This is an extract from Ben Groot Attorneys August newsletter ( contact  Ben Groot Attorneys)

This month, we discuss the proposed Local Government: Municipal Property Rates Amendment Bill (“the bill”), which has been published for comment in the Government Gazette, and which has received quite a bit of media attention. We do not intend to comment on the bill and whether it will be good or bad, but merely want to advise landlords on how best to protect themselves against it, should it come into operation in future.

Currently the act defines “property” as being “immovable property registered in the name of a person, including, in the case of a sectional title scheme, a sectional title unit registered in the name of a person” The proposed bill intends to insert a definition for business property, being “( a) property used for the activity of buying, selling or trading in commodities or services and includes any office or other accommodation on the same property, the use of which is incidental to such activity; or (b) property on which the administration of the business of private or public entities takes place;"

Under the proposed new definition, the provision of rental accommodation obviously constitutes a service, hence the comments from various bodies that properties being let out will be levied according to business use, which is on a substantially higher scale than residential properties. Government, however, has denied this interpretation, and said that it merely intends to levy rates against bed-and-breakfast establishments, small hotels and the like. Whether that is indeed the case, remains to be seen.

Whether or not the amendment is passed in its current form, or again amended before it comes into operation, the important question remains as to how a landlord can protect him- or herself against these type of rates and other levy increases.

In terms of common law, a landlord is responsible for any rates, levies, taxes or the like, levied on the property or the rental income. Therefore, the landlord is normally responsible for any municipal rates and levies.

These standard provisions, may, however, be changed if agreed to between the parties, in other words in the lease agreement. Therefore, if a lease agreement is silent on who is responsible for the payment of municipal rates or any other levies or taxes on the property, the landlord will be liable for those costs.

Accordingly, it is important for landlords to protect themselves against possible future rates increases or other levies or taxes that may be implemented, so as to realise the expected income from the property being rented out.

Therefore, a proper clause dealing not only with rates and taxes, but also any possible future rates, taxes or levies is to be included in the lease agreement. And, because most tenants will not now agree to an addendum to the existing leases (although one can try), it is important to include such a clause in any future lease agreements. Further, it will then be of the utmost importance to ensure that, should a current tenant remain in occupation of the leased premises at the end of the current lease term, the new lease agreement is signed.

Should you require any assistance with drafting such a clause for your existing lease agreements, do not hesitate to contact us.

We are a young, vibrant attorneys’ firm based in Cape Town’s Northern Suburbs. We specialise in Labour Law, Law of Landlord and Tenant, Sectional Titles, Collections and Insolvency. Our mission is to provide a legal service to our clients which is ethical, reasonably priced and commercially viable.

If you have concerns in any of the abovementioned areas, please contact us. We will strive to assist you in resolving your problem with passion. That is why our motto is “Your matter – Our passion”.