Property owners who provide and pay for their own basic services are not entitled to pay lower rates than owners who receive these services from a municipality, according to recent ruling by the Supreme Court of Appeal.
It said there is not a direct link in law between the rates paid by property owners and the municipal services they receive.
Neither the constitution nor the Local Government Municipal Property Rates Act states that there is, or should be, an equitable relationship between property rates and the services that a municipality provides to ratepayers, the Supreme Court of Appeal found.
“Ratepayers who have the means are required to bear an additional burden to subsidise those who cannot afford to pay for their services. Rates also support local social and economic development, unrelated to the provision of services,” Judge Azhar Cachalia said in the judgment.
The appeal was lodged by the Blair Atholl Homeowners’ Association, Wraypex (the developer and owner of the township) and Robert Wray, a director of Wraypex and a member of the association.
The respondent was the City of Tshwane Metropolitan Municipality.
The homeowners’ association withdrew its appeal the day before the Supreme Court heard the matter, while the court was informed at the start of the hearing that Wray was no longer a member of the association.
Blair Atholl Estate is a 600-hectare upmarket residential estate situated 50km west of Pretoria. The appellants complained that members of the estate’s homeowners’ association have to pay the same rates as property owners who live outside the estate, even though the members provide and maintain their own services and, because of where the estate is situated, cannot easily access the municipality’s other services.
City’s agreement with the developer
The City of Tshwane approved the development as a township in 2006 on condition that Wraypex installed all the engineering services for which municipalities are usually responsible, including water, electricity, sewerage networks, storm-water drainage and roads. The agreement between the city and Wraypex also stated that, once the township was established, rates would be levied according to the city’s policies.
All owners of property in the estate are obliged to belong to the homeowners’ association and pay a monthly levy. The association is responsible for maintaining the services inside the estate.
In 2011, when the city released its draft rates policy for public comment, the appellants asked that the owners be accorded preferential treatment when their rates were assessed. The city rejected the request, and the appellants applied to the North Gauteng High Court for the city’s rates policy for the estate to be set aside. The High Court dismissed the application, and the appellants took the matter to the Supreme Court.
In his judgment, Judge Cachalia said section 3(3)(a) of the Rates Act requires that a municipality’s rates policy is fair.
“The principle underlying an equitable rates policy is that similarly situated ratepayers are liable for the same rates; and, where a policy differentiates between ratepayers, it must do so fairly. To this end, a rates policy must determine criteria if the council levies differential rates for categories of properties; exempts, reduces or grants a rebate to any category; or increases or decreases rates.”
However, he said municipalities are not obliged to levy differential rates for different categories of rateable property, or to create different categories of property for this purpose.
He said an equitable rates policy must also take into account how the policy will affect measures to alleviate poverty, public benefit organisations that are exempt from income tax and public infrastructure. The policy must also allow the municipality to promote social and economic development. This, he said, necessarily implies that ratepayers who have the means to own more valuable properties must shoulder a heavier burden for these taxes.
“The adoption of a rates policy is therefore quintessentially a political decision that involves balancing the interests of various parties. It is underpinned by the principle of equitability in section 3(3)(a) [of the Rates Act]. And even though the adoption of a rates policy is subject to legal challenge for failure to adhere to this principle, the judicial branch of government will be circumspect before it interferes with a council’s assessment of what is equitable,” the judge said.
Difference between rates and service charges
The High Court had correctly noted that section 229(1)(a) of the constitution distinguishes between rates and surcharges: “the latter may be imposed for services the municipality provides, while the former bears no such constraint”, the judge said.
He said the City of Tshwane’s rates policy explicitly eschewed any link between rates and services.
He said the reasons the council provided for refusing to create an exception for Blair Atholl were persuasive, and he referred to the following paragraph in the council’s 2011 resolution:
“Property tax is not payable upon receiving basic services. The taxpayers do not receive direct or measurable benefits from the payment of property tax, and the value of the benefit which an individual derives cannot be quantified. It is the responsibility of an individual property owner to pay property tax irrespective of receiving a direct benefit from making use of collective services.
“The lesser the number of properties subject to property rates, the smaller becomes the tax base of the municipality. The more exceptions and rebates granted, the greater the tax burden becomes to the property owners whose properties remain subject to non-discounted rates. Exceptions also create precedents and expectations that could not be afforded by the remaining taxpayers.”
Regarding the appellants’ complaint that the city council’s resolution did take into account the peculiar context and geographic location of the Blair Atholl development, Judge Cachalia said the opposite was, in fact, the case.
The High Court had correctly noted that the city and Wraypex entered into the engineering services agreement on the premise that the development would provide its own services, because it fell beyond the reach of municipal services, Judge Cachalia said. “The city agreed to supply water at the normal rate, and not to levy a sewerage charge, but made no similar concessions for property rates. On the contrary, the agreement explicitly provided for rates to be levied from the date of the proclamation of the township.”
The appeal was dismissed with costs.