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Using residential properties for commercial purposes: penalties by Reini Scheepers

Reini Scheepers

Residential property owners using their homes in contravention of the property’s zoning provisions should take note of a judgment of the Supreme Court of Appeal of South Africa (“SCA”) in the case of City of Johannesburg Metropolitan Municipality v Zibi and Another (234/2020) [2021] ZASCA 97 (9 July 2021) (the “Zibi case”), where the Court had to decide whether a municipality is entitled to levy a penalty rate on a property if its use contravenes its zoning category.

 

Rates payable by immovable property owners in South Africa are governed by the Local Government: Municipal Property Rates Act 6 of 2004 (“MPR Act”), a statute regulating the constitutional power of municipalities to value and rate immovable properties located within their boundaries.  Section 8 (1) of the MPR Act allows municipalities to levy different property rates for different categories of ratable property, which may include categories determined according to the use of the property, the permitted use of the property or the geographical area in which the property is situated.

 

As appears from the Zibi case, for the 2015/2016 financial year, the City of Johannesburg Metropolitan Municipality (“the municipality”) had determined twenty-three different categories for the purpose of property rates, including categories for residential use, business and commercial use, and illegal use.

 

Central to the Zibi case was the question whether the municipality was authorized to impose a penalty rate on residential property for illegal or unauthorized use, without first changing the property category on its valuation roll or supplementary roll, from “residential” to “illegal” or “unauthorized” use.

 

The respondents in this case, Mr. & Mrs. Zibi, were owners of a residential property since 2013. They lived there with their children, and also rented out two bedrooms to students and young professionals. By renting out rooms they made commercial use of the property, without any authorization from the municipality.

 

After various inspections and notices calling upon the respondents to terminate their unauthorised use of the property, the municipality from October 2015 imposed levy rates in the form of a penalty, for the illegal and unauthorised use of the property. The municipality levied the rates in accordance with the rate category for illegal or unauthorised use, while the zoning category of the property remained “residential” on the municipality’s valuation roll, from 2013 to 2018.

 

In October 2018, the municipality obtained an order in the Johannesburg High Court (“the High Court”), interdicting the respondents from using the property in contravention to its residential zoning, within 30 days of the date of the order. The respondents did not appeal this court order.  However, on 26 November 2018 the respondents launched an application challenging the municipality’s penalty tariff.

 

The High Court noted that the respondents were acting in contravention of the municipality’s land use scheme and that they were in contempt of the interdict granted to the municipality against them in October 2018.  However, the High Court found that the municipality was only authorised to levy rates on the property based on its zoning category, “Residential 1”, and was not permitted to impose a penalty rate without first re-classifying the category of the property as “Unauthorized”. To charge a punitive rate the Municipality was required to amend the valuation roll or issue a supplementary roll. In addition, the municipality also had to comply with the audi alteram principle, by first allowing the ratepayers to respond before imposing the penalty rate.

 

The municipality took the matter on appeal to the Supreme Court of Appeal (“SCA”).  The SCA found that the High Court had misdirected itself and decided that the imposition of a higher tariff for rates payable on residential property used for a purpose other than its authorized purpose does not require prior re-categorization. The penalty was validly imposed by the municipality for the duration of the illegal land use. The SCA reasoned that to require publication of a supplementary valuation roll for every unlawful use of property would place an unreasonable administrative burden on the municipality if.

 

This judgment is significant in the time of Covid-19, when working from home and the use of residential properties for commercial purposes has become widespread.

 

The effect of the judgment in the Zibi case is that if a residential property is used in contravention of the authorised use it is zoned for, the municipality can levy a penalty rate without first rezoning the property.

 

Readers are welcome to contact Cluver Markotter Inc for advice on land use and zoning.

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