Impact of zoning on sectional title property rating classification

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There are times when the zoning (also known as the permitted use) of a property will align neatly with that of its rating category - for example where a property with commercial zoning rights, is used for an office block, it can easily and neatly be classified as 'business' for rating purposes.

This article argues that there are times when it is either impossible or inappropriate to classify a property for rating purposes based on its zoning, and that in these instances, the logical solution is to look to the property's use to determine its rating classification. This much it seems is common sense.

Sectional title units

The classic scenario where it is not possible or appropriate to use zoning to determine rating classification, is with sectional title properties. When a developer wants to build a sectional title scheme, he applies for planning permission. He will need to get approval to build his scheme, which may be residential, or commercial, or even industrial, on the land. To do this he may need to apply to amend the existing land use rights (the zoning) to accommodate the proposed development.

However, it sometimes happens that a property with (for example) a zoning of 'special' or 'business' can accommodate residential units, because this is what the town planning scheme provides for (although the 'title' of the zoning does not give any indication that this is the case in reality). In cases like these, a developer will legally build residential units on land that has a zoning title as something other than residential. This is the first reason that it is not always appropriate to simply look to the zoning title of the land on which the property is built to determine its rating classification - because the two might differ, and that difference may be entirely legitimate.

Think of two sectional title schemes which are right next door to each other, in which all the units are valued exactly the same and are all residential. The only difference between the schemes is that the property developer involved in the one scheme originally envisaged that he might have a restaurant in the scheme and so he had it rezoned to allow for business and commercial. As a result all the municipality's policy on how properties are rated based on zoning, all the units in this scheme were categorised as business and commercial.

Differentiation is arbitrary

The scheme next door, however, was categorised correctly as residential as the underlying erf was never rezoned and had a residential zoning before it was developed. Even though there is no difference in the use or value of such units, the owners in the scheme built on the business erf will pay rates three times higher than those owners who bought into the scheme that was built on the residential erf. This differentiation is completely arbitrary - as there is no material difference in the units in the two schemes, but the owners in the one are being forced to pay much more than the owners in the other.

This constitutes unfair discrimination because those unlucky owners would then end up paying business rates for residential property (which are about three times higher than residential property rates) simply because they were unlucky enough to have bought into a scheme that was developed on land that was zoned anything other than residential.

You can't apply the zoning of the parent erf to the sectional title units built on it, because the parent erf ceases to exist when a sectional title scheme is opened. Municipalities are attempting to apply a zoning (that used to apply to the erf that the sectional title scheme was built on and which no longer exists, once the scheme has been established) to a newly created property that has no zoning in its own right. Although the erf that the scheme was built on had a zoning, you cannot simply take that zoning (from a property that no longer exists) and apply it to the sectional title properties that are built on the land - because of the problems mentioned above that arise when it is (a) not possible and (b) not appropriate to do so.

Mixed use

Rating categories (such as sectional title business and residential) are not precisely the same as, and so do not correspond to, zoning categories. For example, there is no rating category for 'special', although there is a zoning category of special. So you cannot apply a rule that a property will be rated as per its zoning in every instance.

Another example is the rating category of mixed use (which is also known as multiple purpose). There is no equivalent of 'mixed use' or 'multiple purpose' in zoning terms. This category was specially created to rate properties that have two permitted uses - namely residential and commercial - and where the municipality acknowledges that it is not always appropriate to use zoning to determine the rating category. This has also been confirmed by the courts.

Logically the only way to decide whether a sectional title unit is residential or commercial, is to look at the use of that property and not the zoning. There are thousands (if not hundreds of thousands) of residential sectional title units in Joburg, built on erven (that no longer exist and) that were originally zoned special or commercial or industrial, and where it would be inappropriate or impossible to apply the zoning of the underlying (and non-existent parent erf) to the sectional title units built upon it.