Landlord's inclusion of rates and taxes charge on rental amount of property leased out
10 March 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
The answer to this query is based on legislation as at 2014/03/10.
Q: Can the landlord charge tax and rates on the office rented in
her premises in term of tax law?
answer to your question is two-fold. Tax legislation is silent as to whether
the owner may include property rates in the monthly rent charged to its
tenants, however according to contractual and common law principles, there is
nothing preventing the owner from setting his monthly rent, at the time the
contract is entered into, at such a level that it would allow him/her to settle
the property rates with the amounts paid by the tenants to him/her. The
Property Rates Act, however provides for a ‘collection mechanism’ where the
municipality may recover the property rates from the tenant if the landlord
fails to pay it over.
rates are charged in terms of the Local Government: Municipal Property Rates
Act (No. 6 of 2004) (hereinafter referred to as ‘the Act’). Section 7(1) of the
Act states the following:
(1) When levying rates, a municipality must, subject to subsection (2), levy
rates on all rateable property in its area or, in the case of a district
municipality, on all rateable property
in the district management area.
section therefore states that property rates must be levied on all ‘rateable
property’. ‘Rateable property’ is defined in section 1 of the Act as follows:
means property on which a municipality may in terms of section 2 levy a rate,
excluding property fully excluded from the levying of rates in terms of section
exemption is provided for commercial accommodation in section 17 of the Act.
Furthermore, paragraph (a) of the definition of property would include offices
rented from a landlord and states the following: ‘"property"
means -(a) 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...’ It
is therefore evident that the offices may be subject to property rates. Section
24 of the Act states the following:
(1) A rate levied by a municipality on a property must be paid by the owner
of the property, subject to Chapter 9 of the Municipal Systems Act...’
Therefore the owner of the property are liable for the property rates – not the
tenant. Paragraph (a) of the definition of owner in section 1 of the Act states
the following: ‘...in relation to a property referred to in paragraph (a) of
the definition of "property", means a person in whose name ownership
of the property is registered...’.
28 however provides the municipality with a mechanism to recover the property
rates from the tenants if the owner fails to settle the outstanding property rates,
which settlement must then be deducted from the rent owed to the owner. Section
28 states the following:
(1) If an amount due for rates levied in respect of a property is unpaid by the
owner of the property after the date determined in terms of section 26(2), the
municipality may recover the amount in whole or in part from a tenant or
occupier of the property, despite any contractual obligation to the contrary on
the tenant or occupier. The municipality may recover an amount only after the
municipality has served a written notice on the tenant or occupier .
The amount a municipality may recover from the tenant or occupier of a property
in terms of subsection (1) is limited to the amount of the rent or other money
but not yet paid, by the tenant or occupier to the owner of the property.
(3) Any amount a municipality recovers from the tenant or
occupier of the property must be set off by the tenant or occupier against any
money owed by the tenant or occupier to the owner.
The tenant or occupier of a property must, on request by a municipality,
furnish the municipality with a written statement specifying all payments to be
made by the tenant or occupier to the owner of the property for rent or other
money payable on the property during a period determined by the municipality.’
stated above, property rates are levied on the ‘owner’ (not tenant) of
‘rateable property’. Section 28 however allows the municipality to recover the
rates from the tenant without causing any prejudice to the tenant. This is
caused by the fact that the amount that may be recovered from the tenant is
limited to the amount of rent due and payable, but not yet paid. Furthermore,
the amount of rates so paid by the tenant must be deducted from the rent owing
to the owner.
is however submitted that most of the landlords take property rates into
account when determining the amount of rent that must be paid to them by the
tenants. It is submitted that they do not break the contracts down to such an
extent that they for example state that the monthly rent of R 5000 would
include R 500 for property rates.