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[2016] ZAFSHC 182
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Body Corporate of the Hydromed Sectional Title Scheme and Others v Du Plessis N.O. and Others (6000/2015) [2016] ZAFSHC 182 (3 November 2016)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Reportable:
YES
Of
Interest to other Judges: YES
Circulate
to Magistrates: NO
Case number:
6000/2015
In
the matter between:
THE
BODY CORPORATE OF THE HYDROMED
SECTIONAL
TITLE SCHEME
1
st
Applicant
MEDICLINIC
PROPERTIES (PTY) LTD
2
nd
Applicant
ERBN
BESIGHEIDSTRUST AND TWENTY FIVE
OTHERS
as per annexure A to the Notice of
Motion
3
rd
to 26
th
Applicants
and
S.
O. DU PLESSIS N.O.
1st
Respondent
THE
VALUATION APPEAL BOARD OF
MANGAUNG
2nd
Respondent
MANGAUNG
METROPOLITAN MUNICIPALITY
3rd Respondent
CORAM:
DAFFUE, J et FISCHER, AJ
HEARD
ON:
15 AUGUST 2016
JUDGMENT
BY:
DAFFUE, J
DELIVERED
ON:
3 NOVEMBER 2016
I
INTRODUCTION
[1]
This is a review application by several disgruntled property owners.
The essence of the dispute between the parties is
the valuation of
certain properties situated in Bloemfontein within the borders of the
Mangaung Metropolitan Municipality.
The Local Government:
Municipal Property Rates Act, 6 of 2004 (“the Rates Act”),
and to a lesser extent the Sectional
Titles Act, 95 of 1986 (“the
Sectional Title Act”) are central to the dispute.
II
THE
PARTIES
[2]
First applicant is the Body Corporate of the Hydromed Sectional Title
Scheme (SS36/1989). Second applicant is Mediclinic
Properties
(Pty) Ltd, a company with registered address at Strand Road,
Stellenbosch, the owner of several sectional title units
in the
aforesaid sectional title scheme which units comprise the Mediclinic
Hospital (formerly known as the Hydromed Hospital)
in Bloemfontein
and various offices and/or doctors’ consulting rooms attached
to the hospital.
[3]
Third to twenty sixth applicants are all owners of units in the
Hydromed Sectional Title Scheme which units comprise of offices
and/or consulting rooms for medical practitioners.
[4]
First respondent is Mr S. O. du Plessis NO in his capacity as the
chairperson of the Valuation Appeal Board of the Mangaung
Metropolitan Municipality (“the Appeal Board”) which is
cited as second respondent. The Appeal Board was duly
constituted in accordance with the provisions of chapter 7 of the
Rates Act by the Mangaung Metropolitan Municipality (“the
Municipality”) which is cited as third respondent in the
application.
III
JOINDER
OF FURTHER PARTIES
[5]
Applicants’ attorney, Mr J.P. Marais, who deposed to both the
founding and replying affidavits on behalf of all the applicants,
established a mistake in the list of applicants attached to the
founding affidavit when applicants were called upon to reply to
the
answering affidavit. Mr Marais not only filed resolutions by
the applicants as his authority to act for them was attacked,
but
also resolutions of six further owners of units in the Hydromed
Sectional Title Scheme to which no reference was made in annexure
“A”
to the notice of motion. Contrary to accepted procedure, the
attorney merely stated in paragraph 2 of the
replying affidavit the
following:
“
Application
is hereby made for the joinder of these further applicants.”
There
can be no doubt about identity as the resolutions indicate the
respective names and unit numbers with sufficient clarity.
[6]
At the hearing of the review application we were handed a notice of
application in terms whereof these further owners sought
to be joined
as 27
th
to 32
nd
applicants respectively. Adv Moerane SC for respondents,
appearing with Adv Manye, objected to the joinder of these owners
merely on a procedural basis. He tried to convince us that it
would be difficult for respondents to ascertain at that stage
whether
these applicants were indeed owners of the units referred to in the
notice of application and submitted that their clients
might be
prejudiced. When I indicated to him that respondents should
have been well aware of the identity of these owners
as their names
and unit numbers appear from the annexures to the replying affidavit,
he conceded that the opposition could not
succeed. It is now
necessary to consider the relief sought as we did not make any ruling
during the hearing of the application.
The particular six
applicants for joinder have a direct and substantial interest in the
outcome of the application, they having
been properly identified at
the stage when the replying affidavit was filed and there can be no
prejudice to respondents if they
are joined. They participated
in the appeal hearing, represented by Mr Marais, and the Appeal Board
made findings in respect
of the value of their properties.
Consequently they are joined as 27
th
to 32
nd
applicants respectively. The costs of the joinder application
shall be paid by these applicants on an unopposed basis.
It is
necessary to record at this stage that applicants’ legal
representatives established duplications prior to the hearing
insofar
as 4th and 17
th
applicants are the same entities, 3
rd
and 22
nd
applicants the same and 18
th
and 25
th
applicants the same. Therefore 17
th
,
22
nd
and 25
th
applicants should fall out of the picture and it is so noted.
IV
RELIEF
SOUGHT
[7]
Applicants seek the following relief and I quote
verbatim
from
the notice of motion:
“
1.
An order reviewing and setting aside the Third Respondent’s
valuation roll of 2012 for implementation
for the rating cycle
commencing in 1 July 2013, insofar as it relates to the properties
owned by the Applicants;
2.
An order reviewing and setting aside the decision taken by the First
Respondent on 26 June 2015
valuing, for purposes of the financial
year commencing on 1 July 2013:
a)
The properties referred to as Units 21, 22, 27, 47, 49, 55, 64, 67,
76, 90, 91, 96, 98 and 100 (the unregistered units);
b)
The properties referred to as the “Friedlander Drawings”
(the section 25 real right of extension) in the amount of
R81 000 000;
3.
An order declaring that the abovementioned valuations were not
competent ALTERNATIVELY were
ultra vires
in terms of Act 6 of
2004;
4.
An order substituting the valuations of 2(a) and 2(b) with a
valuation of nil;
5.
An order declaring that all of the abovementioned properties are not
properties which are rateable
in terms of Act 6 of 2004;
6.
ALTERNATIVELY an order remitting the matter back to the First
Respondent for reconsideration;
7.
An order directing that such Respondents as may oppose this
application be ordered to pay the Applicants’
costs, jointly
and severally, the one paying the other to be absolved.”
[8]
The application is opposed by all three respondents. Various
disputes have been raised as indicated
infra,
but
the ultimate and material dispute between the parties and the crux of
the matter is in essence whether the municipal valuer
could lawfully
value unregistered sectional title units allowing the Municipality to
levy rates on such unregistered units.
V
BACKGROUND
[9]
During 2012 third respondent acted in accordance with the Rates Act
and appointed a valuer to value the rateable properties
within
its jurisdiction.
[10]
During the general valuation process embarked upon the Mediclinic
Hospital together with the offices and consulting rooms forming
part
of the hospital complex were valued as well whereupon a valuation
roll was published by the Municipality in February/ March
2013.
[11]
On 14 March 2013 the chairperson of first applicant lodged a written
objection with the Municipality. The concern was
that if the
valuations were to be accepted and the rates formula remained the
same, the annual property rates would increase by
589%. The
Municipality was requested to furnish the method used to calculate
the proposed new valuations, to supply the proposed
formula to be
used and finally to reconsider the valuations.
[12]
On 2 October 2013 Opti Property Consultants (“Opti”)
responded for the first time. This letter was received
by
applicants’ former attorneys a month later. The valuer
appointed by the Municipality is a member of Opti.
In terms
hereof the following was conveyed to second applicant:
“
Notice
is hereby given in terms of section 51/52/53 of the Municipal
Property Rates Act No 6 of 2004 that the Municipal Valuer has
considered this submission to objection
(sic)
on
the subject properties and has considered the objection as follows:
Decision: Municipal Valuer’s Decision: NO CHANGE.”
The
second applicant was informed of its right of appeal.
[13]
On 2 December 2013 applicants’ attorney sent 118 notices, one
in the name of every registered owner of each of the individual
section title units in the aforesaid scheme to the Municipality,
requesting the reasons for the aforesaid decision in terms of
s 53(2)
of the Rates Act. An important issue was raised at that stage
already, namely that the Municipality was precluded
from levying
rates on units in a sectional title scheme unless such units were
registered; also, that the valuer could not value
unregistered
sectional title units.
[14]
For months nothing further transpired and on 15 May 2014 a letter was
sent to the Municipality informing it that unless reasons
were
provided as requested, the High Court would be approached for
appropriate relief. This probably caused the Municipality
to
inform applicants that the appeal hearing pertaining to the
valuations had been scheduled for 23 June 2014 notwithstanding the
fact that no appeal had been lodged at that time due to the failure
to provide reasons.
[15]
On 17 June 2014 applicants’ attorney received an email from the
municipal valuer, Mr Hartman of Opti, to which was attached
his
reasons dated 17 December 2013 which according to applicants were
never received before then. It is unnecessary to deal
with the
valuer’s reasons for the reasons that will appear
infra
.
[16]
After much delay and uncertainty as to whether appeals had been
lodged or not, the matter was eventually set down for hearing
of the
appeal by the Appeal Board on 6 February 2015. Applicants’
attorney placed it on record at the appeal hearing
that applicants
would be taking part in the appeal process, but that they did not
waive their rights to apply for review of the
decision to be reached
on the basis of several procedural irregularities. One
procedural aspect relied upon is the failure
by the municipal valuer
to consider applicants’ objections promptly as he was required
to do in terms of s 51 of the Rates
Act.
[17]
A further point raised in this regard was the failure by the
Municipality to follow a process of community participation before
it
adopted its Rates Policy. A major concern was raised in the
founding affidavit that the municipal valuer and the municipality
failed to provide individual reasons for the decisions reached in
respect of the valuations of the individual sectional title units.
I shall deal
infra
with
other procedural aspects raised pertaining to the various sections of
the Rates Act which were allegedly contravened.
[18]
Notwithstanding all procedural defects that might have occurred,
applicants’ attorney eventually agreed with the members
of the
Appeal Board that all offices and/or consulting rooms, i.e. all units
in the Hydromed Sectional Title Scheme, with the exclusion
of the
hospital (unit 88) might be valued at R20 000,00 per m²,
with the exclusion of unit 112 which should be valued
at R15 000,00
per m². This is exactly what the Appeal Board did, which
finding is directly in line with the suggestion
of applicants’
valuer, Mr Marais, (not a relative of attorney Marais), who testified
on behalf of the appellants at the appeal
hearing. There is not
a word in the founding or replying affidavit or in the heads of
argument of applicants indicating that
the finding of the Appeal
Board in this regard is wrong. The matter was also not argued
before us.
[19]
Eventually, and after the leading of evidence of expert witnesses and
days of arguments, applicants’ attorney agreed
that it would be
fair and equitable to value the hospital on the basis of R1 million
per bed. Therefore the valuation of
R296 million in respect of
unit 88, i.e. the Mediclinic Hospital, cannot be contested as this
was agreed to by all parties, including
applicants’ attorney.
Also, as is the case in respect of the individual units referred to
supra
,
not a word was spoken to the effect that the valuation was based on
wrong principles in either the founding, or the replying affidavit,
or applicants’ heads of argument, or during oral argument.
[20]
The extra buildings, i.e. the extension to the Mediclinic Hospital
built in accordance with sectional title plans and a
s 25
of the
Sectional Titles Act right
of extension ceded to second applicant,
consists of an eighty one bed hospital and two theatres. Again
it was agreed at the
appeal hearing by all concerned, including the
applicants’ attorney, that a valuation of R1 million per bed
could be placed
on these extensions and that the extensions could be
valued at R81 million, it being the reasonable and fair valuation
thereof.
It is important to understand that the crux of the
dispute between the parties is whether these extensions are rateable
property
in accordance with the provisions of the Rates Act, bearing
in mind that the Hydromed Sectional Title Scheme as registered in the
Deeds Office does not provide for these extra buildings to form part
of the sectional title scheme; consequently the units forming
part of
the extensions to the hospital complex are still unregistered
sectional title units. This aspect needs full and proper
consideration and I shall deal with it again once I have considered
the authorities and legislation under the next heading.
VI
LEGISLATION
AND AUTHORITIES
[21]
I indicated
supra
that the Rates Act is the most important Act to be considered in the
adjudication of this application. To a lesser extent
the
Sectional Titles Act comes
into play as well. I shall proceed
to refer to important sections of the Rates Act in the next
paragraphs where after
s 25
of the
Sectional Titles Act shall
be
quoted.
[22]
From the onset it is important to note that a distinction should be
made between the rating of property dealt with in chapter
2 of the
Rates Act (ss 2 – 23) and the liability for rates as is evident
from chapter 3 (ss 24 – 29) on the one hand
and the valuation
of rateable property, valuation criteria, valuation rolls, valuation
appeal boards and the updating of valuation
rolls contained in
chapters 4 to 8 (ss 30 – 79) on the other hand.
[23]
“
Market
value”
is
defined in s 1
“…
in
relation to a property, means the value of the property determined in
accordance with section 46.”
The
market value of a property is generally speaking and as stipulated in
s 46(1)
“…
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.”
Insofar
as respondents
inter
alia
rely
on s 46(2), it needs to be mentioned that in determining market value
several factors mentioned in this sub-section must be
considered for
purposes of valuing the property. Sub-section 46(2)(b) refers
to one such factor to wit:
“
the
value of any immovable improvement on the property that was erected
or is being used for a purpose which is inconsistent with
or in
contravention of the permitted use of the property, as if the
improvement was erected or is being used for a lawful purpose.”
[24]
“
Property”
is
defined in s 1 and means
inter
alia
“
(a)
immovable property registered in the name of a person, including, in
the case of a sectional title scheme, a sectional title
unit
registered in the name of a person”;
and
“
(b)
a right registered against immovable property in the name of a
person, excluding a mortgage bond registered against the property.”
[25]
An owner in relation to immovable property (including in the case of
a sectional title scheme a sectional unit registered in
the name of a
person), means the person in whose name ownership of the property is
registered and owner in relation to the right
referred to in
paragraph (b) of the definition of property, i.e. a right registered
against immovable property in the name of the
person, means a person
in whose name such right is registered. See also s 1.
[26]
“
Register”
means
inter
alia
for
purposes of property relevant
in
casu
“
to
record in a register in terms of the
Deeds Registries Act, 47 of
1937
”
and
“
sectional
title scheme”
means
“
a
scheme defined in
section 1
of the
Sectional Titles Act
”
while
“
sectional
title unit”
means
“
a
unit defined in
section 1
of the
Sectional Titles Act.”
[27
]
Section 2
empowers municipalities to levy rates on property in their
areas while
s 3
obliges them to adopt Rates Policies consistent with
the Act on the levying of rates on rateable property within their
areas.
See s 3(1). In terms of s 10 a rate on property
which is subject to a sectional title scheme must be levied on the
individual
sectional title units in the scheme and not on the
property as a whole. This is in line with s 47 pertaining to
valuation
of property in sectional title schemes which stipulates
that when valuing a property subject to a sectional title scheme, the
valuer
must determine the market value of each sectional title unit
in the scheme in accordance with s 46.
[28]
A municipality intending to levy a rate on property must cause a
general valuation to be made of all properties within its
jurisdiction and a valuation roll must be prepared for those
properties. All rateable properties must be valued. See
s
30. The general valuation must reflect the market value of
properties determined in accordance with the market conditions
which
applied as at the date of valuation and any other applicable
provisions of the Rates Act. See s 31(2).
[29]
Section 48 stipulates that a municipality’s valuation roll must
list all properties in the municipality determined in
terms of s
30(3) and the roll must reflect the particulars mentioned in s 48(2),
inter alia
the registered or other description of the
property.
[30]
The Rates Act provides for objection and appeal procedures in ss 50
and 54 respectively. An owner of property who has
unsuccessfully lodged an objection with the municipal manager against
any matter reflected or omitted from the valuation roll has
a right
of appeal to the Valuation Appeal Board.
[31]
A municipality must cause a supplementary valuation roll to be made
in respect of rateable property in certain prescribed circumstances,
some of which may apply
in
casu
,
to wit rateable property either incorrectly omitted from the
valuation roll, or included in a municipality after the last general
valuation, or consolidated after such general valuation, or must be
revaluated for any other exceptional reason. See s 78(1).
Such a municipality will then be entitled, provided s 78 has been
complied with fully, to claim rates levied on such property in
accordance with s 78(4).
[32]
Sectional title schemes may be extended in accordance with the
provisions of Part V of the
Sectional Titles Act. Section
25 is
of particular importance
in
casu
and I quote the more relevant sub-sections which read as follows:
“
25.
Extension
of schemes by addition of sections and exclusive use areas or by
addition of exclusive use areas only
(1)
A developer may, subject to the provisions of
section 4(2)
, in his or
her application for the registration of a sectional plan, reserve, in
a condition imposed in terms of
section 11(2)
, the right to erect,
complete or include from time to time, but within a period stipulated
in such condition or such extended period
as may be agreed upon ……,
for his or her personal account—
(a)
a building or buildings;
(b)
a horizontal extension of an existing building;
(c)
a vertical extension of an existing building,
on
a specified part of the common property, and to divide such building
or buildings into a section or sections and common property
and to
confer the right of exclusive use over parts of such common property
upon the owner or owners of one or more sections, or
to delineate
exclusive use areas on or in specified parts of the land and
buildings in terms of
section 5(3)(f)
and to confer the right of
exclusive use over such areas upon the owner or owners of one or more
sections.
(2)
…….
(3)
……..
(4)
A right reserved in terms of subsection (1), vested in terms of
subsection (6) or registered in terms of subsection (6A), and
in
respect of which a certificate of real right has been issued—
(a)
shall for all purposes be deemed to be a right to immovable property
which admits of being mortgaged; and
(b)
may be transferred by the registration of a notarial deed of cession
in respect of the whole, a portion or a share in such right:
…
(5A) If the right reserved in terms of subsection (1) is
exercised, the developer or his/her successor in title
shall
immediately upon completion of the relevant unit apply for the
registration of the relevant plan of extension and inclusion
of such
unit in the relevant sectional title register.”
[33]
In
Bel
Porto School Governing Body and Others v Premier, Western Cape
[2002] ZACC 2
;
2002 (3) SA 265
(CC) Chaskalson CJ stated at para [89] for a decision
to be justifiable,
“…
.
it should be a rational decision taken lawfully and directed to a
proper purpose.”
In
Minister
of Home Affairs v Somali Association of South Africa
2015 (3) SA 545
(SCA) at para [18] Ponnan JA, relying on
Pharmaceutical
Manufacturers Association of South Africa and Another: In re Ex
Parte President of the Republic of South Africa
and Others
[2000] ZACC 1
;
2000 (2) SA 674
(CC) expressed himself as follows:
“
It
is well established that an incident of legality is rational
decision-making. It is a requirement of the rule of law that
the exercise of public power should not be arbitrary. It
follows that decisions must be rationally related to the purpose
for
which the power was given.”
However,
Nugent JA pointed out in
Minister
of Home Affairs and Others v Scalabrini Centre
2013 (6) SA 421
(SCA) at para [65]:
“…
an
enquiry into rationality can be a slippery path that might easily
take one inadvertently into assessing whether the decision
was one
the court considers to be reasonable. As appears from the
passage above, rationality entails that the decision is
founded upon
reason - in contradistinction to one that is arbitrary - which is
different to whether it was reasonably made.
All that is
required is a rational connection between the power being exercised
and the decision, and a finding of objective irrationality
will be
rare.”
[34]
Applicants not only rely on
Kalil
NO and others v Mangaung Metropolitan Municipality and others
2014
(5) SA 123
(SCA), but submitted that the judgment is on all fours
with the matter at hand. It was argued in support of the relief
sought
in prayer 1 of the notice of motion that the complete
valuation roll of 2012 for implementation of the rating cycle that
commenced
on 1 July 2013 insofar as it relates to their properties
should be reviewed and set aside. In
Kalil
the appellants went on appeal after an unsuccessfully attempt in the
Free State High Court to challenge the municipality’s
decision
to increase rates on business properties so that these owners would
in future pay 3.8 times as much as residential property
owners.
The matter to be considered was whether the 2013/2014 budget of the
municipality could lawfully be adopted.
This is co-incidentally
precisely the same financial year from which the municipal rates in
respect of increased valuations of
property
in
casu
would
take effect. The High Court, in dismissing the application,
found that there was proper public participation in accordance
with
the provisions of the Rates Act and that the proposed rate was not
unlawful. On appeal the Supreme Court of Appeal rejected
the
court
a
quo’s
finding
in respect of public participation in the following words at para
[13]:
“
It
ought to have found that there had not been proper public
participation in the municipality’s budgetary process, and
granted
appropriate relief.”
Notwithstanding
this finding the Supreme Court of Appeal, having heard the appeal a
year after the High Court order and nearly at
the end of the
2013/2014 financial year, did not set aside the budget. It
stated at para [27] that
“
the
rate the municipality sought to impose in respect of business
properties in its budget of 30 May 2013 has not been shown to
have
offended against the principle of legality”
and
concluded as follows at para [28]:
“
However,
for the reasons already mentioned, it is by now too late for any
meaningful declaratory relief to be granted to the appellants.”
[35]
Both counsel relied on
Atholl
Developments (Pty) Ltd v Valuation Appeal Board, Johannesburg and
another
2014
(5) SA 485
(GJ) to bolster their arguments and it is necessary to
refer to relevant passages. As mentioned in paras [13] and [43]
of
the judgment a Valuation Appeal Board has wide powers as is
apparent from s 57(a) read with s 75 of the Rates Act. It may
consider the valuation of all property as defined in the Rates Act
de
novo.
A
function of the Valuation Appeal Board as stipulated in s 57(a) is to
“…
hear
and decide appeals against the decisions of a municipal valuer
concerning objections to matters reflected in,
or
omitted from, the valuation roll.
”
(emphasis
added.)
[36]
In
Atholl
Developments
supra
the municipal valuer valued two erven, unaware of the existence of
99-year leases with business rights to build and operate a hotel
on
the premises. His valuation, in line with municipal policy, was
based on the combined value of the two erven and the improvements
on
them. A later valuation based on the rental income was obtained
as well. The court found that the fact that the
applicant owned
the business rights, but not the erven themselves, was immaterial for
purposes of determining the applicable rates.
Therefore it
found that it was up to the municipality to decide whether it wished
to assign values to rights such as leases and
impose rates on them,
or value the property including improvements thereon and impose rates
on the property as a whole regardless
of whether rights in it had
been dispensed with. According to the court the valuer
committed no error in following the second
method. On appeal
the Valuation Appeal Board decided to follow the first method and
focused on the leases. The court
found that in doing so it did
not commit a reviewable error of law; however the Board’s
criteria used for evaluation was
criticised and consequently the
matter was referred back to it for reconsideration. It is also
important to mention that
the municipality’s Rates Policy did
not provide for the levying of rates on registered leases and the
reader is referred
to the comments of the learned judge in paras [43]
to [49].
[37]
As mentioned
supra
there
is not a dispute in respect of the values arrived at by the Appeal
Board. During the appeal process concessions were
made by both
sides in terms whereof lower values than initially estimated and
determined by the municipal valuer were agreed upon.
However,
it is deemed apposite to refer to
City
of Johannesburg Metropolitan Municipality v Chairman, Valuation
Appeal Board and another
[2014]
2 All SA 363
(SCA). The court considered the functions and
duties of a municipal valuer and
inter
alia
expressed
itself at para [24] in the following
dictum:
“
Valuation
is, accordingly, not an exact science. The market value of a
property can only be estimated and not precisely determined,
and a
valuer is called on to exercise professional skill and expertise in a
specialised field by expressing an opinion on the market
value in
monetary terms.”
In
casu
the
court found at para [31] that it was the duty of the valuer to record
in instances of multiple use of properties such fact and
in
“
compiling
the valuation roll to determine and record those uses and to
apportion the market value of the property between them.”
[38]
The judgment of
South
African Property Owners Association v Johannesburg Metroplitan
Municipality and others
2013 (1) SA 420
(SCA)
(“SAPOA”)
needs
attention as well. This appeal was concerned with the levying
of property rates of 1.54 cents in the Rand on business,
commercial
and industrial properties; an increase from 1.2 cents to 1.54 cents.
On 26 March 2009 the municipality’s
council increased rates
generally by 10% for the 2009/2010 financial year, but two months
later it increased the rates applicable
to the above categories of
properties by a further 18%. In para [65] Navsa JA, writing for
the majority, agreed with the
reasoning and conclusions of Southwood
AJA (the minority judgment)
“
that
the Council failed, in determining the rates for the 2009/2010
financial year and amending its budget, to comply with its statutory
obligations in relation to community consultation and participation.”
Notwithstanding
this, the court found in paras [70] and [71] that
“
the
egg could not be unscrambled”
insofar
as two further budgetary periods, the legality of which had not been
challenged, have come and gone in the meantime.
The effect
hereof was that the appellant’s appeal succeeded, but instead
of obtaining substantial relief (the setting aside
of the rates and
budget), it merely received a declaratory order.
[39]
This court considered a review application pertaining to the tariff
charges of Eskom and the approval of the Mangaung municipality’s
budget for the 2011/2012 financial year in
The
Association of Body Corporates, owners and lessees of townhouses,
flats and retirement villages and others v Centlec (Pty) Ltd
and
others,
Free State case no A334/2011, an unreported judgment dated 15
November 2013 by Daffue J with whom Kruger J concurred. The
predicament facing applicants in similar situations are explained in
paras [45] and [46] and I quote:
“
[45]
A
delay has taken place and history cannot be undone. Two further
tariff changes have taken place and two further budgets
have been
approved since the 2011/2012 financial year, to wit for the 2012/2013
and 2013/2014 financial years. The tariffs arrived
at have been
approved by NERSA as well. [46]
Mr Danzfuss
submitted that there might be numerous people who have
not paid their electricity bills for that financial year and for whom
it
might be relevant to obtain relief. I find it inappropriate
that anybody would not have paid his or her electricity bills
which
should have been done more than 18 months ago and even before then.
Insofar as it might be argued that people might
be in a position to
claim back monies paid in excess once the 2011/2012 tariffs have been
declared invalid, this is again a matter
where it would be impossible
to unscramble the egg. It is water under the bridge and history
cannot be turned around.
Respondents’ budgets were
approved and expenditure incurred as a result thereof. It would
cause havoc if relief is
granted as requested. The
SA
Property Owners’ Association
judgment of the SCA is applicable
in
casu
and
lends support to my view in this regard. Refer to para [75] of
the majority judgment by Navsa JA and the relief granted
by the SCA
in para [80]. The appellants in that case also had in mind the
setting aside of municipal tariffs, but the court
declined to assist
them.”
[40]
In
City
of Cape Town v Robertson
[2004] ZACC 21
;
2005 (2) SA 323
(CC) at para
[56]
the court confirmed that
municipalities derived their powers directly from the
interim
Constitution.
The empowering legislation is now s 229(1)(a) of the Constitution.
These powers may be supplemented from
time to time by the powers,
functions and structures provided for in other legislation. In
para [57] the court remarked as
follows:
“
The
Court
(with
reference to
Fedsure
Life Assurance Ltd and others v Greater Johannesburg Transitional
Metropolitan Council and others
[1998] ZACC 17
;
1999 (1) SA 374
(CC))
restated
the principle of legality and, in particular, the rule that an entity
can only act within the powers that are lawfully
conferred upon it.
In the context of local government, the Court stated that the powers
of local government are conferred
upon it either in terms of the
Constitution or the laws of a competent authority.”
[41]
In
City
of Tshwane v Marius Blom & GC Germishuizen Inc and another
2014
(1) SA 341
(SCA) at para [19] the court determined that the setting
of rates and determination of rateable property in terms of s 8 of
the
Rates Act cannot be challenged simply on the ground of
unfairness. It reiterated that the municipality’s power
to impose
taxes is an original power which stems from s 229(1) (a) of
the Constitution and the imposition of taxes is a legislative act.
The court found at para [23] that the High Court erred in finding
that the municipality’s rates policy could not include
a
category such as
‘
non-permitted
use’
for
the purpose of determining applicable rates. Therefore it was
competent for the municipality to add to the list of categories
in s
8(2) by creation of a category called
‘
non-permitted
use’
in
the rates policy and to levy such property on a rate higher than the
normal rate, effectively imposing a penalty on the
‘
non-permitted’
user
of the property.
VII
EVALUATION
OF THE EVIDENCE AND SUBMISSIONS
[42]
Leaving aside for the moment the valuation and imposition of rates on
the unregistered sectional title units which I called
the crux of the
matter
supra,
it
needs to be considered whether applicants are entitled to the relief
claimed in paragraph 1 of the notice of motion. The
question to
be asked is whether this court is entitled to, notwithstanding the
agreement reached by the parties in respect of the
valuations of the
particular properties, set aside the valuation roll based on alleged
procedural defects. If one considers
the applicants’
written heads of argument as well as the oral submissions to us,
there is little doubt that counsel made
scant submissions in this
regard and concentrated his attack on the Appeal Board’s
decision pertaining to the rating of the
unregistered sectional title
units.
[43]
Applicants strongly relied upon
Kalil
supra in support of the submission that the Municipality failed to
ensure that there was proper public participation. In
my view
their stance is completely wrong and based on a misunderstanding of
the judgment and the structure of the Rates Act.
Kalil
had nothing to do with valuation of rateable property, but with the
increase of rates on business properties. I showed
supra
that
if the Rates Act is considered there is a clear distinction between
rating of property and the liability for rates on the one
hand –
chapters 2 and 3 – and valuation of property and what relates
thereto – chapters 4 to 8. The dispute
in
Kalil
was about rating and not valuation of properties. The same
applies to the
SAPOA
judgment
supra
which
is also distinguishable on the facts from the matter
in
casu.
Applicants’
counsel admitted that the matter
in
casu
has
a narrower focus than
SAPOA
,
but notwithstanding that submitted
“
that
the valuations process suffers the same and worse defects as those
which marred the budgetary process in SAPOA and Kalil.”
[44]
Applicants not only complained about the failure to provide prompt
reasons for the valuations to each individual owner as requested,
but
insisted that the irregularities actually started with the Municipal
Manager’s failure to comply with s 49. This
section
compels the Municipality to give public notice of valuation rolls in
the media, informing the public that the roll is open
for inspection
and inviting every person who wishes to lodge an objection to do so.
The substance of the notice must be disseminated
to the local
community and every owner of property listed in the valuation roll
must receive by ordinary mail, or if appropriate,
in accordance with
s 115 of the Municipal Systems Act the prescribed documentation,
including an extract of the valuation roll
pertaining to his/her
property. Even though applicants insisted that there was no
compliance with this section, their erstwhile
attorneys reacted
immediately and lodged their objections timeously as indicated
supra
.
No doubt, they were well aware of the valuation process and the
outcome thereof. The purpose of the section is to
inform
property owners and that purpose has been achieved.
[45]
It was submitted that public participation was called for as that
would have enabled applicants to bolster their objections
by way of
political or other support. If I understood the argument
correctly, applicants believed that political parties
and/or business
people could be requested to support their cause in order to probably
put pressure on the municipality to lower
the valuations.
Unfortunately, due to lack of proper public participation, so the
argument ran, that did not materialise.
The Rates Act provides
for detailed processes pertaining to valuation, objections and
appeals. Each individual dissatisfied
property owner has
distinct rights and it would be impermissible and even chaotic to
allow dissatisfied property owners the right
to attack valuations in
the manner apparently suggested, instead of utilising the processes
in the Rates Act which are in line
with objection and appeals
procedures in similar legislation applied in this country over many
decades.
[46]
I referred to the functions and duties of a municipal valuer with
reference to
City
of Johannesburg Metropolitan Municipality
supra,
showing
that the valuer has to estimate the market value of a property, that
valuation is not an exact science and that the valuer
is merely
expressing his opinion on the market value in monetary terms.
Any property owner who is dissatisfied with the valuation
of his/her
property has the right to object and to appeal to the applicable
Valuation Appeal Board. This is exactly what
applicants did.
They had a fair hearing and the Appeal Board reduced the valuations
of the municipal valuer quite substantially
and in accordance with
amounts agreed upon by the parties. There is simply no logic in
trying to persuade this court to set
aside those valuations.
[47]
It is difficult to follow why any of the alleged procedural
irregularities prejudiced any rights of the applicants to such
an
extent that this court must set aside the valuation roll pertaining
to their properties. It may be argued that the Municipality
and
its valuer approached the matter in a lackadaisical manner, that
there should have been a prompt response when reasons were
requested
and that this did not happen. Correspondence was left
unanswered and the Municipality can and must be blamed for
being
ineffective. The appeals could and should have been heard much
earlier if the objections were considered timeously
and reasons as
requested provided promptly. No doubt, the communication
between applicants’ attorneys (two firms were
instructed with
Mr Marais succeeding the first firm) and the Municipality left a lot
to be desired, but eventually a fair appeal
hearing took place and
appellants were allowed more than sufficient opportunity to present
their case.
[48]
Applicants’ counsel submitted in conclusion that although
respondents alleged that the appeal hearing cured all previous
procedural defects, this court should show it displeasure by
reviewing and setting aside the Valuation Board’s decision,
the
result being that the valuations which existed previously be
reinstated. This is an outrageous argument. We are
at
present in the year 2016 and it is time for a new cycle of general
valuations, but applicants insist on being rated on the value
of
their properties of two rating cycles earlier. The relief
sought in respect of all registered sectional title units of
the
respective applicants should be dismissed for the reasons advanced
supra.
[49]
I turn now to a more controversial issue. Different
considerations apply to the treatment of the buildings erected in
terms of the s 25 right of extension. The acting Municipal
Manager made the following point in the answering affidavit:
“
It
is contended that the property held under Section 25 Right of Extend
(sic)
only
became known during the appeal process.”
This
is indeed so. When cross-examined during the appeal hearing the
municipal valuer had no idea of what s 25 rights of extension
are.
He eventually conceded that the s 25 right was not separately
recorded in the valuation roll and also not separately
valued.
[50]
It is applicants’ case that the valuation both before and after
the realisation that there was a real right to extend
in terms of s
25 cannot bear scrutiny. The original valuation ignored the
real right as the buildings were valued as they
stood notwithstanding
the fact that a portion consisted of unregistered sectional title
units. The Appeal Board replaced
the valuer’s valuation
with its own valuation based upon principles agreed upon in essence,
but in acting as it did, contravened
s 47 read with the definition of
“
property”
and
s 10 of the Rates Act. The municipal valuer was wrong when he
testified that unregistered sectional title units could
be valued and
rates levied on such property. The chairperson apparently
accepted his reasoning and found as follows:
“
Dit
is nie nodig om eers as ‘n Deeltiteleenheid eers
(sic)
geregistreer
te word alvorens eiendomsbelasting gehef kan word nie.”
The
Appeal Board found accordingly that all rateable property has to be
valued in terms of s 47 and that unregistered properties
fall within
the definition of rateable property.
[51]
In order to refresh the reader’s memory it is important to
emphasise that the Appeal Board went further and decided to
place a
nil value on the parking area situated on the remainder of erf 24888
(which was previously valued at R12.2 million), whilst
the
unregistered units measuring 7 226 square metres and regarded as
part of the hospital complex, but which encroached on
the remainder
of erf 24888, were valued at R1 million per bed and thus R81 million,
it having made provision for 81 beds.
The Appeal Board made a
serious mistake by deciding that the value of R12.2 million for the
parking area on the remainder of erf
24888 should be replaced with
the valuation of R81 million referred to
supra.
It
summarily incorporated the remainder of erf 24888, which is
registered in the Land Register, into the sectional title scheme
which is
ultra
vires
as
correctly submitted on behalf of applicants. Notwithstanding
this the Appeal Board found that portion 1 of erf 24888 on
which the
sectional title scheme was developed could not be valued separately.
Consequently it concluded that the total value
of the Mediclinic
hospital complex, i.e. unit 88 in the sectional title scheme and
valued at R296 000 000, the unregistered
units added to the
hospital complex and valued at R81 million, as well as the value of
all other registered units in the Hydromed
sectional title complex
(offices and consulting rooms) amounted to R533 545 000.
In acting as such the Appeal Board
showed a total lack of
understanding of the concept of sectional title ownership and the
rating of sectional title properties.
The question to be
answered is whether this was a rational decision taken lawfully and
directed to a proper purpose.
[52]
Notwithstanding the Appeal Board’s wide powers it acted
irrationally and contrary to the principle of legality.
It
failed to adhere to the requirements of the Rates Act and ignored
s
25
of the
Sectional Titles Act. The
s 25
registered real right
was not included in the Municipality’s valuation roll and could
not have been included later without
following the process set out in
s 78.
It was not valued and cannot be rated for that reason.
[53]
The Appeal Board did not value the
s 25
real right of extension, but
rather the actual buildings erected in accordance with this right.
Initially it found that the
value of the buildings in the amount of
R81 million should be allocated to the remainder of erf 24888
notwithstanding the fact
that a portion only of the buildings
encroaches on this property. However, contrary to this finding
it concluded that these
buildings should be regarded as part and
parcel of the hospital complex which is situated on the adjacent
property, to wit portion
1 of erf 24888. In doing so it ignored
three facts: 1) the extra buildings do not form part of the
registered sectional title
complex in that they cannot be regarded as
forming part of registered unit 88 – the hospital complex; 2)
the extra
buildings were built in accordance with approved building
plans, but also in order to comply with sectional title plans still
to
be registered and consequently these unregistered units must still
be registered in the Deeds Office to be regarded as property
for
purposes of the Rates Act; and 3) the extra buildings encroach on the
remainder of erf 24888 whilst paragraph 3.22 (e) of the
Rates Policy
pertaining to encroachment was not considered at all.
[54]
I need to mention the Municipality’s policy in respect of
encroachment briefly. Paragraph 3.22 of the Rates
Policy
stipulates that where improvements encroach over common boundaries of
properties the Municipality’s valuer will nominate
one of the
properties as the “parent” property. The other
property/ies will be linked to the “parent”
property in
the valuation roll and will be referred to as “child/ren”.
Such economical unit will then be valued
as a single property in
conformity to the realities of the market. The total value will
be split up for billing purposes
in accordance with the formula
contained in the particular paragraph. This is not what
occurred here and it is not necessary
to consider this any further.
[55]
Mr Nel, a valuer by profession and member of the Appeal Board, and
the municipal valuer, Mr Hartman, attested to confirmatory
affidavits
in support of respondents’ opposition. Mr Nel is of the
view that the
“
applicants’
properties (registered units, the unregistered units and registered
real right) are included in the valuation
roll and, therefore, in
Part A of the property rates register.”
On
his version the fact that the additional buildings have been erected
and an extension of the sectional title scheme has taken
place,
allowed the Appeal Board to value these which valuation is in line
with s 30. This he said notwithstanding the admission
that on
date of valuation “
the
extensions were not included in the sectional plans, however, these
were buildings that existed and were occupied and operated
as part of
the Medi Clinic. It was therefore found that these buildings
qualified as property and, therefore, as rateable
property.”
Later
on his said
“
They
therefore did not need to be sectionalised in order to become
rateable.”
On
his version the extensions could be valued as rateable property,
whether as part of the real right of extension, or as part of
property, either the remainder of erf 24888 alternatively portion 1
of erf 24888. This submission is fallacious for several
reasons
already mentioned in this judgment and do not have to be repeated.
Mr Hartman made similar comments in support of
Mr Nel’s
version, but furthermore referred to the fact that the extensions
encroach on the remainder of erf 24888.
He concluded, relying
on s 46(2)(b) and (c), that
“
the
unregistered units are included in the valuation roll and are rated.”
[56]
Both Nel and Hartman rely on a report of Mr Burger, a professional
land surveyor of Friedlander, Burger & Volkmann dated
14 November
2013. The report must be seen in proper context, an extract of
which reads as follows:
“
The
purpose of the visit was to establish what parts of the existing
buildings have not been updated on the sectional title plans
that
have been approved by the Surveyor General. I have indicated
the sections of the building not on Sectional Plans as
hatched red
area as indicated on the floor plan attached to the report. The
remainder of erf 24888 Bloemfontein although
registered in the name
of the body corporate must still be incorporated into the Sectional
Scheme. The scheme will have to
be amended in terms of
section
25
of the
Sectional Titles Act by
the addition of an additional
section or additional sections.”
Instead
of serving as support for respondents’ submissions, quite the
contrary is true. The extensions cannot
be regarded as
rateable property.
[57]
The Appeal Board has wide powers on appeal, but insofar as it might
be suggested that it could value the
s 25
real right on appeal,
several objections might have been raised as indicated on behalf of
applicants. Most important
of all is that
s 78
pertaining
to supplementary valuations and the procedures to be followed has not
been complied with. It is not necessary
to consider other
possible objections in the light thereof that the Appeal Board made
it clear that they regarded the unregistered
units as part of the
hospital complex and did not value them separately as a
s 25
registered real right.
[58]
Respondents placed emphasis on the fact that the unregistered
sectional title units have been utilised and it is no secret
that the
complex is fully operational. Therefore the use of the
buildings should be seen as unlawful thereby allowing the
Municipality to rate them. I referred to
City
of Tshwane v Marius Blom
supra
in which case the Tshwane municipality was found to be entitled to
levy higher rates on properties which fell within the category
of
“
non-permitted
use”
as
set out in its Rates Policy. That case is clearly
distinguishable.
In
casu
the
Municipality’s Rates Policy does not contain a category of
“
non-permitted
use”.
Such
a category does not appear in s 8 of the Rates Act, but the court
allowed the Tshwane municipality to include such a category
in its
Rates Policy. I indicated that the s 25 real right was never
valued separately, alternatively at all. Insofar
as respondents
purport to rely also on s 46(2), I am of the view that the erection
of or the use of the buildings cannot be regarded
as inconsistent
with or in contravention of the permitted use of the property.
The idea is clearly to extend the Hydromed
sectional scheme and
ensuring that the unregistered units be registered, but as stated in
the papers, several problems prevented
the process from being
finalised. Even if I am wrong in this regard, the basis of the
valuation by the Appeal Board remains
irrational as set out herein.
[59]
The application is therefore bound to succeed, but only on limited
issues. In granting our orders there is no attempt
to
unscramble the egg as mentioned in
Eskom
and
Sapoa
supra
as
the effect will not be to set aside the Municipality’s budget.
The Appeal Board’s decision must be set aside
in respect of the
total valuation arrived at. The valuation of unit 88, as is the
case with all other individual sectional
title units referred to
supra,
is
in order. Unit 88’s valuation of R296 million cannot
be criticised. The orders to be granted do not mean
that it is
the end of the road for the Municipality. It may utilise s 78
of the Rates Act to do supplementary valuations
to mention but one
possible solution.
VIII
COSTS
[60]
Applicants achieved substantial success, but the individual sectional
title owners were unsuccessful in their bid to have the
valuations of
their individual properties set aside. Insofar as they failed
they should generally speaking be ordered to
pay the respondents’
costs. However, much of the debate revolved around the
so-called Friedlander drawings and the
issue as to whether the
unregistered units could be valued and rated. It would also be
a difficult and time-consuming exercise
for the taxing master to
establish what fees and expenses relate directly to this part of the
application. In exercising
my discretion I intend to penalise
applicants by disallowing them a portion of their costs.
Respondents should be ordered
to pay 75% only of applicants’
costs which I believe to be fair to all the parties.
IX
ORDERS
[61]
The following orders are granted:
1)
First respondent’s valuation of R81 million in respect of the
extensions to the Mediclinic Hospital, erected in accordance
with 2
nd
applicant’s right of extension in terms of
s 25
of the
Sectional Titles Act, 95 of 1986
, which consists of unregistered
units still to be added to the existing Hydromed sectional title
scheme, is reviewed, set aside
and substituted with a valuation of R
nil.
2)
Respondents shall pay 75% of the costs of the application, jointly
and severally, the one to pay the others to be absolved.
3)
Save for the above relief, the application is dismissed.
_____________
J.P.
DAFFUE, J
I
concur.
________________
P.
U. FISCHER, AJ
On
behalf of applicant: Adv. Bridgman with
Adv. Rautenbach
Instructed
by: Johann Marais & Assoc
STELLENBOSCH
On
behalf of respondent: Adv. Moerane SC with Adv. Manye
Instructed
by: Poswa Inc
BLOEMFONTEIN
/EB