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Rates relief for guest house/bed and breakfast establishments

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The holiday industry has been hard hit by the Covid-19 pandemic’ including guest houses and bed and breakfast establishments who no longer can trade but rates relief is in sight.

Coming to the rescue, the City of Cape Town is offering rates relief for guest houses and bed and breakfast establishments. These establishments categorised as business and commercial can now apply to change their category to residential and thus save 50% of the rates payable during this Covid-19 period subject to certain criteria being met, say Jerry Margolius, a property valuer specialising in the objection and appeals of municipal valuation.

“Hopefully in the short term they will come to the aid of hotels who will also be recognised and receive equal benefits.”

Margolius says the City of Cape Town during the current Covid-19 crisis, has introduced various financial options which has been extended to include the guest houses and B&B’s.

The City’s Rates Policy sets out how rates are being calculated which is based upon the valuation of the property and the defined categorisation thereof appearing on the General Valuation Roll. It is legislated in terms of the Municipal Property Rates Act that the Rates Policy will be reviewed annually and is open for public comment.

As guest houses and B&B’s are categorised as business and commercial, the tariff is double that of the residential tariff. The opportunity has now arisen, says Margolius, whereby owners can apply to change the category to residential and thus save 50% of the rates payable during this Covid-19 period subject to certain criteria being met. 

In terms of the Rates Policy, Residential Property excludes apartments that form part of a hotel rental pool which are not being used as a primary place of residence for residential purposes as well as guest house/bed and breakfast establishments. On the other hand Business and Commercial property rates includes accommodation provided on the same property. 

A guest house/bed and breakfast is a property where “more than 40% of the bedrooms are used or available to be used for providing accommodation for temporary visitors at a fee…” , as defined in the Rates Policy. 

The City’s relief measures which are set-out on their website, are either in the form of a re-categorising (reclassification) of the property or changing the footprint of the residential component. 

According to Margolius the application process in applying is fairly simple and an owner can attend on this personally unless you feel you need help of a professional assistant. 

Two documents require completion one being the application and a second the “Data Collection Form”. The Data Collection Form, Margolius says is a form  which will in all probability be used to verify the particulars of the property against the City’s own records as well as the preparation of the new valuation roll expected to be published in 2022 with values as at July 2021. One must therefore ensure the correct information is provided wherever possible.  

Once the application is made, the valuation office will monitor the occupancy of the establishment and will provide support and guidance, according to their publication. 

Margolius is of the opinion that if the records of the City are incorrect for example the building size increased or the house was renovated, it may indicate that the current valuation as at 2 July 2018 is incorrect and nothing will prevent the municipal valuer reviewing the current valuation.

A further consideration is if your house is categorised as a residential, it may be that the City initially failed to value the house as a guest house/B&B and this too can result in a valuation review.

The following options are available:-

Payment Arrangement: This will be where you can continue to operate and be classified as a business property. If your account falls into arrears, you can apply for a payment arrangement.

Reclassification of the property rating category: In this regard you can close your business and apply for the reclassification of the property as a residential property in which case, you will not be able to operate as a guest house or B&B, however, the property rates will be reduced and all service-related tariffs and charges will be amended accordingly.

Reduce the footprint of the business operations so that the property is predominantly used for residential purposes. You can then apply to reclassify the property to residential so that rates can be reduced.

According to the City, you must take note of the following:

(i) If your application for reclassification is approved, the effective date, including the amendment of municipal rates and related tariffs will be from the date the signed application form is submitted by the property owner.

(ii) If your property is reclassified to residential during the crisis period, you must revert back to business classification if occupation reaches more than 40% of bedrooms utilised;

(iii) The proposed service tariffs and Rates Policy form part of the City’s Draft budget for 2020/21, which will be considered for approval by Council on 27 May 2020, to be implemented from 1 July 2020.

The completed forms which are available on the City’s website http://www.capetown.gov.za/City-Connect/apply/financial-relief-and-rebates/organisations? must be completed and submitted by email to valuations.rcc@capetown.gov.za. 

If the municipal valuers are now to address these applications themselves, Margolius is concerned as to the added pressures that they will be under as the 2018 objections and appeals  are yet to be completed and  there are also supplementary (review) valuations to be attended to.

There is no published timeline as to when the objections are complete, but as the applications for reclassification is said to effective from the date of application, one can only hope that sufficient systems are in place to address this.

There remains further relief for commercial property owners if they can prove that their business income has been negatively affected by the Covid-19 crisis. 

These businesses who qualify may apply for the rates arrears to be settled over a 6 months instalment plan but you will be required to pay 50% of the balance upfront. Property owners can contact the City direct on 0860 103089 or 021 401 4701 email: accounts@capetown.gov.za.

*Jerry Margolius is a registered Professional Property Value/Appraiser. He is the Managing Member Jerry L Margolius & Associates and a Director of Margin Property Valuation Services CC

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