South African Property Owners Association v The Council of the City of Johannesburg Metropolitan Municipality

The City of Johannesburg Council initially resolved on 26 March 2009 to increase property rates by 10% for the 2009/2010 financial year and advertised this proposed budget for public comment. After the public participation period, the Council belatedly realized that due to 22,448 successful objections to property valuations on the valuation roll, there would be a revenue shortfall of approximately R336 million. The total value of rateable properties had decreased by R88 billion. Instead of following proper public participation procedures, the Council hastily decided on 21 May 2009 to increase rates on business, commercial and industrial properties by an additional 18% (for a total increase of 28%), raising the rate from 1.2 cents to 1.54 cents in the rand, while residential properties remained at 0.44 cents in the rand. This created a ratio of 3.5:1 between business and residential rates. The Council only gave business organizations a few days notice and comment period (from 8-11 May 2009, extended to 15 May for SAPOA). SAPOA challenged this decision as unlawful for failing to comply with statutory consultation requirements under the Local Government: Municipal Systems Act 32 of 2000, the Local Government: Municipal Finance Management Act 56 of 2003, and the Local Government: Municipal Property Rates Act 6 of 2004.

• Whether the levying of property rates constitutes an integral part of a municipality's annual budget process
• Whether the Council failed to comply with statutory community participation requirements when it materially amended the proposed budget after tabling and advertising it for public comment
• Whether the decision to impose the additional 18% rate on business properties was rational and had a rational connection to legitimate governmental purpose
• Whether the rate imposed on business properties unfairly discriminated against owners of such properties
• What relief is just and equitable under section 172 of the Constitution when a rate has been unlawfully imposed but the budget period has expired and subsequent budgets have been adopted
• Whether section 19(1)(b) of the Rates Act, read with the regulations, prohibited the ratio of 3.5:1 between business and residential property rates

The appeal was upheld with costs including two counsel. The court a quo's order dismissing the application was set aside. The SCA made two declaratory orders: (1) declaring that the respondents failed to comply with prescribed statutory requirements when deciding on 21 May 2009 to impose a rate of R0.0154 in the rand on business, industrial and commercial properties; (2) declaring that in future the Council is obliged to comply with the Systems Act, Finance Act and Rates Act when it materially amends a proposed budget after it has been tabled and advertised for public comment. The respondents were ordered to pay costs including two counsel. No order was made setting aside the rate or budget, nor ordering repayment of rates collected.

The binding legal principles established are: (1) The levying of property rates constitutes an integral part of a municipality's annual budget process as contemplated in the Local Government: Municipal Finance Management Act 56 of 2003, the Local Government: Municipal Systems Act 32 of 2000, and the Local Government: Municipal Property Rates Act 6 of 2004; (2) When a municipality materially amends a proposed budget after it has been tabled and advertised for public comment, it must comply with all statutory requirements for community participation, including: (a) amending the budget and accompanying documents to reflect the changes; (b) the mayor providing a statement explaining the necessity for the amendments; (c) the accounting officer making public the amended budget in accordance with sections 21, 21A and 21B of the Systems Act; (d) inviting the community to submit representations within a reasonable time; (e) the council considering those submissions; and (f) giving the mayor an opportunity to respond before final approval; (3) Municipal decisions must comply with the principle of legality and be rationally connected to a legitimate governmental purpose; (4) A court has discretion under section 172 of the Constitution to fashion relief that is just and equitable in the circumstances, which may include purely declaratory relief even where unlawful conduct is established, particularly where setting aside decisions would cause disproportionate harm and where parties have not engaged on issues of affordability and impact.

Southwood AJA (dissenting on remedy only) expressed the view that: (1) Section 19(1)(b) of the Rates Act, properly interpreted with the regulations, prohibits a municipality from imposing a rate on non-residential property that exceeds a ratio of 1:1 to the rate on residential property, meaning the Council's ratio of 3.5:1 was unlawful (though this issue was ultimately not decided as SAPOA abandoned this ground); (2) The City's rates policy was defective in giving the Council discretion to include certain criteria when determining rate increases, contrary to section 3(3) of the Rates Act which requires the policy to determine the criteria to be applied; (3) The proper remedy would have been to set aside the rate above R0.0132 in the rand with a three-year moratorium on repayment. Navsa JA observed obiter that: (1) If the Council continues to flout its statutory obligations, timeous applications for mandatory interdicts or to set aside proposed or adopted budgets may be warranted; (2) In appropriate cases, offending officials could be ordered to pay litigation costs personally; (3) The chaotic state of the valuation roll, including significant undervaluation of commercial properties, meant it was impossible to determine with exactitude what the lawful rate should have been; (4) The "key principle" of maintaining rates contribution ratios between sectors invoked by the Council had no basis in the Rates Act or the City's rates policy.

This case is significant in South African municipal finance law for: (1) Confirming that the levying of property rates is an integral part of the municipal budget process and subject to the same public participation requirements; (2) Establishing detailed procedures that municipalities must follow when materially amending a budget after it has been tabled for public comment, including proper notice, reasonable time for comment, and consideration of submissions; (3) Emphasizing the constitutional importance of community participation in local government decision-making, particularly in relation to budgets and rates; (4) Demonstrating the application of the principle of legality to municipal decision-making; (5) Addressing the difficult question of appropriate relief under section 172 of the Constitution when unlawful conduct has occurred but setting aside decisions would cause significant disruption; (6) Highlighting the tension between vindicating rights and practical considerations when budgetary periods have expired; (7) Providing interpretive guidance on sections 19(1)(b) of the Rates Act concerning ratios between residential and non-residential property rates. The case serves as an important reminder to municipalities of their statutory obligations regarding transparency and public participation in fiscal matters.