‘Knysna Mall debt saga due to billing errors’
KNYSNA - In response to mounting criticism concerning its municipal rates accounts, Grey Elephant Investments (GEI), the holding company of Knysna Mall, released a statement titled "Putting the record straight" on Saturday 24 February. (See the full paid-for statement on this page.)
GEI denies any unlawful debt owed to the municipality, and no extraordinary debt write-off.
Neil Lurie, one of the GEI directors, says the initial billing amount was completely wrong as "GEI was billed incorrectly and differently to comparable businesses". Lurie and his GEI lawyer, Donald Curtis - an expert in the field of municipal law - declined to divulge the amount that they have agreed to pay to the municipality, saying it is confidential.
In spite of claims that GEI continue to collect pro rata rates and taxes and service charges from its Knysna Mall tenants, although it hasn't paid its municipal bill for years due to the dispute with the municipality, GEI denies collecting rates and taxes from tenants.
GEI states: "GEI does not collect any rates and taxes or services charges from its tenants on behalf of the municipality. Any liability at any juncture was and is GEI’s, and GEI carries the risks of non-payment by any tenant." This however is not how DA Knysna councillor Sharon Sabbagh sees it.
Speaking at the Special Finance and
Governance Committee Meeting on 26 January, Sabbagh said the report dated 31 December 2023 states that the municipality's total debtors book stood at R454million with 80% at 90 days and over, while commercial debtors stood at R109-million. She said the table showing the debt of commercial entities, GEI, Rex Extension and the Gallery Body Corporate [all linked to Neil Lurie] only goes up to July 2023, but the report on the table is for up to 31 December 2023.
She said if the August, September, November and December accounts were taken into account "this particular customer, over three different accounts, owes the municipality about R67million" ... we then want to go and write off R37,5-million?" Sabbagh said.
"I question whether we have done our due diligence?" She said the three companies bill their tenants for services. "I have done my homework and tenants are billed not only for water, refuse and sanitation, but pro rata rates and taxes. I honestly believe that this needs to be thoroughly interrogated."
She queried various aspects of the calculations, saying interest should not be written off as "he has received the money from his tenants. It's been banked. He's got it. He's using us as his financial institution.... They've billed it over ... For all intent and
purposes they are our third party agents and they are holding on to it and asking us to write it off... We cannot be writing off this amount of money... We need to be asking those really difficult questions of the client," Sabbagh said.
50% debt write-off tabled
At the Special Council meeting yesterday, Wednesday 28 February to discuss and pass the Adjustments Budget Report, an item was tabled recommending that council offer a special incentive to all customers with outstanding debt. The item states: "Those customers who are willing to settle 50% of their arrear debt either through a one-time payment or a payment arrangement which must be settled before 30 June 2024, will have the remaining 50% of their arrear debt immediately written off. The arrear debt amount eligible for this incentive will be the total debt amount (including principal debt, levied interest, and other costs) as of 30 June 2023." At the time of going to press the meeting was still in progress.
Big move
From tomorrow, Friday 1 March 2024, Knysna Municipality will be renting municipal office space in the Knysna Mall from GEI at R546 000 per month. This has caused an outcry from many local political opposition parties and residents due to the fact that many believe that to relocate municipal departments to a property belonging to a huge debtor, is inappropriate.
However, in its statement GEI casts a very positive light on the lease agreement, intimating that Knysna's ratepayers are in fact getting a much better deal for their money at the mall. The statement reads: “According to figures provided by Knysna Municipality, their monthly rent will decrease by approximately 43% vis-à-vis the smaller 2,911m2, load-shedding exposed expired leases which averaged approximately R240/m2, excluding additional charges imposed for services GEI provides inclusive. This represents a saving of approximately R10 000 000 over the three-year term of the lease."
GEI on tenants' payments
Among other questions, KPH asked GEI for the total value of the rates and taxes collected by GEI from tenants since GEI stopped paying rates and taxes to the municipality and how the money has been utilised. This was asked as in the interest of transparency it would have made sense to deposit the money into a reserve fund open to scrutiny.
GEI welcomed the questions, "with
due consideration to GEI being a private company and to respecting the privacy of its tenants", saying it followed all legal and transparent processes. "GEI does not collect any rates and taxes or services charges from its tenants on behalf of the municipality.
“Any liability at any juncture was and is GEI’s, and GEI carries the risks of nonpayment by any tenant.
"In terms of the typical lease agreements GEI is entitled to and does recover a portion, but not all of GEI’s expenses relating to services for GEI’s distribution, metering, maintenance, and billing related overheads," reads the response.
'GEI got paid, so they must pay'
The debt dispute
GEI told KPH that its rates dispute concerned correcting over-charges of approximately R400 000 per month being debited incorrectly, contrary to the applicable provisions of Knysna Municipality’s rates by-laws, policies and tariffs.
"GEI itself had challenged the incorrect charges since 2019, when it became owner, and the former owners since 2014. By way of example, in 2018 the charges on one of the basic services accounts increased by nearly 14 000%."
GEI says other examples include:
Electricity availability charges for double the required notified demand
77 separate basic services availability charges for water and sewerage, as opposed to, 1 per erf
Refuse removal charges for the removal of 387 bins per month, when not even a third of that number of bins, 127, were in fact being removed. GEI followed the Knysna Municipality prescribed formal dispute process and in July 2023 Knysna Municipality’s Council unanimously agreed with GEI’s proposals in settling the dispute.
Write-off 'confidential'
"The correct application of the relevant bylaws, policies and tariffs was again confirmed correct in an internal due diligence review which included impartial expert assistance of a representative on secondment from National Treasury.
"This process concerned correcting billing errors. A write-off of a portion of the arrears was applied after this, to the corrected amount, in accordance with the by-law.
"The portion written off is consistent with - and in most cases less than - the proportions and absolute amounts written off for other ratepayers. We consider the exact amounts concerned confidential."
KPH's questions to the municipality regarding the above issues have gone unanswered.
Lurie and his GEI lawyer, Donald Curtis - an expert in the field of municipal law - declined to divulge the amount that they have agreed to pay to the municipality, saying it is confidential.