Judgement indicates that CIDs in Gauteng could be unlawfully charging levies
There is no national legislation authorising the creation and management of CIDs. In Gauteng, the Gauteng City Improvement District Act 2 regulates CIDs (CID Act). A recent judgement, Randburg Management District (CID) v West Dunes Properties 141 and City of Johannesburg (COJ) found that the CID was not lawfully established and could not lawfully levy any charges.
CID Concept
A CID is a geographical area that has been demarcated in a CID plan, which plan has been proposed by and accepted by a certain percentage of the owners of properties situated in that geographical area. The CID plan is a document that sets out a comprehensive plan of action to improve the area for all its residents. It indicates which municipal services are lacking or are needed in greater abundance, and provides for a budget (which is to be funded by levies imposed on all owners within the CID area) to cover any additional cost of providing those services.
The idea is that the municipality will provide a higher level of services to the CID area, at an increased cost, and the levies charged to owners in the CID area will cover the cost of those additional services.
The process of establishing a CID is for a CID plan to be presented to the municipality responsible for servicing the area and, after approval by that municipality and approval by more than a certain percentage of the owners in the area, a management body is appointed. It can then collect the levies set out in the budget from all of the owners who own properties within that geographic area and utilise those levies in order to carry out the CID plan and ensure that the services mentioned in that plan are delivered to the properties in that area.
All owners within the CID area will be charged levies according to the CID plan, once the relevant municipality has approved a CID plan and they are lawfully obligated to pay them, even if they did not agree to the CID plan. The municipality concerned is obliged to provide the municipal services indicated in the CID plan to the level indicated in that plan, and if it fails or refuses to do so it can be compelled by a court. There are certain provisos, which would allow a municipality to deliver a lower level of service than agreed to in the CID plan but these are not relevant in this case.
West Dunes case
In this case, a CID was set up called the Randburg Management District. However, the municipality concerned approved the CID plan not at the municipal council level, as provided for in the CID Act, but at the mayoral council level. The Randburg Management District CID had been operational for several years, when one of its members was sued for refusing to pay levies billed to it. This member defended the court action brought against it on several grounds.
The Court's findings in this case are of immense significance to every property owner and manager that deals with property situated within a CID, as the findings are far reaching and have severe consequences for all parties involved with CIDs.
Legality of charges billed by all CIDs in Gauteng
The Court found that the Constitution affords municipalities the power to levy charges (such as CID charges) on owners of properties but only if that municipality has been empowered to do so in terms of national legislation. Although the Court did not expressly pronounce on this issue in this case, it remarked it had "grave concerns" as to whether any CID operating in Gauteng is lawfully entitled to charge owners levies as a result.
Nature of levies imposed for CIDs
The Court found that the charges levied were levied by the municipality concerned (notwithstanding that the body responsible for collection of those charges was the appointed management body for the CID) and further that these charges were 'rates' rather than 'fees'.
In this regard the Court referred to the Shuttleworth 3 judgment, where the Court utilised the dominant intention test to determine what the main reason for the imposition of charges by a municipality were, in order to determine whether that classified as 'rates' or 'fees'.
The significance of this distinction to amounts charged by a municipality is that firstly, rates only prescribe after 30 years, whereas fees (payment for services rendered) prescribe after 3 years. Secondly, that there are different legal processes that must be followed in respect of the lawful imposition by a municipality of the different types of charges. If the wrong process is followed (or no process is followed at all) then the imposition of those charges will be deemed unlawful.
Court's finding in West Dunes
The Court found that the decision to establish the CID in question was taken by the municipality at the mayoral council level rather than the municipal council level, and that this did not satisfy the legal requirements imposed by the CID Act, read with the Constitution, to lawfully establish a CID and levy charges upon owners for that CID. Thus, the CID was not lawfully established and could not lawfully levy any charges.
Collection of levies charged for CID
The Court reiterated the finding in prior cases that although the municipality imposes the levies, it is lawful for the management body of the CID to sue for the collection of those levies.
Retrospective application
After the Court had found that the CID in question was not lawfully established, that the levies imposed by the municipality for that CID had been unlawfully levies and could not be collected by the management body concerned, the appellant (the management body for the CID forum in question) asked the Court to make an order limiting the retrospectivity of the order to prevent the 'floodgates' from opening and members of that CID being entitled to claim a refund of all levies collected from them.
The Court held that there was no reason to render lawful what was unlawful by imposing a limitation on the retrospectivity of the application of the court order and accordingly refused to make that order.
What this means is that any member of that CID, which was charged and paid levies, could recover them because they were unlawfully levied and collected in the first place. Whether there would be any funds in the bank of the management body to collect and whether those members would succeed in collecting amounts that have already been spent by the management body, was not canvassed at all and remains to be seen.
Conclusion
There are very specific processes set out in the Constitution and in other pieces of national and provincial legislation dealing with how amounts are to be levied by municipalities. In every case, these provisions must be followed to the letter, in order to render the levying of such charges and the collection thereof lawful.
Members of CIDs, municipalities who have agreed to the establishment of CIDs, and management bodies of CIDs, in Gauteng, need to review their CIDs to ensure compliance with this judgment (insofar as that is possible). To the extent that a court in future determines that all CIDs in Gauteng are unlawfully charging levies we will more than likely see the floodgates open.