The legality of municipal charges for exclusive use areas

Introduction

There are three ways in which exclusive use areas in sectional title schemes can be created. This article will argue that, regardless of the manner in which such areas are created, they should all be treated in the same manner by the City of Johannesburg Municipality (‘the City’) and that ultimately, for the reasons that follow, they should not be rated or otherwise attract any municipal charges at all.

Exclusive Use Areas

These are essentially areas of a sectional title scheme that are reserved for the exclusive use of a particular owner. Common examples are garages, parking bays, gardens, storerooms and balconies.

Creation of Exclusive Use Areas

These areas can be created in one of three ways, the first of which is where the developer registers certain sections of the scheme as Exclusive Use Areas in the Deeds Office. These areas can be transferred from one person to another (usually as part of a sale of a unit in the scheme) by way of the signature and registration of a notarial deed of cession.

The second way to create these areas is for the developer or the body corporate to take a resolution to amend the body corporate’s rules, to include provisions that reserve the exclusive use of a part of the common property in the scheme, for certain owners. These areas are linked by the rules to the units owned by the owners in question, and so when the owner transfers the unit, the exclusive use area, which is attached to the unit, is also transferred to the new owner. With this kind of exclusive use area there is no need to sign or register any deed and normally the body corporate will simply take note that the unit in question and the exclusive use area linked to it have been transferred to another party.

The third way in which these areas can be created, is where a developer registers areas that will be reserved for the sole use of certain owners, as units in the scheme themselves (in the same way that the sections that constitute the houses or apartments are registered as sections in the scheme). These kinds of exclusive use areas need to be transferred in the deeds office in the same way that the ‘main’ unit or home is transferred, and a title deed will be issued to the new owner as proof of ownership, when transfer registers.

Is there any difference?

For all intents and purposes, there is no difference in the types of rights that accrue to the owners, or to the body corporate, in respect of the three different ways in which exclusive use areas are registered.

But then why does this matter?

Because the Local Government: Municipal Property Rates Act provides that municipalities must charge rates to the owners of sectional title units, based on the market value of those units. Where an exclusive use area is registered as a unit, then the municipality can lawfully charge the property owner for rates, and arguably for sewer and refuse, on that exclusive use area, in addition to charging the owner the same charges for the ‘main’ house/apartment. In the authors’ opinion this amounts to double billing for the reasons that follow.

Valuation of sectional title properties

In Joburg the way in which the municipality has chosen to value sectional title units, is to value not only the main house, but also to include the value of any amenities that the owner of the main house might be entitled to, such as parking bays, garages, gardens, storerooms, or even the facilities available on the common property, such as pools, tennis courts, security guard houses, or communal laundry facilities. Because the valuation of the main house includes the valuation of the amenities to which it is entitled, if exclusive use areas that are registered as units are then rated again, the owner will be charged twice for rates based on the value of the exclusive use area (once in its own right, and a second time as part of the value of the main house).

Unfair discrimination

Many (if not most) sectional title property owners have no idea as to how their exclusive use areas were created. Even certain estate agents, managing agents and sometimes attorneys are not aware of, or do not understand, this distinction. If the City were to charge sectional title owners rates on exclusive use areas that are registered as sections, for rates and other municipal charges, apart from double charging them (as explained above), the municipality would also be unfairly discriminating between sectional title property owners whose exclusive use areas are registered as sections (and who are being charged rates on those kinds of exclusive use areas), as opposed to sectional title property owners whose exclusive use areas are created either by notarial deed or by the body corporate rules (and who are not charged rates for these kinds of exclusive use areas).

As there is no material difference to any of the parties concerned as to the benefits of or values of these three types of exclusive use areas, in the author’s opinion there would be no justifiable reason for a municipality to rate owners of one type, but not owners of the two other types of exclusive use areas. This would amount to unfair discrimination and (on the reasoning above) it is unlikely that (in the authors’ view) this kind of unfair discrimination could be ‘saved’ by the general limitations clause in section 36 of the Constitution.

Refuse and sewer charges

These types of charges are billed to each and every property in Joburg, and at present are considered ‘rates’ (ie taxes) and not charges for services provided. The accuracy of this is debatable, but leaving this aside for the moment, it is submitted that it would not be lawful for a municipality to charge a sectional title property owner refuse and sewer charges twice (once for the main unit and a second time for the exclusive use area registered as a section), because these taxes should only be charged once to a property owner in relation to each property they own (taken as a whole), and an exclusive use area registered as a section should not be regarded as a whole new property on its own, but should rather be seen as a part of the main unit (which, not conincidentally, is the manner that the City’s valuations department sees it).

Policy considerations

Municipalities (including Joburg) are entitled to create policies that determine how they implement the legislation that governs their empowerment to charge for rates and other municipal services. It is submitted that it would be lawful (and reasonably necessary) for a municipality to make a policy decision that it is not going to charge owners of exclusive use areas registered as sections, any rates or other municipal charges. Indeed, this is what it is recommended Joburg should do (if it has not already taken a decision to do precisely this).

Conclusion

Sectional title property owners (and estate agents, developers, and attorneys) should be aware that owning or creating exclusive use areas as registered sections in a scheme could lead to double municipal charges.

Prospective purchasers in sectional title schemes should understand precisely what it is that they are buying, and if this includes any exclusive use areas, precisely how those were created.

In the author’s view municipalities should make a policy decision to not charge sectional title owners rates or other charges for sectional title units that are actually exclusive use areas. It should be easy for an owner to prove that this is the case by submitting copies of the sectional plans to their municipalities as proof of same.

Source: Chantelle Gladwin, Partner /Gabriel da Matta, Associate Schindlers Attorneys, Conveyancers, Notaries

Courtesy: The EAAB - Estate Agency Affairs Board