Taxing question
Municipality may be missing out on rates from valuable property
TWENTY years into a 99-year lease for a prime piece of municipal property, Ndlambe Municipality is unable to say how much rates and taxes it should have been getting.
TotT was provided with the original lease agreement for the Kowie Swim and Play Centre in the Port Alfred small boat harbour, valid for 99 years from September 1 1997.
The original lease was with Anthony and Ilona Jackson, and the municipality’s signatories were former mayor of the Port Alfred Transitional Local Council Eric Jauka and former town clerk Angus Schlemmer.
The 2 938m² property, known as “lease area no 1” of erf 3935, was leased to the Jacksons for the purpose of building an indoor swimming pool and recreation/fitness centre at their own cost, plans for which were subject to the municipality’s approval. The Jacksons estimated in the lease agreement that the cost of the improvements would be in excess of R500 000.
The rental payable to the municipality was only a nominal R1 a year.
The benefit to the municipality in leases like this is that the property, with improvements, reverts to the municipality at the end of the lease. But 99-year leases are rare.
The Jacksons could run the development for their own account and profit or loss.
A clause of the lease states that all buildings on the land could only be occupied for the purpose of the lease. No sub-letting can take place without the written consent of the municipality, and no one is allowed to reside there. The lessee is also responsible to pay for water and electricity.
According to the lease, “the development facilities shall be open for use by the general paying public subject to the lessee having the usual common law right to reserve admission to the development.”
The lease was subsequently taken over by Hennie Nel.
Portions of the building have been sub-let to various tenants over the years, with someone running the indoor swimming pool, and other current tenants being the Midway Motorcycle Club pub, Bidvest, Biolink, the Port Alfred Fishing Academy and two rooms which are being rented out as short-term accommodation.
A significant clause in the lease brought to TotT’s attention is that in addition to the nominal rental, the lessee is responsible for payment of rates on taxes on the property, “assessed on the same basis as if the property was owned and registered in the name of a private person rather than in the name of a local authority”.
Our source, who wants to remain anonymous, believes no rates are being paid on the property. In response to TotT’s questions, municipal spokesman Cecil Mbolekwa said the original lease conditions still applied, and the nominal fee as applicable in the original lease was still in force.
He said rates were being paid
but could not say how much. He also could not say what the current value of the property was.
“The current valuation we have relates to the whole property and not only the portion in question,” Mbolekwa said. According to the 2013 general valuation roll, the entire 4.5 hectare area of the small boat harbour is valued at R13.225-million. The valuation roll does not distinguish different portions of erf 3935.
TotT also asked if this was the only 99-year lease agreement the municipality has, or if there were others.
“We are in the process of investigating all the long-term lease agreements and actions are being taken as per each case,” Mbolekwa said.
Nel told TotT he was not required to pay rates and taxes because the property was recreational.
But Nel said the contract with the municipality had become muddied, with changes being made to the lease. “There are actually two contracts,” he said. “The original lease had commercial rights as well, but then they left it out. Whenever there’s a problem I haul out both contracts.”
Nel also said he had been trying to cede his lease for years, “but the municipality says they must approve the lessee.”