affected parties to ‘have their say’ and ensure that the split is accurate when the invoicing based on that split begins.  Contact us if you need more information or are adversely affected by this issue, and/or have an interest in the proposed class action.

Chantelle-Gladwin-Wood

Chantelle Gladwin-Wood

Partner at Schindlers Attorneys

Phone: +27 (0) 11 448 9678

gladwin@schindlers.co.za


Maike Gohl

Maike Gohl

Junior Partner at Schindlers Attorneys

Phone: +27 (0) 11 448 9679

gohl@schindlers.co.za

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