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[2020] ZAWCHC 108
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De Zalze Golf Club v Valuation Appeal Board for the Stellenbosch Municipality and Another (3429/19) [2020] ZAWCHC 108; [2020] 4 All SA 754 (WCC) (25 September 2020)
THE
HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION)
JUDGMENT
Case
No: 3429/19
In
the matter between
DE
ZALZE GOLF CLUB
APPLICANT
and
VALUATION
APPEAL BOARD FOR THE
STELLENBOSCH
MUNICIPALITY
FIRST
RESPONDENT
STELLENBOSCH
MUNICIPALITY
SECOND
RESPONDENT
Coram:
Rogers J
Heard
:
13 August 2020
Delivered:
25 September 2020 (by email to the parties and same-day release
to SAFLII)
JUDGMENT
Rogers
J
Introduction
[1]
The applicant, De Zalze Golf Club (‘Club’), seeks the
review and setting aside of a decision made by the first respondent,
the Valuation Appeal Board for the Stellenbosch Municipality (‘VAB’),
in the Club’s appeal against a valuation
of its golf course by
the second respondent, the Stellenbosch Municipality
(‘Municipality’). The valuation (which is
for purposes of
municipal rates) and the appeal were regulated by the Local
Government: Municipal Property Rates Act 6 of 2004
(‘Rates
Act’). The Municipality’s valuation was R97,5 million
while the VAB’s valuation was R26,5 million.
[2]
The Municipality opposes the application. The VAB abides the court’s
decision but has filed an explanatory affidavit.
Although the
proceedings of the VAB were mechanically recorded, a transcript has
not been placed before me. Information as to what
happened at the
VAB’s hearings is confined to what the parties have stated in
their affidavits.
[3]
The Club holds a 99-year lease of the golf course from the De Zalze
Winelands Estate Home Owners Association (‘HOA’).
The
golf course is located within a gated residential estate. The
valuations discussed below were valuations of the Club’s
leasehold. At all material times the golf course was operated under
contract by De Zalze Golf Club NPC (‘NPC’), a non-profit
company of which the Club is the sole member. All financial
activities relating to the golf course are accounted for in NPC.
[4]
In terms of the operating agreement, none of NPC’s income may
be used for any purpose other than ensuring that the golf
course and
golf club business are used, maintained and improved for the benefit
of the Club and its members.
[5]
The Club’s constitution stipulates that it may not distribute
profits or gains to any person and that it is required to
use its
funds solely for investment or for the objects for which the Club has
been established. The constitution envisages that
the Club will seek
tax-exempt status. Whether this has happened does not appear from the
record. If the Club is tax-exempt, then
upon its dissolution any
excess of assets over liabilities must be transferred to another
tax-exempt club or association having
similar objects. If it is not
tax-exempt, on dissolution any such excess must be distributed to
members in such proportions as
the Club’s committee may
determine.
[6]
The HOA’s memorandum of association states that it cannot
distribute its assets in any way. It may not pay dividends.
Its
income and property must be applied solely in the promotion of its
main object.
[7]
In terms of the 99-year lease, the annual rent payable by the Club to
the HOA is R100. The Club may not use the leased area
for any purpose
other than a golf course and related activities without the HOA’s
consent which shall not be unreasonably
withheld. The Club is
entitled to all revenue and income earned from the leased area and is
responsible for all operational and
necessary capital expenditure and
losses. The Club must at its own cost maintain the leased area and
attend to all repairs, renewals
and replacements that may reasonably
be required. It is must pay all rates and taxes as well as charges
for water, electricity
and sewage imposed in respect of the leased
area.
[8]
Clause 12.6 of the lease requires the Club to accumulate all entrance
fees in a capital reserve fund which will be used only
to meet the
golf course’s capital expenditure (‘capex’)
requirements. These entrance fees are once-off fees payable
by new
members. There is no similar restriction imposed on the Club in
respect of annual subscriptions, playing fees, green fees
and the
like.
[9]
In terms of the lease, the Club may sub-contract to a third party its
rights and obligations in respect of the maintenance,
management,
operation and control of the leased area, subject to the Club’s
committee’s consent which may not be unreasonably
withheld.
(The operational agreement between the Club and NPC is such a
sub-contract.) For the rest, the Club may not cede, delegate
or
encumber its rights and obligations under the lease, and may not
sub-let, without the landlord’s prior consent which may
not be
unreasonably withheld.
[10]
It is common cause that the VAB’s valuation decision is
‘administrative action’ for purposes of the Promotion
of
Administrative Justice Act 3 of 2000 (‘PAJA’).
The
leased area
[11]
The leased area comprises 14 erven, some of which belong to the HOA
and over others of which it has secured servitudes. The
total area of
these erven is 63,17 ha. Naturally the fairways, greens and
surrounding roughs cover the greater part of this area.
The clubhouse
(including the pro-shop) is located on Erf 296. It appears that the
other improvements, such as offices, ablution
facilities and
workshops, are also on Erf 296, which is 9801 m² (ie just under
one hectare).
[12]
The valuation of R97,5 million against which the Club appealed to the
VAB stated in its heading that it was a valuation in
respect of Erf
‘296/A’, 9801 m² in extent. The meaning of ‘A’
in this reference is unexplained.
In the substantive part of the
valuation, there were columns headed ‘Entity’,
‘Category’, ‘Tariff’
and ‘Valuation’.
‘Entity’ refers to an identified piece of property. The
value of R97,5 million appeared
in the last column of the first row,
preceded by ‘Primary’, ‘Business’ and ‘BUS’
in the Entity,
Category and Tariff columns. Beneath this row, the 14
erven making up the leased area were listed in the Entity column, in
each
case with ‘Business’ in the Category column, ‘PROS’
in the Tariff column and R0 (Rand zero) in the Valuation
column.
There was an entry of this kind
inter alia
for Erf 296. From
the Municipality’s Property Rates Policy, which forms part of
the record, one can see that ‘BUS’
signifies ‘Business’
while ‘PROS’ signifies ‘Private Open Space’.
[13]
The VAB’s amended valuation followed exactly the same format,
save for the revised figure of R26,5 million in the ‘Valuation’
column of the first (‘Primary’) row.
[14]
Although in the event the Municipality’s valuer and the VAB
adopted a method of valuation which concentrated on the improvements
located on Erf 296, it is clear that such valuations were intended to
be the rateable value for the golf course as a whole. Since
it would
be difficult, and of no practical relevance, to apportion the value
of the golf course as a whole between the individual
erven, it made
sense to attribute the value to a primary property and to give a zero
value to everything else. It thus seems that
‘Primary’
and ‘296A’ were intended to encompass the entire golf
course and its improvements.
Factual
background
[15]
In 2014 the Municipality valued the golf course at R10 million. The
Club objected. Following negotiation, the Club in November
2016
accepted a valuation of R9,705 million as a resolution of its 2014
objection, though it recorded its view that its leasehold
did not
have a market value and it reserved the right to base a future
objection on that view.
[16]
In March 2018 the Municipality issued a supplementary valuation of
the golf course in the amount of R97,5 million. The Club
objected,
relying on the report of a professional valuer, Mr J F du Toit.
In its objection the Club advanced two main contentions
in the
alternative:
(a) The first was
that the leasehold should, for two reasons, receive a purely nominal
valuation. The first reason was that various
restrictive documents
had the effect that the leasehold had no value for a notional buyer.
The second reason was that the presence
of the golf course had caused
a substantial enhancement in the value of the residential properties
in the estate and that to assign
a material value to the golf course
would result in double taxation.
(b) The second
contention, if the first was rejected, was based on two different
methods of valuation, namely the net income (‘NI’)
method
and the depreciated replacement cost (‘DRC’) method. On
the NI method, Mr du Toit arrived at a valuation of
R2,831,940, which
he regarded as an absolute maximum. His DRC method came to
R6,950,274. The average of these outcomes yielded
a rounded-up value
of R4,9 million.
[17]
The NI method (in later documents called the ‘profits’
method) requires the valuer to determine the annual net
income which
the owner or leaseholder can derive from the property. This net
income (NI) is capitalised at a capitalisation rate
(‘CR’),
set at a level reflecting the relative risks of the income-earning
operation. The valuation formula is NI ×100/CR.
The lower the
risk, the lower the capitalisation rate and the higher the valuation.
For example, a CR of 8% effectively means that
the net income is
multiplied by 12,5 while a CR of 20% means that the net income is
multiplied by only 5.
[18]
The Municipality dismissed the Club’s objection. On 7 May 2018
its valuer, Mr H C Botha, provided his reasons. As
to the Club’s
first contention, Mr Botha said that his market data did not
substantiate the claim that properties in
the De Zalze estate sold at
a 20% premium due to the golf course. He rejected the restrictive
documents as a basis for assigning
a nominal value, stating that the
Club could conclude an operating agreement with an operator of its
choice and recover a substantial
rent. He adhered to his valuation of
R97,5 million, though he did not explain how he reached it.
[19]
The Club appealed to the VAB, relying substantially on Mr du Toit’s
earlier report and on additional evidence relating
to the alleged
premium conferred on the De Zalze residential properties by the
presence of the golf course.
[20]
The VAB began hearing the appeal on 18 June 2018. Mr du Toit and Mr
Botha made representations. The VAB adjourned because it
was apparent
that the two valuers needed to exchange information. This led to
further reports from Mr du Toit and Mr Botha dated
20 and 23 August
2018.
[21]
In the intervening period, Mr Botha supplied Mr du Toit with
information about how he had arrived at his valuation of R97,5
million, and it is convenient to explain Mr Botha’s
methodology, bearing in mind that he made this valuation at a time
when
he did not have access to NPC’s annual financial
statements:
(a) He took the view
that the profits method (which I take to be the same as the NI
method) would yield the most probable market
value.
(b) He distinguished
between profits generated by the golf course (green fees and cart
fees) and by improvements such as the clubhouse
(including the
pro-shop), offices and workshops.
(c) In the case of
the golf course, he assumed green fees and cart fees of R12,55
million and expenses of R6,875 million (at an
assumed 55% of gross
revenue). To the net figure of R5,675 million he added annual new
members’ fees of R125,000, thus arriving
at R5,8 million which
he capitalised at 10%, yielding a valuation for this component of R58
million.
(d) In the case of
the improvements, he assumed that the owner/leaseholder could let out
the clubhouse buildings (1634 m²)
at R170/m
2
, and
the office and outbuildings (184 m² each) at R200/m² and
R80/m² respectively. These rates yielded a gross monthly
rent of
R329,300 and a gross annual rent of R3,951,600, from which he
deducted expenses of R592,740 (at an assumed rate of 15%
of gross
rental revenue), giving net income of R3,358,860, which he
capitalised at 8,5%, arriving at a rounded-down valuation for
the
improvements of R39,5 million.
(e) The sum of the
golf course valuation of R58 million and the improvements valuation
of R39,5 million produced his total valuation
of R97,5 million.
[22]
It is also convenient to elaborate here on how Mr du Toit, on the NI
method, reached his valuation of R2,831,940:
(a) NPC’s 2017
operating profit from all sources (the golf course and improvements)
was R6,845,427.
(b) From this figure
Mr du Toit deducted R3,352,880 as a cost for the rental of movable
assets. This was based on the fact that
an operator wishing to
acquire the right to operate the golf course would not, by purchasing
the leasehold, get access to the movable
assets needed to conduct the
business. He assumed that the notional operator would conclude rental
agreements for the acquisition
of the necessary equipment. His figure
of R3,352,880 was calculated with reference to NPC’s property,
plant and equipment
(‘PPE’) of R16,400,292, for which he
assumed a weighted average useful life of 7,22 years and a financing
cost equal
to the prime interest rate of 10,5%.
(c) After deducting
this allowance, the operating profit reduced to R3,492,547. Mr du
Toit then reasoned that the notional operating
company would need to
be able to make a profit. His profit allowance for the operating
company was R2,811,568, based on a net profit
margin of 8% as applied
to NPC’s 2017 turnover of R35,144,600.
(c) This would leave
the notional operator with R680,979, which Mr du Toit capitalised at
10%, arriving at a capitalised value of
R6,809,787.
(d) However, so
reasoned Mr du Toit, a buyer of the leasehold would need to cover the
next year’s anticipated capex, which
NPC estimated at
R3,977,847, meaning that the purchaser would not be willing to pay
more than R2,831,940.
[23]
In his report of 20 August 2018, Mr du Toit continued to support the
two main contentions previously advanced. In regard to
the second
contention (which assumed a rejection of the primary contention that
the golf course should receive a nominal value),
Mr du Toit referred
to the valuations of other golf courses, including the Stellenbosch
Golf Club (‘SGC’) which held
a long lease from the
Municipality. Based on these other valuations, Mr Du Toit said that
one could infer an average value of R8,973,059.
[24]
He continued to maintain that the NI method (which he now called the
profits method) yielded a valuation of R6,809,878 prior
to a
deduction for anticipated capex. This was based on a CR of 10%. He
also advanced an alternative methodology which looked at
the profit
from the golf course and a notional rent for the improvements. The
former he capitalised at 25% and the latter at 10%,
arriving at a
rounded-up valuation of R7,4 million.
[25]
He criticised Mr Botha’s valuation of R97,5 million on various
grounds. One was that Mr Botha had used a CR of 10% for
De Zalze’s
golf course revenue (green and cart fees) whereas in the SGC
valuation (for which Mr Botha was also responsible)
he had used 25%,
which Mr du Toit regarded as more appropriate in view of the inherent
costs and risks. Mr du Toit did not agree
with the way Mr Botha had
separated the golf course revenue and notional rent for the
improvements, since the golf course revenue
was dependent on all the
facilities. Furthermore, the rentals Mr Botha had assumed for the
improvements did not reflect what could
be afforded, having regard to
the actual operational performance of the clubhouse. Mr du Toit
suggested that if one attempted to
isolate the profit from the
improvements, one would arrive at a figure of R1,658,115 as the
maximum affordable rent. If one applied
a standard turnover rent
percentage of 5% to the revenue generated by the improvements, one
would arrive at an annual rent of R656,536.
[26]
Mr Botha and Mr du Toit expressed their assumed rentals at a monthly
rate per square meter. However, where a rate per square
meter is
derived from a notional total affordable rent per annum, the rate
depends on the square meterage assumed. In the improvements
component
of his initial valuation of R97,5 million, Mr Botha assumed a square
meterage of 2002 m², so his assumed gross
and net
improvements rentals of R3,951,600 and R3,358,860 equated to average
rates of R164,49/m² and R139,81/m². In his
report of 20
August 2018, Mr du Toit assumed a total lettable area of 4836 m²,
so naturally his figures, expressed as a rate
per square meter, were
much lower than Mr Botha’s. On Mr du Toit’s total square
meterage of 4836 m², his annual
affordable rent of R1,658,115
equated to a rate of R28,57/m² while his 5% turnover rent of
R656,536 equated to R11,31/m².
In the event, the VAB confined
itself to the square meterage of the clubhouse (excluding other
improvements), and used Mr du Toit’s
figure of 2172 m². To
ensure that one is comparing like with like, it is preferable in my
view to deal with the annual amounts
rather than rates per square
meter.
[27]
In Mr Botha’s report of 23 August 2018, he maintained that the
profits method was the most appropriate valuation method.
He
explained how he had arrived at the valuation of R97,5 million. He
did not in terms disavow it, but at the VAB’s next
hearing he
conceded that it had been based on assumptions which were
inconsistent with NPC’s financial statements. The method
he
supported at the next hearing was the third of three methods
described in his new report. The first method was the NI method,
looking at the income generated by the golf course and by the
improvements, and taking account of expenses incurred. The second
method was to determine the cost of the golf course and its
facilities as new and to apply an appropriate depreciation figure.
[28]
The third method, which he supported, was one which the City of Cape
Town had used in valuing the Steenberg Golf Course. This
involved
simply ‘rentalising’ the improvements (buildings) without
regard to the separate income and expenses of the
golf course. A
building is ‘rentalised’ by applying an affordable rate
per square meter to its area. Using this method,
Mr Botha arrived at
a revised valuation of R30,75 million as follows:
(a) Apparently
relying on square meterages supplied by Mr du Toit, Mr Botha took the
clubhouse and offices at 2030 m², the
workshop at 1380 m²,
ablution facilities at 18 m² and the open workshop at 535 m².
(b) Mr Botha
‘rentalised’ these areas as follows: R110/m² for the
clubhouse and offices, R20/m² for the workshop,
R10/m² for
the ablution facilities and R5/m² for the open workshop.
(c) This gave him an
annual rental income of R2,588,301, which he capitalised at 9% to
arrive at a rounded-down valuation of R28,75
million.
(d) To this he added
R2 million for the manager’s house (based on comparable sales
rather than rentalisation), giving a grand
total of R30,75 million.
[29]
The VAB reconvened on 28 August 2018, and Mr du Toit and Mr Botha
presented their further submissions. The VAB issued its decision
on 5
September 2018, valuing the golf course at R26,5 million. The VAB
used an amalgam of Botha’s initial and subsequent
methodologies
and assumptions, save that it confined its valuation to the square
meterage of the clubhouse (which it took to be
2172 m²) and that
it applied a capitalisation rate of 10% rather than 9%.
[30] In relevant
part, the VAB’s decision reads as follows:
‘
After
considering the documents filed by the parties and their oral
submissions, the Board unanimously placed a value of R26,500,000
on
the property, using the income method of valuing by determining the
rental a notional operator will pay a notional landlord.
Using the
profit figures released by the Golf Club and the areas stated by Mr
du Toit in his 20 August 2018 submission …
the value was
determined as follows:
Total of commercial
usable/lettable area (Clubhouse) is 2172 square metres, at a rental
of R110 per square meter, per month = R238,920
= R2,867,040 per
annum, less 15% expenses, leaving a nett annual rental of R2,436,984.
Capitalised at 10% = R24,369,840, plus manager’s
house at
R2,000,000, total value = R26,369,840, say R26,500,000.
Cognizance was taken
of Mr du Toit’s submission regarding the restrictive documents
but it was taken into account that the
Golf Club in its financial
statements reflects a profit notwithstanding these documents.
Mr du Toit’s
further argument that the golf course adds value to the properties in
the estate, was also considered, but due
to the absence of a fixed
formula to ascertain the exact impact of the golf course to the
estate properties, a definite ruling
in this regard could not be
made.’
The
grounds of review
[31]
The following six grounds of review can be distilled from the
founding papers:
(a) The VAB was
required to value the golf course as a whole, not the clubhouse
buildings.
(b) The VAB
disregarded the restrictions affecting the operation of the golf
course and assumed that because NPC’s financial
statements
reflected a profit, such profits were distributable. The
VAB disregarded the fact that the applicable agreements
made it
impossible for the Club to dispose of its leasehold rights to a third
party in a way that would enable the latter to operate
the golf
course as a profit-making business.
(c) The VAB rejected
the enhancement/double taxation contention without explaining why
there had to be a fixed formula to quantify
the enhancing impact of
the golf course on residential properties. The evidence before the
VAB showed that the enhancement was
on any reckoning so substantial
that the golf course could have no independent value.
(d) The VAB simply
adopted Mr Botha’s rental rate R110/m² for the clubhouse,
without explaining why that rate was adopted
and without addressing
or giving reasons for rejecting the lower rates put up by Mr du Toit.
(e) The VAB did not
explain its adoption of a 10% CR.
(f) The VAB failed
to take into account comparable valuations addressed in Mr du Toit’s
report of 20 August 2018, in particular
the R7,2 million valuation of
the highly comparable SGC.
[32]
In its supplementary founding papers, following the delivery of the
rule 53 record, the Club advanced a further ground of review,
namely
that the VAB had seemingly placed reliance on a report by Mr Botha
dated 7 November 2017 without the Club having been notified
that this
document existed and that it was to be taken into account. In the
VAB’s explanatory affidavit its chairman stated
that the
Municipality had sent the report to the VAB an error and that the VAB
had not considered or been influenced by the report.
This ground of
review was not pressed.
[33]
In his explanatory affidavit on behalf of the VAB, its chairperson
responded in summary to the six grounds of review as follows:
(a) As to the
complaint that the VAB only valued the buildings, the valuation was a
valuation of Erf 296, which contained the golf
course’s
buildings. The VAB did not value the golf course as a whole.
(b) Regarding the
effect of the restrictive documents on the leasehold’s value,
the VAB was not bound to take cognizance of
restrictions contained in
documents which were not registered against the title deeds. As to
the restrictions in the lease, which
was indeed registered, the
Municipality and the VAB were not bound by those terms; if it were
otherwise, ‘all private owners
could evade paying rates and
taxes on property’. In any event, in terms of clause 28 of the
lease and clause 9.6 of the operating
agreement, those agreements
could be consensually cancelled, and the operating agreement could
also be unilaterally terminated
in terms of clause 3 on 90 days’
notice.
(c) Regarding
enhancement and double taxation, the VAB had considered but not
accepted Mr du Toit’s submissions.
(d) The VAB’s
adoption of Mr Botha’s rental rate of R110/m² did not mean
that the lower rates put up by Mr du Toit
were not considered. In the
light of its knowledge of commercial rents in the Stellenbosch area,
the VAB regarded Mr du Toit’s
rates as unreasonably low.
Valuation is not an exact science, and valuers, including the members
of the VAB, have to bring their
professional expertise to bear.
(e) As to the CR of
10%, the VAB noted that the average CR for rental properties in
Stellenbosch was 8%. A higher rate of 10% was
applied to Erf 296 ‘to
allow for contingent risks’. A rate of 20% - 25%, as contended
for by the Club, would have been
wholly inappropriate.
(f) As to the
alleged failure to take account of comparable valuations, such
failure is not a ground of review, because it is not
obligatory for
the VAB to value a property with reference to the value of comparable
properties. In any event, the SGC was not
comparable because it is
not privately owned and is not within a gated community.
First
ground – valuation of buildings only
[34]
I have already explained how I understand the valuation statements
issued by the Municipality and the VAB. I do not accept
the VAB’s
explanation that it confined its attention to the clubhouse because
it was only valuing Erf 296. I can only think
that that this was a
lawyer’s point which the VAB unwisely adopted. The Municipality
in its answering affidavit followed
the same course.
[35]
It is perfectly clear that the 14 erven (or 13, if one excludes Erf
296) do not have a zero value. The very fact that they
are listed on
the valuation statements shows that they were viewed as part of a
unitary exercise.
[36]
The VAB was dealing with an appeal against the Municipality’s
valuation (through Mr Botha) of R97,5 million. It was the
Municipality’s valuation which demarcated the scope of the
appeal. Mr Botha arrived at his valuation of R97,5 million by
taking
into account,
inter alia
, the revenue earned from the golf
course (green and cart fees). In his initial reasons of 7 May 2018,
Mr Botha stated that the
profits method was the preferred valuation
method ‘to determine the open market value of the golf course
and all applicable
buildings’. In his report of 23 August 2018,
he stated that his object had been to determine ‘the market
value of …
Erf 296 that includes the golf course as well as
the clubhouse, workshop, manager’s house, ablutions and
workshop shed’.
The Municipality’s valuation, in other
words, related to all 14 erven.
[37]
It is in this same report that Mr Botha suggested an alternative
methodology which involved disregarding income from the golf
course
and simply ‘rentalising’ the buildings. Whether one
regards this as logical or not, it was put up by Mr Botha
as an
alternative method of valuing that which had been the subject of the
valuation against which the Club was appealing. There
is nothing to
suggest that during the VAB’s hearings the board stated that
the parties had misapprehended the subject-matter
of the valuation
and that the board intended focusing only on Erf 296 as a stand-alone
entity. The VAB’s amended valuation
is inconsistent with this
having been its view; its valuation decision listed all 14 erven,
assigning them a zero value after the
‘Primary’ valuation
of R97,5 million. Moreover, and as the Club pointed out in its
replying affidavit, the VAB, like
Mr Botha, included in its valuation
R2 million for the manager’s house, even though the house is on
Erf 4 (which formally
received a zero valuation), not on Erf 296.
[38]
The
Municipality’s counsel, in written argument, referred me to the
reasons given for the valuation of R9,705 million in November
2016.
[1]
However, that valuation
form only mentioned Erf 296. It differs from the valuation form used
in the valuation of R97,5 million,
which is the valuation against
which the Club appealed
[2]
and
which lists all 14 erven. In oral argument, I understood the
Municipality’s counsel to accept that the other erven making
up
the leased land received a zero valuation because the entire
leasehold was valued under the aegis of Erf 296.
[39]
A valuation of Erf 296 in isolation, without regard to the lease as a
whole, would be fundamentally wrong and irrational. The
Club did not
have a separate lease in respect of Erf 296. It had a single lease
covering 14 erven. The terms of the lease did not
entitle it to deal
separately with each erf. The entirety of the leased land had to be
conducted as a golf course.
[40]
Accordingly, if the VAB in truth treated Erf 296 as a separate entity
for purposes of valuation, it would have gone fundamentally
awry. But
as I have said, I do not think that this is what the VAB did. The VAB
recognised, in my view, that it was valuing all
14 erven, but it
accepted a methodology which focused on the buildings, most (but not
all) of which were located on Erf 296.
[41]
The Club’s ground of review is that, in valuing the golf course
as a whole, the VAB could not rationally confine itself
to the
buildings. In principle, and for the reasons stated above, I agree. A
valuation which confines itself to the buildings (or
here, just the
clubhouse) is a valuation which disregards relevant considerations
(namely the impact, on the valuation, of the
composite leasehold in
respect of the land in its entirety). Such an approach strikes me
also as capricious and as being not rationally
connected to the
purpose of the empowering provision, which called for a valuation of
the leasehold in its entirety (see ss 6(2)(
e
)(iii) and
(vi) and s 6(2)(
f
)(ii)(
aa
) of PAJA).
[42]
The question is, however, whether this warrants intervention on
review at the Club’s instance. If the VAB’s valuation
of
the clubhouse and the manager’s house were rationally a
component of what should have been a larger exercise, the Club
would
only be prejudiced by the irregularity if a valuation of the balance
of the properties (focusing on the other buildings and
on the golf
course itself) would have been negative, so that the overall
valuation would have been reduced. If the valuation of
the residual
operations of the golf course would merely have increased a
legitimate valuation of the clubhouse and manager’s
dwelling,
the irregularity would be one from which the Club benefited.
[43]
It is thus desirable to defer a decision on the first ground of
review, pending a consideration of other matters.
Second
ground – restrictive documents
[44]
I have already summarised the most important restrictive terms of the
constitutional documents of the HOA and Club and of the
lease and
operating agreements. It is clear from these documents that the
profit generated by NPC must be invested or used to maintain
and
improve the golf course and its facilities. No part of this profit
may be distributed to members.
[45]
The VAB’s reasoning on this aspect in its decision of 5
September 2018 is skeletal, but it expanded upon its reasons
in the
explanatory affidavit. Its chairman referred to s 46(3)(
c
) of
the Rates Act which states that in determining the market value of a
property, any unregistered lease in respect of the property
must be
disregarded. This is not directly in point, because the Club was not
objecting to the valuation on the strength of an unregistered
lease.
The Club did argue, however, that the valuer should have regard not
only to the terms of the registered lease but also to
the
constitutional documents and operating agreement.
[46]
In my view, the VAB was not wrong to adopt the attitude that the
terms of the constitutional documents and the operating agreement
did
not directly govern the valuation. Aspects of those documents might
be indirectly relevant to the extent that reference is
made to them
in the registered lease. For example, clause 16.1.4 of the lease
provides that the HOA and its members’ use
and enjoyment of the
golf course and club is subject
inter alia
to the Club’s
constitution. Clause 12.4 of the lease recorded certain terms
contained in the Club’s constitution as
to the Club’s
maximum number of members and the categories of and qualifications
for membership. However, the effects of
these matters, and of other
similar terms contained in the lease, would be felt and reflected in
NPC’s financial results.
[47]
In terms of clause 20.1 the Club may not cede or delegate any of its
rights and obligations, and may not sub-let, without the
HOA’s
prior consent which may not be unreasonably withheld. Self-evidently
this is a contractual restriction on the Club’s
ability to sell
its leasehold. Although the restriction takes the form of a consent
which may not be unreasonably withheld, I am
prepared to assume that
the HOA could reasonably refuse consent to the Club’s place
being taken by an entity which intended
to operate the course on a
commercial basis with a view to distributing profits.
[48]
However, this does not justify a conclusion that because the Club is
practically incapable of selling the leasehold in the
market, the
leasehold does not have a market value. ‘Property’ is
defined in the Rates Act as including a right registered
against
immovable property. The lease in the present case is such a right. In
relation to such a registered right, ‘owner’
is defined
as meaning the person in whose name the right is registered, here the
Club. A registered leasehold thus constitutes
rateable property on
which, in terms of s 7(1), rates may be levied, though in terms
of s 7(2)(
a
)(iii) a municipality is not obliged to levy
rates on leasehold rights.
[49]
If, as the Municipality has in the present case decided, rates are to
be levied on leasehold rights, s 11(1) requires such
rates to be
levied as an amount in the Rand on the ‘market value of the
property’. Section 45(1) requires that the
property (here, the
leasehold) be valued in accordance with generally recognised
valuation practices, methods and standards, and
the provisions of the
Act. Section 46(1) stipulates that, subject to any other applicable
provisions of the Act, the market value
of the property is ‘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’.
[50]
This must mean that, notwithstanding the terms of the registered
right, a market comprising willing buyers and sellers must
be
assumed, ie restrictions on disposal in an open market must be
disregarded (cf
Todd v Administrator, Transvaal
1972 (2) SA
874
(A) at 881H-882A).
[51]
This leaves the restriction against distribution of profit. Although
the operating agreement limits NPC in what it can do with
its net
income, this is not a restriction inherent in the Club’s
leasehold. Assuming for the moment that NPC were able to
distribute
its profit, the Club is its sole member and thus the only potential
recipient of distributed profit. The Club itself
is constitutionally
prohibited from distributing profit, but that is a limitation
contained in its constitution, not in the lease.
The notional buyer
of the leasehold would not be subject to the same limitation.
[52]
In any event, and even if one simply looks at valuing the leasehold
in the Club’s own hands, the fact that it cannot
distribute
profit does not mean that it does not own a valuable leasehold. It
means only that it has chosen to subject itself to
a restriction
which requires it either to invest its profit or to apply the profit
to the enhancement of the leasehold property.
[53]
In argument the Municipality’s counsel referred me to the
judgment of Vally J in
Atholl Development (Pty) Ltd v Valuation
Appeal Board, Johannesburg, & another
2014 (5) SA 485
(GJ).
Counsel placed particular reliance on what the learned judge said in
para 50. The learned judge stated that where a municipality
elects
not to value a registered lease, it is entitled to value the land in
the hands of the owner without regard to the burden
imposed by the
registered lease. He observed that if a ‘private treaty’
were allowed to reduce the value of property
on the basis that
ownership of the burdened property would have limited commercial
appeal to buyers, the purpose and objects of
the Rates Act would be
defeated. The correctness of that view does not arise in the present
matter, because the Municipality, as
it was entitled to do, chose to
value the leasehold. Where it does so, the Municipality must
naturally value the leasehold warts
and all, save in the respects I
have identified.
[54]
Accordingly, I do not think that this ground of review has been made
out.
Third
ground – enhancement and double taxation
[55]
Once again, the VAB’s treatment of the extensive material and
submissions placed before it on this subject is unsatisfactorily
terse. In its decision of 5 September 2018 the VAB stated that it had
‘considered’ this aspect but had not felt able
to make a
‘definite ruling’ because of the ‘absence of a
fixed formula to ascertain the exact impact’ which
the golf
course had on the value of the residential properties in the estate.
If the premise of Mr du Toit’s contention was
right, the
absence of a ‘fixed formula’ to determine an ‘exact
impact’ was germane only if it was a marginal
case. On the
figures put up by Mr du Toit, the enhancement in the rateable value
of the residential properties was so great that
it would dwarf any
plausible valuation of the leasehold.
[56]
The VAB’s explanatory affidavit does not add much on this
aspect. The board’s chairperson observed that the VAB
had not
said, in its decision of 5 September 2018, that Mr du Toit’s
argument had been accepted, only that it had been considered.
He
immediately added that s 45(1) of the Rates Act required
property to be valued in accordance with generally recognised
practices, methods and standards, and he stated that the income
method applied by the VAB had been compliant. Although he did not
expand on this, I take him to mean that if the income method yielded
a particular valuation, the VAB was not required to reduce
or
disregard it just because the presence of the golf course created an
equal or greater enhancement in the value of the residential
properties in the estate.
[57]
Although I would have preferred the VAB to state its reasoning on
this more fully, I think its view of the legal position is
correct.
It is a
non sequitur
to postulate that the value of property X
is reduced by any enhancement which its presence causes to the value
of property Y.
[58]
Mr du
Toit relied on an international publication by KPMG in support of an
argument that the presence of the golf course might be
expected to
add 20% to the value of residential properties in the estate. The
KPMG document is not powerful evidence in support
of this
proposition, given the relative smallness of the sample and the fact
that only 46% of the participants in the survey considered
that the
enhancement was above 20%.
[3]
Be
that as it may, there is nothing in this report to indicate that the
participants thought that the values of the golf courses
were reduced
by the enhanced values of surrounding real estate. The same is true
of Mr du Toit’s evidence about the sales
values of vacant and
developed residential properties in De Zalze in comparison with
vacant and developed residential properties
in other Stellenbosch
estates.
[59]
The argument of double taxation has no traction if the enhancement in
the value of surrounding properties is not matched by
a reduction in
the true value of the subject property. The true value of the subject
property is determined by one or other acceptable
method of
valuation. If a proper valuation is arrived at, it is irrelevant that
the subject property’s presence has also
enhanced the value of
surrounding properties. It is not uncommon for properties to have
this sort of effect on each other.
[60]
Depending on the facts, one might find that leasehold restrictions in
respect of a golfing property are so severe as to result
in the
leasehold having only a negligible market value. Although one must
assume an ability by the leaseholder to sell the lease,
the leasehold
is for the rest made up of the combination of rights and obligations
actually embodied in the lease. The burdens
imposed on the
leaseholder might be such as to yield only a negligible value for the
leasehold. One would only expect this to be
the case if the
restrictions existed for the benefit of surrounding properties,
yielding an enhanced value for them. If this causal
connection
existed, it would be inequitable for the rating authority to take
advantage of the enhanced values of the surrounding
properties and
yet to value the golfing property without regard to the restrictions
forming part of the leasehold. In such a case
one might truly speak
of double taxation.
[61]
However, this type of error can only occur if the valuer ignores the
presence of restrictions which should be taken into account
in the
valuation. If these restrictions truly result in a negligible value
for the leasehold, one would not need to quantify the
extent of the
enhancement they confer on surrounding properties, but the likelihood
of such enhancement may give one comfort that,
on a swings and
roundabouts basis, the local authority is not losing rateable value.
[62]
In the present case, the Club did not advance its case before the
Municipality and the VAB on the basis that the enhanced values
of the
De Zalze residential properties were a consequence of particular
restrictive terms contained in any of the constitutional
and
contractual documents. Its case was that the mere presence of a fine
golf course enhanced the values of the residential properties.
(And
quite possibly, I may add, the presence of luxurious homes in the
estate may symbiotically add value to the golf course.)
Moreover, the
VAB did not wrongly ignore any restrictions which should have been
taken into account.
Fourth
ground – rental rate of R110/m
2
[63]
Once again, the VAB’s reasons for its decision are
unsatisfactory. I would have expected the board to address the
details
of Mr du Toit’s contentions regarding the rental rate.
Although an adjudicative administrative body does not have to state
its reasons as fully as a court of law, it is still important for the
losing party to know why its principal contentions were rejected.
[64]
The VAB stated in its decision that it used the ‘income method
of valuing by determining the rental a notional operator
will pay a
notional landlord’. It went on to say that it used the Club’s
profit figures and the floor areas stated
by Mr du Toit. However,
there is nothing in its decision or in its explanatory affidavit to
show in what way it used the Club’s
financial results to reach
the conclusion that a rental rate of R110/m² as applied to an
area of 2172 m² was an appropriate
notional rent.
[65]
It is unclear whether the VAB had in mind a notional rent which the
owner (HOA) could earn from a tenant, or a notional rent
which the
tenant (the Club) could earn from a sub-tenant. Since the Club’s
leasehold, rather than the HOA’s ownership,
was the subject of
the valuation, one is concerned with the way in which the Club, not
the HOA, could turn its rights in respect
of the property to account.
Accordingly, if one is assessing the value of the leasehold with
reference to notional rental income,
one would be concerned with the
notional rent at which the Club could sub-let the lease property to
an operator. The Club’s
peppercorn rent of R100 payable
annually to the HOA is a given – it is part and parcel of the
Club’s leasehold.
[66]
If the Club’s financial results (or more accurately the results
of its subsidiary, NPC) were driving the exercise, one
would have
expected the VAB to use the financial statements to arrive at a total
amount of annual rent which the notional sub-tenant
could afford to
pay the Club, the supposition being that the sub-tenant would conduct
the business generating the results seen
in NPC’s financial
statements. For reasons I have explained, the square meterage to
which this is applied, and the way one
expresses the end-result as a
rate per square meter, are somewhat arbitrary. The important thing is
the gross amount of the affordable
annual rent.
[67]
The VAB’s decision of 5 September 2018 and its explanatory
affidavit indicate that it went about things the other way
round.
Based on its experience of Stellenbosch commercial property, it
concluded that R110/m² was a fair rental rate for the
clubhouse
building. It took Mr du Toit’s version of the clubhouse’s
square meterage and in that way arrived at a gross
annual rent of
R2,867,040. There is nothing in the VAB’s decision or
explanatory affidavit to say in what way the NPC’s
financial
statements entered the equation. The VAB does not even say that,
having determined a fair rental in the abstract without
regard to the
financial statements, it examined the financial statements to ensure
that such rental was actually affordable. (I
assume in the VAB’s
favour, though even this is unclear, that it appreciated that the
notional sub-tenant could not use the
clubhouse area except for the
purpose of providing clubhouse facilities for members of the Club.
This is a limitation flowing from
the leasehold which the VAB was
valuing.)
[68]
Can one assume, without more, that the VAB must have checked the
financial statements to see that the gross rent of R2,867,040
would
have been an affordable rent for the notional operator? I think not.
There are too many matters on which it would have needed
to form an
opinion. We simply do not know whether it applied its mind to them.
This is all the more so when one bears in mind that
Mr Botha’s
report would not have provided the VAB with an answer. I asked the
Municipality’s counsel how Mr Botha arrived
at his rental rate
of R110/m². Counsel acknowledged that there was no explanation
in the record.
[69]
I have already summarised how Mr du Toit arrived at a capitalised
value of R6,809,787, from which he deducted anticipated capex
of
R3,977,847 to arrive at a final valuation (on the NI method) of
R2,831,940. Mr du Toit, like the VAB, was concerned with the
rent
which a notional operator could afford to pay for the leased
property. But his starting point, unlike the VAB’s, was
NPC’s
actual financial results. Because he used these results, he took
income from all sources into account, not only income
from the
clubhouse. This would be likely to lead to a higher valuation than an
approach which confined itself to income from the
clubhouse, because
although the golf course is not as profitable as the clubhouse, it is
not loss-making.
[70]
NPC’s 2017 operating profit was R6,845,427. If this was the
profit after all expenses other than notional rent, the VAB’s
notional annual rent of R2,867,040 would clearly be affordable by a
sub-tenant achieving the same profits as NPC. However, Mr du
Toit in
his report pointed out that R6,845,427 would not be the notional
operator’s profit after all expenses other than
notional rent.
[71]
In the
first place, the operator would need to have movable assets (PPE) in
order to conduct the business. The leasehold and its
sub-tenancy
would only give the operator access to the land and buildings. Mr du
Toit assumed that the notional operator would
obtain its PPE by way
of rental agreements at an annual cost of R3,352,880. Another
possibility, not mentioned by Mr du Toit, would
be for the notional
operator to buy the PPE, but in that event there would need to be an
allowance for annual depreciation. (NPC’s
bottom-line results
are stated as EBITDAR,
[4]
ie
results prior to provisions
inter
alia
for depreciation.) The annual rental cost of PPE may be a fair proxy
for an annual depreciation allowance.
[72]
Prima facie
, Mr du Toit is right that the notional operator
would have to incur PPE costs. The VAB has not told us whether it
took such costs
into account and if so at what amount. Mr du Toit’s
assumptions in calculating the annual cost of R3,352,880 have not
been
alleged to be unreasonable. If these costs are deducted, the
operating profit available to the notional operator reduces to
R3,492,547.
[73]
That, too, would be enough to cover the VAB’s gross annual rent
of R2,867,040. But, as Mr du Toit pointed out, no operator
is going
to sub-hire the leased land and conduct the business without making a
profit. Accordingly, and on Mr du Toit’s figures,
both the
notional rent and the operator’s profit have to come out of the
amount of R3,492,547. Mr du Toit assumed that an
acceptable pre-tax
profit would be 8% of turnover. Since NPC’s 2017 turnover was
R35,144,600, the pre-tax profit allowance
was R2,811,568. (NPC’s
operating income in 2017 was much higher – 19,5% of turnover,
though one should bear in mind
that this does not include an
allowance for depreciation.) Once this profit for the operator is
deducted, one is left with Mr du
Toit’s annual rental figure of
R680,979.
[74]
Prima facie
, Mr du Toit is correct that in determining the
rent which the notional operator could afford to pay, some allowance
has to be made
for the operator to earn a profit. Once again, there
is silence from the VAB as to whether it made any assumptions
regarding the
notional operator’s profit. Mr du Toit’s
use of 8% of turnover has not been alleged to be unreasonable.
[75]
Accordingly, and on Mr du Toit’s approach, R680,979, rather
than the VAB’s R2,867,040, is the rent which the notional
operator could afford to pay. I do not say that Mr du Toit’s
assumptions are in all respects right, but they are of sufficient
substance that the VAB could not dismiss them without some process of
reasoning. On the material available to me, it is not apparent
how
the VAB could have thought away the deductions which Mr du Toit says
should have been made.
[76]
Mr du Toit also considered that, after capitalising the notional rent
at 10% to arrive at R6,809,787, there should be a deduction
of
R3,977,847 for anticipated 2018 capex. It is less obvious to me that
this should simply be deducted as a capital amount in arriving
at the
leasehold’s value. To the extent that the capex entails further
expenditure on PPE, one might account for it by way
of an additional
assumed annual PPE rental cost or additional depreciation allowance.
Once again, however, we do not know what
the VAB thought about this
aspect of the matter.
[77]
Another consideration is that the affordable rent needed to take into
account the additional rates which would become payable
if the
property received a higher valuation. The VAB’s valuation
suggests that the Club’s rates would go up threefold.
[78]
All of this presupposes that one is assessing value by determining
the rent which a notional operator (a sub-tenant of the
Club) could
afford to pay the Club for the right to occupy the leased land and
conduct the golf business. The approach which Mr
Botha originally
took in his valuation of R97,5 million was simply to take the
Club/NPC’s profits and capitalise them at
an appropriate rate.
This is the pure profits approach. The hypothesis is that if someone
stepped into the Club/NPC’s shoes,
such person could make all
the profits which the Club/NPC makes. It is effectively a valuation
of the business which can be conducted
on the leased land.
[79]
On this simple profits method, one would not need to externalise a
notional profit for a sub-tenant. Since all profit remain
‘in-house’,
one could avoid Mr du Toit’s deduction of a notional profit for
the operator of R2,811,568. There
would simply be a business profit
of R3,492,547, which would be capitalised at a suitable rate to
arrive at a value which the purchaser
of the business would be
willing to pay. If it were capitalised at 10%, this would yield
R34,905,070.
[80]
However, this was not the VAB’s methodology or line of
reasoning. A court must bear in mind the distinction between review
and appeal (see
Minister of Environmental Affairs and Tourism v
Phambili Fisheries (Pty) Ltd
2003 (6) SA 407
(SCA) para 52;
MEC
for Environmental Affairs and Development Planning v Clairison’s
CC
2013 (6) SA 235
(SCA) para 18). A court is not entitled to set
aside an administrative decision just because on the merits it would
have reached
a different conclusion. The converse must also apply; if
an administrative body has acted irrationally or without good reason
in
arriving at a decision, the decision should not be allowed to
stand just because the court considers that the same result could
be
reached by a permissible or adequate line of reasoning. The applicant
for review is entitled to have a proper decision from
the body
appointed by statute to make it. This is particularly important where
one is dealing with a specialised subject such as
property valuation.
Quite possibly a pure-profits method such as I sketched in the
preceding paragraph is unsound.
[81]
In my view, therefore, this ground of review has been made out. The
VAB’s valuation is not rationally related to the
reasons it has
given for its decision (s 6(2)(
f
)(ii)(
dd
) of
PAJA). Relevant considerations were not considered (s 6(2)(
e
)(iii)).
The decision was in any event unconstitutional and unlawful
(s 6(2)(
i
)) because the VAB failed to apply its mind
properly to the issues raised by the appeal (cf
Pharmaceutical
Manufacturers Association of SA & another; In re Ex parte
President of the Republic of South Africa & others
[2000] ZACC 1
;
2000 (2)
SA 674
(CC) paras 82-83).
Fifth
ground – 10% CR
[82]
I cannot find that the VAB’s use of a 10% CR in respect of the
clubhouse revenue suffers from a reviewable irregularity.
In his
valuation of R97,5 million Mr Botha capitalised the improvements
revenue at 8,5%, and in his report of 23 August 2018 he
capitalised
it at 9%. The VAB’s 10% was more favourable to the Club. In Mr
du Toit’s report in support of the Club’s
objection he
arrived at the capitalised figure of R6,809,787 by using a CR of 10%
(this related to the combined adjusted net income
from the golf
course and the improvements). In his report of 20 August 2018, his
alternative methodology, which arrived at a valuation
of R7,4
million, likewise capitalised the notional rent on the improvements
at 10%.
[83]
Since the VAB did not include income from the golf course as a
component of its valuation, it is unnecessary to consider what
CR
might have been appropriate for such income.
[84]
I have
mentioned Mr du Toit’s criticism of the different CRs used by
Mr Botha in the valuations of the SGC and De Zalze golf
course. It is
not altogether clear how the SGC valuation of R7,2 million was
arrived at. After the first sitting of the VAB adjourned,
Mr Botha
supplied Mr du Toit with his view of the SGC’s value, namely
R21,54 million, based on a CR of 20% for golf course
income and 8,5%
for improvements income. As Mr du Toit pointed out,
[5]
Mr Botha had in fact capitalised the SGC improvements income at 20%,
even though he specified the appropriate rate as being 8,5%.
This is
likely to have been a calculation error by Mr Botha, since 8.5% was
also the CR which Mr Botha used in capitalising the
De Zalze
improvements income. If one adjusts Mr Botha’s SGC calculations
to eliminate this error, his total valuation of
the SGC leasehold
would be R32,125,176.
[85]
Mr
Botha was clearly of the view that the SGC valuation of R7,2 million
was incorrect. He told Mr du Toit
[6]
that the valuation of R7,2 million could not be relied on because
only the buildings had been valued; that even the buildings valuation
needed to be amended because their extent had been understated by
more than 2000 m²; and that the valuation of the entirety
of the land would be revisited once the De Zalze case was finalised.
[86]
Accordingly, there does not seem to be any material inconsistency
between Mr Botha’s view regarding the appropriate CR
for
calculating the values of the SGC and De Zalze improvements income.
It is also necessary to emphasise that the CRs used by
Mr Botha in
expressing his opinion to Mr du Toit of the SGC’s true value
have not resulted in any issued valuation. The CR
(if any) used in
the current SGC valuation of R7,2 million does not appear from the
record.
Sixth
ground – failure to consider comparable valuations
[87]
The VAB contends that the Rates Act does not oblige it to have regard
to comparable valuations. If it adopted a recognised
valuation
method, the fact that a different method might have yielded a
different result does not make its valuation irregular.
The VAB in
any event considered that there were material differences between the
De Zalze golf course and the closest alleged comparator,
the SGC.
[88]
The VAB offered three reasons why the SGC was not comparable to the
De Zalze golf course. The first was that the SGC land is
not
privately owned. I do not see the relevance of this. The subject of
the SGC valuation, as I understand it, was the SGC’s
leasehold
rights, not the Municipality’s ownership of the land.
[89]
The second distinguishing feature, according to the VAB, was that SGC
does not lie within a gated estate. The Club’s
counsel tried to
deploy this distinction as a sword by arguing that this would make
the SGC more, not less, valuable than the De
Zalze course, because
the SGC’s value would not be deflated in value by virtue of the
enhancement of surrounding residential
properties. I have already
explained why the evidence in this case does not show that an
enhancement in the value of De Zalze residential
properties is
accompanied by a decrease in the value of the De Zalze golf course.
So this ground of distinction may well be sound.
[90]
The VAB’s third reason was that in the SGC’s case the
entire golf course was valued whereas the VAB was only concerned
with
the valuation of De Zalze’s Erf 296. It will be apparent by now
that this is not a sound distinction. Furthermore, Mr
Botha told Mr
du Toit that the SGC valuation of R7,2 million was a valuation of the
buildings alone, so one might expect it to
be comparable with the
VAB’s valuation.
[91]
Notwithstanding the questionable nature of two of the three grounds
on which the VAB distinguished the SGC, in my view the
VAB did not
fall into reviewable error by declining to be guided by comparable
valuations. Valuing a subject property with reference
to arms-length
sales of comparable properties is a well-known valuation methodology.
There is no evidence, however, that comparable
municipal valuations
is an accepted method of valuing property.
[92]
The Club’s counsel placed reliance on the references in
ss 45(2)(
b
) and (3) to ‘comparative, analytical and
other systems or techniques’, ‘mass appraisal systems’,
and to
the valuation of property ‘in accordance with any mass
valuation system or technique’. I do not regard these
provisions
as mandating a system by which a single property’s
valuation is used as the basis for valuing another single property.
The
provisions are aimed at facilitating or simplifying the valuation
of large numbers of properties.
[93]
The Club’s counsel in argument referred to the guiding
principles in the Municipality’s Property Rates Policy,
among
which are that the rating of property will be implemented fairly and
equitably, and that all ratepayers within a specific
category will be
treated equally and reasonably. Section 3(1)(
a
) of the Rates
Act requires a municipality’s rates policy to treat persons
liable for rates equitably. It was submitted that,
at least in
relation to the SGC, which falls within the Municipality’s
area, the principle of fairness and equity required
the De Zalze golf
course to be valued along similar lines to the SGC.
[94]
However, and even assuming the two golf courses to be closely
comparable in all relevant features pertaining to valuation,
acceptance of the Club’s submission might require the
Municipality to perpetuate a wrong valuation approach. The
legislative
requirement is for property to be valued in accordance
with generally recognised valuation practices, methods and standards
(s 45(1)),
and a local authority may not depart from this in
order to achieve fairness. Depending on the outcome of the present
matter, the
Municipality may decide that it is the SGC valuation,
rather than the De Zalze valuation, that requires adjustment in order
to
ensure broadly equal treatment. It is apparent from the record
that the valuation of golf courses has presented challenges for
municipalities around the country, and that the last word has not
been spoken on the SGC valuation.
Conclusion
[95]
My conclusion is that the first and fourth grounds of review have
been established. Since the fourth ground warrants intervention
by
the court, it is unnecessary to decide whether the same would have
been true if only the first ground had been made out.
[96]
Although the Club’s notice of motion sought a substituted
decision, its counsel recognised in argument that this exceptional
course would not be appropriate and that the matter should be
remitted to the VAB. The Club was anxious that my remittal order
should contain binding directions regarding the VAB’s fresh
decision. I do not think that this is desirable, though the reasoning
in this judgment will no doubt be taken into account by the VAB to
ensure that its fresh decision will withstand scrutiny.
[97]
The Municipality, which opposed the application, must pay the Club’s
costs. Both sides employed two counsel, a precaution
which was
justified.
[98] I make the
following order:
(a) The application
succeeds.
(b) The first
respondent’s decision of 5 September 2018, by which it placed a
value of R26,5 million on the applicant’s
leasehold rights in
respect of Remainder Erf 296 De Zalze, is reviewed and set aside.
(c) The matter is
remitted to the first respondent for consideration and decision
afresh. The first respondent will be entitled
in its discretion to
receive further evidence and submissions before reaching its
decision.
(d) The second
respondent must pay the applicant’s costs, including the costs
of two counsel.
___________________
O L
Rogers
Judge
of the High Court
Western
Cape Division
APPEARANCES
For
Applicant
M
Janisch SC (with him M Maddison)
Instructed
by
Werksmans
Block
B, De Wagenweg Office Park
Stellentia
Street
Stellenbosch
For
Respondent
I
Jamies SC (with him A Nacerodien)
Instructed
by
Webber
Wentzel
15
th
Floor, Convention Tower
Heerengracht,
Foreshore
Cape
Town
[1]
Record 37.
[2]
Record 39.
[3]
Record 274-275. The total number of respondents was about 100 (see
record 258), of whom about 54 were developers of golf courses
connected to tourist resorts or real estate communities.
[4]
EBITDAR = earnings before interest, taxes, depreciation,
amortisation and rent and restructuring costs.
[5]
Record 288.
[6]
See record 289.