Calculating the levying of municipal property rates

October 1st, 2020
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If you are a business, residential or agricultural property owner, you will know that you are billed for certain municipal charges on a monthly basis among others, property rates.

This article will provide a brief overview of the levying of municipal property rates in general and specific reference will be made to the City of Tshwane where necessary.

Property rates represent about 21,12% of the current total revenue of the City of Tshwane, clearly a vital source of revenue for the municipality (City of Tshwane Medium Term Revenue and Expenditure Framework Budget 2019/2020).

The power of a municipality to impose rates on properties is regulated in terms of the Local Government: Municipal Property Rates Act 6 of 2004 (the Act) and s 229 of the Constitution and the (property) Rates Policy adopted by each municipality. In terms of s 8 of the Act, a municipality may levy different rates for different categories of rateable properties.

The Rates Policy of each municipality, which accompanies the annual budget of the municipality and must be reviewed annually, must set out the criteria according to which different rates will be levied for different categories of rateable properties. Categories of properties could be according to the use of the property, or the permitted use of the property, or a combination of both.

The permitted use of the property is the use as permitted by the municipality. Whereas the use of the property, is the actual function for which the property is being used, irrespective of the permitted use (for example, if the permitted use of a property is agricultural, but the current use of the property is for residential purposes, the valuer will categorise it accordingly and, therefore, value the property based on the residential use. Or if a residential property is being used as offices, it will be categorised as a business property). In short, the valuer values what the valuer sees.

Section 8(2) of the Act continues to state that a municipality must determine various categories of rateable properties, for example –

  • residential properties;
  • industrial properties;
  • agricultural properties;
  • mining properties;
  • public service infrastructure properties; and
  • properties used for multiple purposes.

A rate levied by a municipality on a property must be an amount in Rand, based on the market value of the property. The rates are applicable for the financial year of the municipality and will be reviewed annually in accordance with the budget process of the municipality.

As set out in s 15, the Act provides for certain instances where, in terms of criteria set out in a municipality’s rate policy, a municipality may grant exemptions, rebates and reductions to owners of specific categories of properties.

There is often confusion about rebates and reductions. The Act distinguishes between these terms as follow:

  • A rebate, in relation to a rate payable on a property, means a discount granted in terms of s 15. For example, granted to owners of properties with an income below a certain amount and other social circumstances. Such owners must apply for the rebate at the municipality.
  • A reduction, in relation to a rate payable on a property, means the lowering of the amount for which the property was valued and the rating of the property at that lower amount.

In the instance of residential properties some relief is provided to certain owners in terms of s 17, which states that:

‘(1) A municipality may not levy a rate –

(h) on the first R 15 000 of the market value of a property assigned in the valuation roll or supplementary valuation roll … –

(i) for residential properties; or

(ii) for properties used for multiple purposes, provided one or more components of the property are used for residential purposes; or

(i) on a property registered in the name of and used primarily as a place of public worship by a religious community, including the official residence registered in the name of that community…’.

The municipality may grant further reductions apart from the R 15 000 legislative amount. For example, the City of Tshwane currently grants a further
R 135 000 reduction on the market value of residential properties, which means that the market value of a residential property is reduced by R 150 000, before a rate is levied.

In order for a municipality to levy a rate on property, a municipality should have taken the necessary steps, in terms of the Act, to ensure that a general valuation of all the properties in the municipality was made and, thereafter, prepare a valuation roll, which consist of all properties within the municipality.

In terms of s 45 of the Act, property must be valued in accordance with generally recognised valuation methods and standards, and the provisions of the Act. The basis of valuation remains market value and is explained in the Act (s 46) as the amount the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer.

The Act does, however, make it clear that physical inspection of the property to be valued is optional, and that comparative, analytical and other systems or techniques may be used, including aerial photography and computer-assisted mass appraisal systems or techniques.

The market value – as determined by the municipality, at date of valuation – will reflect on the valuation roll and will be valid until the next valuation roll is published, which in the instance of a metropolitan municipality, will be every four years. The date of valuation may not be more than 12 months before the commencement date of the financial year, which is the effective date of the valuation roll.

In accordance with the Act, a valuation roll must reflect the following particulars, in respect of each property situated within a municipality, as at date of the valuation, to the extent that such information is reasonably determinable –

  • the registered or other description of the property;
  • the category determined (in terms of s 8 of the Act) in which the property falls;
  • the physical address of the property;
  • the extent of the property;
  • the market value of the property, if the property was valued;
  • the name of the owner; and
  • any other prescribed particulars.

Once the valuation roll has been compiled, the municipal valuer must submit the certified valuation roll to the municipal manager. The municipal manager must, within 21 days of receipt of the roll, inter alia, publish the roll in the prescribed form in the provincial Gazette, as well as in the media once a week for two consecutive weeks. A notice stating that the roll is open for public inspection and includes an invitation to any person who wishes to lodge an objection in respect of any matter in, or omitted from, the roll to do so in the prescribed manner.

It is worth noting that the City of Tshwane has extended the objection period to any matter in the 2020 General Valuation Roll from 5 May to 26 June, due to the national lockdown currently imposed in South Africa.

Furthermore, a notice must be served on every owner of property listed in the valuation roll, together with a copy of the relevant notice as published, and an extract of the valuation roll pertaining to that owner’s property.

The notice must contain the period when the roll will be available for inspection and indicate the closing date for lodgement of objections.

Any person (not just the owner of a property) may, within the relevant period stated in the notice, lodge an objection with the municipality against any matter reflected in, or omitted from the roll.

The most common grounds for an objection, is the market value and/or the category of a property as it appears in the valuation roll.

The objection must be in respect of a specific property and not against the valuation roll as such.

Once the municipal valuer receives the objections, from the municipal manager, the municipal valuer must consider the objection, decide the objection on facts and adjust the valuation roll in accordance with any decisions taken by the municipal valuer (see s 51 of the Act).

Section 52 requires a compulsory review process by the Valuation Appeal Board, of the decision taken by the municipal valuer, if the valuer has adjusted the value by more than 10% upwards or downwards.

In terms of s 53(1) the municipal valuer must thereafter, in writing, notify every person who has lodged an objection, and also the owner of the property concerned (if the objector is not the owner) of the valuer’s decision, the adjustments to the valuation roll and whether the compulsory review according to s 52 is applicable.

Section 53(2) affords the objector or owner the option to, within 30 days after such written notification, apply in writing to the municipal manager for reasons for the decision. A prescribed fee must accompany the application.

The municipal valuer must in turn, after 30 days of receipt of the application, provide reasons in writing.

In the event where the objector or owner is not satisfied with the decision of the municipal valuer, an appeal can be lodged within the following time frames –

  • within 30 days after the date on which notice referred to in terms of s 53(1) was sent to the objector or owner; or
  • if the objector or owner has requested reasons in terms of s 53(2), within 21 days after the day on which the reasons were sent to the objector or owner.

Lodging of an appeal does, however, not defer a person’s liability for payment of rates while the appeal is pending.

The appeal process will thereafter proceed as prescribed in terms of the Act.

Clearly, the Act, as well as the notices issued by the municipalities, contain strict timelines, which should be adhered to. Property owners should be mindful of what the entry in the valuation roll reflects of their property and of the possible impact on their monthly rates.

It is important to follow the timeline within which one must act in order not to miss the deadline for submissions of objections or appeals.

The following example is a clear indication of what the financial impact can be, should a property be incorrectly categorised, as the rate will differ for different categories of properties.

Should a residential property, with a municipal value of R 5 million be wrongly categorised as a business property, the rate in Rand for business properties will be applied, which will have a huge impact on the amount payable per month.

Calculation according to the rate in Rand as stated in the 2020/2021 Budget and Rates Policy of the City of Tshwane.

Calculation for residential properties:

(Municipal value – R 150 000*) x Rate in Rand ÷ 12 months = monthly rate payable

(R 5 000 000 – R 150 000) x 0.01024 ÷ 12 = R 4 138,67 per month

*R 150 000 reduction due to R 15 000 legislative plus R 135 000 reduction as set out in the Rates Policy of City of Tshwane, in respect of residential properties.

Calculation for business properties:

Municipal value x Rate in Rand ÷ 12 months = monthly rate payable

R 5 000 000 x 0,02560 ÷ 12 = R 10 666,67 per month

If the owner in this example failed to object against the incorrect category as contained in the valuation roll, they would have to pay a monthly amount of R 10 666,67 in respect of property rates for the next four years. By successfully objecting against the incorrect category as it appeared in the valuation roll, the monthly saving will be R 6 528 (R 10 666,67 – R 4 138,67) for the next four years.

It is, therefore, important to stay up to date with the information as it appears in the valuation roll, not to be overcharged when one had the opportunity to rectify errors timeously. It is also advisable to obtain the necessary professional advice to proceed with an objection if there are any errors in the valuation roll.

Marli Venter LLB (UP) is a non-practicing legal practitioner and notary public in Centurion.

This article was first published in De Rebus in 2020 (Oct) DR 20.