Concerns regarding the Property Rating Bill

We would firstly like to thank you for the opportunity to offer our comments formally. As per our telephonic discussion, there will be public hearings in May, and we would like to attend these, but this document will bring to your attention various areas within the Bill which we feel may adversely affect property owners around the country. Possibly some of these issues can be addressed prior to the public hearings. We would appreciate it if you could let us know what process will be in place to deal with the concerns that have arisen regarding the Bill.

Venn Diagnostics is a consulting company within the utility management field, and our core business is the provision of information and advice to consumers on how to lower and then manage the costs associated with utilities, property rates, and telecommunications. We deal with a large number of organisations around the country, including Provincial and National Government, Water Boards, parastatals, large industry, commercial enterprises, along with sectional title schemes, educational and religious institutions. We represent then a wide range of different consumers, all of whom may be affected substantially by the Draft Property Rating Bill – particularly those organisations falling into the category of national infrastructure.

We outline below some of our concerns and have in certain instances given examples of how consumers may be affected, with alternative solutions where possible.

Section 1 Definitions

Difficulties have been encountered in the past in regard to the interpretation of the term "property", particularly in regard to the Rating of State Property Act. The definition of "property" in the Bill presently reads "… (a) immovable property registered in the name of a person". As property is registered in identifiable legal units (erven), are we correct in assuming that it is the intention of the Legislature that such definition is intended to mean such units of registration? This interpretation would appear to be consistent with other pragmatic requirements of the Act, and more particularly those of the

valuation process. However, we do respectfully suggest that it may be helpful to make this plain in the definition and thereby avoid unnecessary disputes of interpretation.

In the definition of "Public Service Infrastructure" is included the following: "… (e) railway lines forming part of a national railway system". Does the Legislature intend, by the phrase "national railway system" the inclusion of railway systems which serve Metropolitan commuter purposes such as those on the Witwatersrand and Cape Peninsula? Would it similarly be the intention of the Legislature that it would include a limited system such as the contemplated "Gau-train" servicing Johannesburg, Pretoria and Johannesburg International Airport? If this is the intention we would respectfully suggest that this be clarified in the definition as the word "national" may lead to disputes of interpretation.

1.3 In the definition of "public service infrastructure", services such as water and power are subject to the qualification that they are performed across a municipal boundary. While we understand that in this regard the drafters of the Bill have borne in mind Section 229(2)(a) of the Constitution, we respectfully submit that such qualification is not in the public interest and that its deletion would not offend the Constitution. It is obviously in the public interest that such services be made available to the public, including members of the municipal community in which such services are based, as cost-effectively as possible, and this would be consistent with national economic policy as required by the Constitution. Such qualification is not applicable to public services such as runways or aprons at national or provincial airports, and we respectfully agree that there are sound reasons therefore. We submit that similarly sound reasons exist for eliminating such qualification for services such as water and power, notwithstanding that they may perform their services within one municipal boundary.

Part 3: Limitations on levying of Rates – Section 15
Section 15(2) states "Rates that are disallowed in terms of subsection (1) include the following: (a) Rates on public service infrastructure:- …". The fundamental concept underlying the Act is that rates are levied on property. The definition of "public service infrastructure" contained in section 1 contains no reference to property. We respectfully suggest that, in order to give validity to the limitation contained in Section 15(2)(a), and for the sake of clarity and to avoid disputes of interpretation, Section 15(2)(a) should read as follows:

"rates on property on which public service infrastructure is situated."

As we understand it, Section 14 grants the Municipalities a discretionary power to grant exemptions in such terms as they may reasonably deem fit. However, the constitutional limitations referred to in Section 15 are not discretionary and should

therefore be absolute and simple of interpretation. Should the Act not make clear that
public service infrastructure erven are absolutely exempt, then we respectfully submit that this section in particular will be pregnant with the disputes of interpretation which
plagued previous legislation such as the Rating of State Property Act. Should these provisions be capable of an interpretation to the effect that such limitation is applicable only to a portion of a stand or erf which is subject to public service infrastructure, then a host of onerous questions arise. As we do not believe that that could be the intention of the Legislature, we will not burden the body of this letter with details of such issues, but for the sake of completeness, we annex an addendum reflecting our experience of disputes which have in the past arisen concerning interpretation of exemption provisions and the specific guidelines which the Act would have to include should it indeed be the intention that stands or erven may be only partially exempted.

If there was an intention to allow something less than absolute exemption for an erf subject to public service infrastructure (and which would itself raise the question as to whether the Constitutional Limitations were being complied with), then the Act would have to contain directions on how pro-rata exemptions are to be calculated as this cannot be left to the discretion of the Municipalities in view of the fact that such limitation is peremptory and compulsory in terms of Section 15 as read with Section 229(2)(a) of the Constitution.

5.1We respectfully submit that a process of prorata exemption would not be consistent with the purposes of Section 229(2)(a) of the Constitution and would be so onerous of formulation and practical implementation that it would place an unfair burden on the owners of property affected by the limitation, as well as the Municipalities responsible for applying same.

5.2Such pro-rata concept would also create onerous difficulties for valuators attempting in good faith to assess the market value of a property, and more particularly an erf which is subjugated to public service infrastructure, in the interests of the public good, rather than serving the commercial market interests of the owner. An attempt by a valuator to divide the public service infrastructure elements of an erf from other valid valuation criteria would be a difficult and artificial exercise unlikely to result in the reflection of any real market value and which, of course, is a prerequisite for the fair assessment of rates.

5.3All these difficulties could be very simply resolved by making it plain in the definition of "Property" that it is to be assessed and dealt with (including the limitation provisions), in its registerable units, i.e. erven, and by making it clear in Section 15 that the compulsory limitations are to be applied to the whole of each registerable unit.
5.4This would also be of great assistance in ensuring the simplicity and uniformity of the system that the Act seeks to achieve.

5.5Section 15(2)(b)(iv): In order to link the limitation on rates to the concept of "property" as defined in Section 1 of the Act, we would suggest that this sub-section be amended to read as follows"

"Property comprising public conservation/protected areas, excluding property that is used for commercial or industrial purposes"
(the substitution of the word "property" for the word "portions") would also eliminate the potential controversies referred to above.

Section 10 (Flat Rates for Property within Specialised Valuation Bands)

A rate levied must be - … or (b) a flat rate for property within a specified valuation band, provided that band is below a prescribed valuation limit".

We would like to request clarity on whether it is the municipality or an independent organisation which is to set these "prescribed valuation limits". Also, as to what the intention of the flat rate band is – is it specifically for low-income housing, or will a council have several specified valuation bands which may have flat rates. The concern arises that should a municipality have a prescribed valuation band set at a high level, consumers with differing valuations would be charged the same amount for rates.

Impermissible differentiation

"16. (1) A municipality may not …

(b) levy a rate on non-residential property that exceeds a prescribed ratio on residential properties determined in terms of section 10(1)(a); or
(c) levy rates which unreasonably discriminate between categories of –
commercial properties;
industrial properties; or
agricultural properties".

We would like to request whether this ratio will be predefined, which organisation will be defining it, and finally, how it will be calculated. While we understand that it is in place to protect non-residential property owners, it will only be effective if the ratio is determined by a non-municipal organisation, and this is not made clear in Section 16.

Section 20 read with Sections 27 and 41
In terms of Section 15 certain properties will be exempted from rates. However, Section 20(3) makes no provision for properties exempted from the rates in terms of Section 15 being included and specified in Part B of the Property Register. We
respectfully submit that Section 20(3) should be amended to make provision for properties exempted under Section15 to be specified in Part B of the Register.

However, if it is the intention that such properties are to be completely excluded from such Register and any valuation roll, then we respectfully submit that this should be clearly reflected in the sections referred to.
We respectfully submit that if this was not done and as a result property exempt under Section 15 was included in a valuation roll, this would offend the provisions of

Section 15 as well as the limitations imposed by Section 229(2)(a) of the Constitution.

This sums up the questions we have about the Draft Bill, and also the issues we feel that may require more clarity. Wherever possible, we have explained the reasons behind our concerns, and given examples of how the property owners and municipalities could be affected. Again, please examine the Addendum for more in depth examples of previous problems encountered with legislation of this type.

Once again, we would like to thank you for the opportunity to comment on the draft Bill, and hope that should you have any questions, you will not hesitate to contact the undersigned.

Yours sincerely

Hayley Elwen
Research and Development Manager



Issues arising should the Property Rating Bill be capable of being interpreted as providing for partial pro rata exemption of property from rates

Issues that arise regarding public infrastructure are as follows:
"national, provincial or other public roads on which goods, services or labour move across a public boundary"
This statement is allied to that later of rights of way, easements and servitudes. Our experience with a variety of councils indicates that there are many differing views of what constitutes the definition of "road". Questions have arisen as to whether it is only the tarred section, whether it includes pavements, and / or the middle section of dual carriageways, and whether the servitude running alongside the road before the privately or state-owned land should also be non-rateable.

"water or sewer pipes, ducts or other conduits, and dams and water supply reservoirs, forming part of a water or sewer scheme serving the public across a municipal boundary"
Our question is whether this includes other parts of the water / sewer infrastructure like pumping stations, treatment plants, sewer storage tanks, and offices. Pumping stations, storage and treatment plants in particular are a crucial part of the infrastructure. Without these, the ability to provide water would be prejudiced. Also, while the offices could be regarded as "commercial", without these also the infrastructure would be prejudiced. The interpretation we have taken of 15 (1), is that should the entire supply scheme be rated, it would unfairly prejudice the supply of water and sewer services. Particularly in the case of community-based water supply schemes, all of the property, not only the above-mentioned infrastructure involved should be exempted from rating.
"pipelines for gas and liquid fuels, forming part of a scheme for transporting such fuels across a municipal boundary"
The questions raised as to water supply schemes stands for this section. Pumping stations and offices are again in evidence for fuel transportation schemes, and the above quote from the Bill lacks clarity as to which property within the scheme should be rated. It also does not explain why parts of the property owned or used by the scheme, should be rated, and some exempted.
"railway lines forming part of a national railway system"
Having dealt with a number of municipalities on exactly this issue, we feel that this issue requires further clarity. The railway infrastructure includes lines, sidings, permanent ways, stations, and marshalling yards and servitudes. Each of these have lines running through the sites.
In many cases, the lines do not run on their own separate stands, so there is no clear-cut legislation dictating what should and should not be rated.
The problems we have encountered to date are outlined below:

The law at present states that: "Property used for the purpose of right of way between stations, is exempt from the levying of rates."
Each council has interpreted this to mean something different – each with a different definition of "right of way".
Some examples include:
Right of Way only refers to servitudes
Right of Way is the section of land upon which the permanent
Way or tracks rests. This then excludes the land to the side of
the tracks, which is owned and maintained by the railways. This land may have substations, signalling yards etc built in the area between the boundary of the state owned land and the track or permanent way.
Right of Way includes all land used for getting from one station to
the next, from the end of platform A to the start of platform B, and from
boundary fence to boundary fence.
This shows some of the difficulties of clarification of the definition of public infrastructure in the draft bill, which mentions lines, rights of way and servitudes as being non-rateable.

Guidelines on private property with public infrastructure
"public service infrastructure means … rights of way, easements and servitudes in connection with infrastructure mentioned in paragraphs (a) to (h)"
As can be seen above, and in point (I), this is a section that requires more detail to enable smoother valuation of property.

Also, there is much privately owned property in existence which has national infrastructure running through, over or under it, with servitudes and rights of way. There is not always a separate erf for each easement or servitude, and this leads to confusion as to how this should be rated. The Draft Bill offers no guidelines to municipalities or valuers as to how this should be handled in terms of the exemptions for rating. There are various methods for handling this, but ideally, the square meterage affected by the public infrastructure should be subtracted from the total erf size, and only then rated.

Public conservation Areas
"Rates that are disallowed include the following …Public Conservation/ protected areas excluding portions that are used for commercial or industrial purposes"
While an initial understanding of this statement indicates that it is the land itself to be non-rateable, and hotels and other business on the sites would be rateable, we recommend that this section is also clarified in terms of offices, warehouses garages, workers homesteads and other buildings associated with the conservation of that area. Should these buildings be rateable, the ability to protect the area may be prejudiced. Equally, in many cases, offices may be shared with commercial interests, and without clarity as to which land and improvements are to be rated, this could lead to confusion.