OBJECTIONS TO THE CITY OF CAPE TOWN'S VALUATION OF SECTIONAL TITLE PROPERTIES ON THE 2006 GENERAL VALUATION ROLL
The City of Cape Town will implement individual billing of rates and services to owners of sectional title units on the basis of market value from 1 July 2007. From this date all sectional owners are to pay rates directly to the City (directly based on market valuations of their units) and service charges. Sectional title bodies' corporate, which up to now have paid rates and service charges for the whole scheme, will only pay rates and service charges for any units registered in their names.
National government has indicated that it expects a smooth transition to rating based on market values and that municipalities are expected to reduce the rate charged (percentage or cents per rand) to ensure that there is broad continuity in revenue collected from the expanded tax base (SARS review of the 2007 National Budget.) The City told owners that rates based on market values will not necessarily mean large increases but has warned that, where market values have risen significantly faster than the city average, owners will probably face high rates increases.
Owners have two major concerns. The first is that the market values allocated to their units may be excessive and that this could lead to an undue liability for rates and service charges. The second is that the combined market value of all the units in the scheme will be substantially more than that of the scheme as a whole, so that as a group sectional owners will pay a much increased share of the total municipal budget.
At this stage owners have no way of knowing whether their accounts from the City for rates and services accounts will be higher than their share of the scheme's existing budget for these expenses and, if so, how much more they will have to pay. Managing agents have been inundated with queries as to how the new rating system will be implemented.
There were significant errors in the market valuations which appeared on the City's website in mid-February 2006. The City is busy correcting these errors and has extended the deadline for objections to sectional title valuations until 30 April 2007. We are advised that new letters to owners specifying the revised values have already been sent to owners.
But the City still does not have address details for sectional title owners. Valuation officials are relying on the cooperation of managing agents to get some of this information before they can advise owners of the corrected valuations. At a meeting held on 20 March 2007, hosted by the Institute of Estate Agents of South Africa, sponsored by Propell and chaired by Graham Paddock, three City valuations officials explained to a number of IEASA and NAMA managing agents the processes it needs them to follow so that the City can obtain address details for owners in the schemes managed by those agents, capture the information in the City's database and get the letters with revised valuations addressed and sent to owners. The City officials also answered questions about the valuation, objection and appeals processes. Despite repeated prior requests, there were no representatives from the City's finance or billing departments present.
The City's failure to prepare for individual rating of units
The fundamental issues are that the City:
- has not obtained the unit owner address details it needs to notify owners;
- has not given owners the information they need to understand the financial effect of the new valuation system, and
- is not being transparent about its valuation process.
A. The City's view that it does not need to serve notice on owners
Incredibly, the City has proceeded with its plans to implement individual rating of units without taking steps to obtain the address details of those units. Owners therefore may not get written notification of the City's market valuation of their units. Significant numbers of the City's first notification letters have never been sent and it appears that it will be practically impossible for the City to deliver notice of the corrected valuations to all owners. One of the fundamental rights of a ratepayer is to be informed of the City's proposed valuation of their property and of the process required for the lodgement of objections.
At the meeting referred to above, the City's valuation officials repeated their view that a failure by the City to inform an owner of the market value of a unit will not compromise its processes.
This cavalier attitude is not supported by the applicable legislation. Section 49(1)(c) of the Local Government: Municipal Property Rates Act, No. 6 of 2004, obliges the Municipal Manager, within 21 days of receipt of the valuation roll, to "serve, by ordinary mail or, if appropriate, in accordance with section 115 of the Municipal Systems Act, on every owner of property listed in the valuation roll a copy of the notice referred to in paragraph (a)" - drawing attention to the valuation roll and inviting objections - "together with an extract of the valuation roll pertaining to that owner's property." The alternative service methods set out in section 115(1) of the Municipal Systems Act include personal service, leaving the notice with a person apparently older than 16 at the owner's residential or business address, dispatch by registered post to the person's last known residential or business address, service on the owner's agent or representative in the Republic by one of the above methods and, finally, posting the notice in a conspicuous place on the property to which the valuation relates.
Managing agents are not owner's agents or representatives. The clear consequence of the relevant sections of the laws referred to above is that the City must have all the addresses of all unit owners to give the notice the statutes require unless they are going to use the final option of affixing notices to sections and the linked common property - in which case they are highly unlikely to come to the attention of the owners.
B. The City's failure to give sectional title owners important financial information
Unit owners have budgeted to pay their levies, but they have not been prepared for any unusual increases. There may be many sectional owners for whom an increase in these costs will not be critical, but there are others for whom any substantial increase in monthly costs will mean the difference between balancing their budget and not being able to do so.
The City should, in its preparation for separate rating of units, have compared the prior valuations of whole schemes with its proposed market valuations of the units in those schemes and given owners and indication of the difference in percentage terms so as to allow them to prepare for what could be a significant increase in costs.
All sectional title bodies' corporate work on budgets calculated for twelve-month periods. Most schemes in the City are currently operating on budgets which include the payment of rates and service charges beyond 1 July 2007, calculated at the rates known when those budgets were approved. From 1 July 2007 owners will be paying rates directly and, although they have not as yet received any information from the City in this regard, will also be liable to pay service charges directly.
Trustees and managing agents will need to find out from the City when the invoices for service charges will be sent to owners and make sure that owners know how much of their current levies relate to rates and service charges so that they can withhold payment of these amounts from 1 July 2007.
Again, an indication of the extent to which these amounts are going to vary is information that the City should have provided owners with well in advance.
C. The City's refusal to disclose its market value calculations
The City has used a computer-assisted mass appraisal system to estimate market values as at 2 July 2006 and has used the Deeds Registry records of historic unit prices for this purpose. Some properties have been individually inspected, but the majority of units have been valued on the basis of statistical information adjusted to cater for particular factors which are considered to affect value, such as floor level.
The City officials advised that its CAMA system's known 'glitches' have been addressed, but that the general valuation methodology for sectional title units will not be made public. Even more astounding is their statement that the basis for arriving at the market value of a particular unit will not be disclosed by the City Valuer when a value is objected to or appealed. Owners will have to motivate their objection to the city valuation by reference to comparative sales and a variety of other factors which they believe may influence market value, but they and their advisers will not be allowed to see how the City has calculated the market values for their units.
This is an outrageous lack of transparency by local authority officials in circumstances where owners have a clear right to information that affects the level of their compulsory contributions to the City's finances. It gives rise to the suspicion that the City has failed to do the work necessary to generate accurate market valuations for individual units and is passing on to owners the costs of gathering the information necessary to determine realistic market values.
In terms of the published valuation roll, all that an owner is shown is whether the unit is considered rebatable or not. There is no specific information on the use which the City believes the unit is put to, what base rate per square metre has been applied, what other factors have been taken into account or how they have impacted on the value.
In the American state of New York, the individual rating of units is qualified by a provision that the sum total of the values of units in the scheme cannot exceed the value of the scheme as a whole. In Western Australia the CAMA market valuation of units, based on extrapolation of average sale prices, is qualified by reference to gross rental values so as to highlight inconsistencies between ratable values and actual sale prices.
Under South African legislation there is no such protection for sectional owners. This increases the responsibility of local authorities to be open and to give owners all the information they need to understand the impact of the new system and the rationale for the market values it proposes.
The City of Cape Town should:
- do whatever is necessary to obtain owner addresses and commit to giving every unit owner specific notice of the City's valuations and the objection process;
- add to the information on its web site and in its notifications to owners percentages comparing the previous scheme value with the aggregate values of the units in that scheme;
- urgently advise owners how service charges are going to be billed; and
- make available, on request, the precise formula applied in the valuation of any sectional title unit, i.e., what value per square metre has been applied in that valuation to what total area and what factors have been taken into account in refining the base valuation.
Even at this late stage, it is not too late for the City to win the confidence of the new class of sectional title ratepayers. Nobody likes to pay taxes, but payment is far more easily obtained when taxpayers can be reasonably sure that they are being treated fairly and are given all possible warning of changes that will affect their pockets.
Post script: The text of this article was forwarded to and considered by Mr Christopher Gavor, the City of Cape Town's Municipal Valuer. Mr Gavor confirmed in a telephone interview with Graham Paddock on Monday 26 March 2006 that the article contains no factual errors. He further advised that he will discuss with his colleagues the possibility of making available the details of individual valuations and, if there is a change in the City's policy in this regard, this change will be announced publicly.
The serious problems with the City of Cape Town's valuation of sectional title properties on the 2006 General Valuations Roll has been well covered by the media. Thousands of sectional title owners have still not received notification of their properties values as per the General Valuation Roll. These owners don't understand how the new rating of individual sectional title units will affect their rates and they don't understand how to lodge an official objection.
Paddocks, a specialist sectional title firm based in Cape Town, has developed a free service that assists sectional title property owners with:
- understanding the City's valuation of their properties; and
- completing an official objection form if they disagree with their valuation.
This service is delivered via a website called www.helpmeobject.co.za and is a completely free self-help resource. Users will have access to educational material written by Graham Paddock, who is a well-known sectional title expert. This material details the City's failure to prepare for the individual rating of sectional title units, clarifies how people should object and includes a Q&A section answering common questions made by sectional title property owners. The text of this material was forwarded to and considered by Mr. Christopher Gavor, the City of Cape Town's Municipal Valuer. Mr. Gavor confirmed in a telephone interview with Graham Paddock on Monday 26 March 2006 that the article contains no factual errors.
Many people don't know how to use the City's standard objection form. www.helpmeobject.co.za takes property owners through a series of questions about their property objections and automatically generates a completed objection form ready to be lodged. This process takes approximately 10 minutes to complete.
Rob Paddock, head of the Help Me Object project, explains how the service can assist property owners and their representatives:
"The first step is to find the details of your sectional title unit as they appear in the General Valuation Roll. All those details are available on the www.helpmeobject.co.za website and they will be automatically included in the objection form for you.
Once we have found a specific unit's details the website will take you through a series of questions. The answers to these questions will form the basis of your objection.
The final step is to print out your objection form and either lodge your objection at one of the City Council's objection centres or send it off via post. It's that simple! Visit www.helpmeobject.co.za to educate yourself and get assistance with completing your objection forms."