Town Planning - SA Engineering Contribution Figures
Sections 20(2)(c)(i), 48, 63, and Chapter 5 of the Town Planning and Townships Ordinance 15 of 1986 (“the Ordinance”) deal with the levying and payment of engineering contribution figures. These are essentially amounts payable by a person who has applied for rights to change the use of a property, in order to facilitate the upgrading of necessary engineering services (such as roads, sewers, pavements, parks, and any other upgrades necessary to facilitate the proposed use of the property). Engineering contribution figures may also become payable when a property is subdivided. This article explores what they are, how they arise, and the legalities surrounding levying and payment of engineering contribution figures.
Brief explanation - amending land use rights*
A property’s ‘default’ land use rights are contained in the applicable town planning scheme. Each municipality has one (or more) and they only apply to a certain area. These town planning schemes essentially dictate what uses a piece of land can lawfully be put to. If an owner wants additional rights or different rights to use the land in a manner other than prescribed by the scheme, an application can be lodged to obtain these rights. If this application is granted it will result in an amendment to the ‘master’ town planning scheme, which we refer to as an amendment scheme. Every property that acquires different land use rights by way of an application, thus has its own amendment scheme approved for it, giving it different rights to those prescribed in the applicable town planning scheme.
Application can be made by an owner or a person acting on behalf of an owner to amend land use rights. This would be necessary where the existing land use rights do not cater for the future intended land use. An application can be made for consent use (this is where the existing land rights provide that the land can be used in the manner proposed, if consent is granted) or for rezoning (where the existing land use rights provide that the land cannot be used for the proposed use, and it is necessary to apply to put the land into a completely different ‘zoning’, in order to ensure that the future use of the land for the intended purpose, is lawful). Both of these applications are made on prescribed forms against payment of a prescribed fee and with certain prescribed supporting documentation.
The municipality’s Land Use and Management (also known as ‘Town planning’) department decides on the applications after having circulated them for comment to the relevant internal departments that provide services within the municipality’s jurisdiction. A decision is then made to deny or grant the application in whole or in part, sometimes on certain conditions, which may (and often) include the payment of amounts for engineering contributions, or to deny it. An appeal can be lodged if a person is dissatisfied with the initial decision.
When the applicant is happy with the decision, he submits documents called “MAP3’s” which depict what the amendment to the town planning scheme will look like – this is the draft amendment scheme. When the municipality is satisfied that all conditions prescribed by it and by law have been complied with, it publishes a notice advertising to the public that the land use rights applicable to the property have been amended. This is called ‘promulgation’. It is only on promulgation (and in certain instances referred to below only thereafter) that an amendment scheme comes into effect and the additional/different land use rights might be used.
At what point in the process are engineering contribution figures calculated? Ideally this should happen before the applicant is advised of approval, when the municipality advises the application of the conditions upon which the land must be rezoned (which usually includes payment of engineering contribution figures) so that the applicant can appreciate and budget for the financial consequences of going through with the rezoning application. In practice, however, this is not the case, and engineering contribution figures are usually only calculated after approval. However, municipalities are aware that their window to demand payment is small, and so they usually ensure that the figures are ready before promulgation.
Who must pay?
- The Ordinance provides in respect of engineering contribution figures payable as a result of the approval of consent use, that the person to whom the consent is granted (who might not be the owner) must pay.
- When a rezoning occurs, the owner must pay.
- In practice, if a person who is not the owner wants to make an application for amended land use rights, the municipality requires the owner to authorize such person, so where a developer has asked an owner for permission to apply for a rezoning pursuant to an offer to purchase concluded for the property on the condition that it is granted amended land use rights, it is usually the developer who pays, by agreement with the owner.
Who can make a demand for amounts payable?
- An amount for engineering contribution figures may be levied either in agreement with the applicant or (in the absence of agreement) the amount will be determined by a committee called the Services Appeal Board of the municipality upon the making of an application for same.
- Where the proposed land use will bring about a higher density of dwellings, then the municipality will determine the amounts payable.
How much can be demanded?
Any amount necessary (as determined by the municipality or Services Appeal Board) to upgrade any/all engineering services to the property, in order to facilitate the upgrading for the proposed land use, can be demanded.
What if the amount demanded is unreasonable?
An appeal can be lodged if the owner/applicant/any interest party is not satisfied with the initial decision. Who can lodge the appeal, in which circumstances, and to whom the appeal lies, varies depending on what type of application is brought and by whom. The Ordinance provides that any person who is aggrieved by a decision as to the amount of engineering contributions payable in a consent application, or an owner in a rezoning application, can lodge an appeal for reconsideration of the matter. However, an appeal must be lodged within relatively truncated time frames and thus this would not be available to a person who finds out some years after the engineering contribution figures have been levied, that there are amounts owing.
What if the engineering contribution figures make the development too expensive?
- An owner can apply to the municipality to repeal the amendment of the town planning scheme, in terms of which additional rights for the proposed use the property were approved. This will allow the owner to avoid payment of all amounts claimed for engineering contribution figures.
- Alternatively the owner can apply again to change the land use rights, by lodging another rezoning/consent application for different land use rights, that will require less upgrades of engineering services, and will thus attract a much lower engineering contribution.
- Strictly speaking, however, these options are only open for a limited time after the municipality has told the owner what amounts are payable, and so it would not usually be open to an owner who has purchased from someone else and has now discovered that there are unpaid engineering contributions registered against his/her land, to make use of these options.
When and how can payment of engineering contribution figures be demanded?
The municipality can only demand payment of engineering contribution figures in a narrow ‘strip’ of time - within 30 days of commencement of the amendment scheme. In terms of the Ordinance, an amendment scheme commences when the notice is promulgated.
This is subject to the proviso that if there were objections or the approved scheme was subject to amendments, that the amendment scheme will only come into operation on a date not less than 56 days from the publication of the notice. The amounts must be demanded by way of registered post.
When do engineering contribution figures become payable?
This is a different question to when the amounts payable can be demanded. The Ordinance expressly state that engineering contribution figures are payable before a clearance certificate is issued, or before building plans are approved that would facilitate the amended land use, or the additional or altered land use rights are used. This is significant because this means that the person who applies for those additional rights, should be called upon to pay them by the municipality before the property is transferred to a new owner. In the view of the authors, this is a clear indication that the legislature intended that the person who originally applies for those rights should be called upon to pay them, unless that person makes an agreement with a third party (for example a developer or a purchaser) to take over that responsibility.
Can payment arrangements be made or security be given for payment?
A municipality is empowered to allow payment in instalments for a period up to three years, or to postpone payment for a period up to three years, and in making alternative payment arrangements to impose any other reasonable condition on such arrangement, including the levying of interest on amounts outstanding. Provision is also made for a municipality to accept an undertaking from a purchaser that it will pay the contributions at a later date in certain circumstances, allowing transfer to go through and the rates clearance certificate to be issued before the contributions have been paid.
What are the consequences of non-payment?
If the amounts demanded are not paid, or arrangements for payment/security made, the additional land rights may notlegally be used (even if approved and even if promulgated) until the engineering contributions are paid. In addition, building plans should not be approved nor should any clearance certificate to pass transfer be issued. Any person who uses land in contravention of a town planning scheme is guilty of a criminal offence and may be liable to a fine or imprisonment. For every day that a person remains in contravention of the Ordinance, the fine can increase by R 100 and/or the period of imprisonment by 10 days. The municipality can also enforce the provisions of the scheme if the responsible person refuses to, by demolishing buildings if necessary.
Can rezoning be finalized without payment of the engineering contribution figures?
Yes, in fact it must. The last step in rezoning is promulgation, and only after promulgation can a municipality legally demand engineering contributions. This means that the municipality must ‘give’ the landowner the amended rights before demanding payment for them. However, as above, the additional land use rights are not mean to be utilized before the engineering contribution figures levied in connection with same have been paid.
Can transfer be passed without payment of the engineering contribution figures?
Yes, transfer can pass before engineering contributions have been paid. This happens often. There are two typical scenarios. The first is where an owner applies for additional rights, they are approved, but they are never promulgated and so the additional rights never actually ‘kick in’. If this happens and an owner applies for a rates clearance certificate to transfer the property, the municipality will provide the certificate without demanding payment of the engineering contributions applicable, because the time has not yet come at which the municipality is even legally allowed to claim those contributions (this is only permissible on promulgation). If the new owner then wants to use those additional rights, he will have to promulgate the amendment scheme and then pay any engineering contribution figures called for.
Problems arise here if the purchaser bought the land thinking that the seller had already paid all amounts necessary for the additional rights to ‘kick in’. If the seller has represented that this is the case to the purchaser, then the purchaser will have a claim against the seller for a refund of amounts paid for engineering contributions, but if the seller sold the property with the additional rights approved but not promulgated and did not represent to the purchaser that the property carried the additional rights, the purchaser is then able to, at his own cost and in his own time, and if he wants to, promulgate and then use the additional rights. If the purchaser never wants to use the additional rights, he does not have to, in which case he will not attract any liability in the form of engineering contributions for the additional rights because they will never be promulgated and the municipality will never be entitled to demand payment of the engineering contributions.
The other scenario is where a seller has rezoned a property and promulgation has occurred, meaning that the additional rights applied for have already come into force legally. In this case the municipality should require payment of the engineering contributions before transfer can pass to the purchaser, at the stage when the seller applies for the rates clearance certificate to facilitate transfer. If the municipality fails to do this, however, the property will pass to the purchaser and the municipality may then look to the purchaser for payment of these contributions either when the purchaser wants to use those additional rights, or have building plans approved, or wants to re-sell the property. This is where problems really arise because the purchaser is then held liable for amounts that the seller should have paid when the property was originally transferred. In such a case, if the purchaser is forced to pay these amounts, he will have a claim against the seller for a refund.
Do engineering contribution figures prescribe?
There is no law on the issue, but in our view, engineering contributions prescribe after three years, because they are more akin to ‘fees’ charged by a municipality for the supply of services or upgrade of infrastructure in order to supply services to a property, than they are to ‘rates’, which are monthly charges billed to all properties of a certain type, based on a cent-in-the-rand ratio. However, this argument has not yet been brought before a court and so we would caution buyers to check whether they will become liable for engineering contribution figures at some stage in the future before they purchase a property to avoid the inconvenience and potential loss that could arise from having to pursue a claim (successfully or unsuccessfully) against a seller for a refund of amounts paid for engineering contributions.
* For the purposes of this article only the general principles are referred to, so there may be slight variations to what is described above depending on which type of application you make and the internal requirements of the municipality to which the application is made.
Source: Chantelle Gladwin, Partner and Ramon Pereira, Associate
Courtesy: The Agent - Estate Agency Affairs Board (EAAB)