39. (1) Subject to any other applicable provisions of this Act, the market value of a property is

the amount the property would have realised if sold on the date of valuation in the open

market by a willing seller to a willing buyer.

(2) In determining the market value of a property, the following must be included in the valuation of the property;

(a) the value of any licence or other privilege granted in terms of legislation in relation to the

property;

2. the value of any immovable improvement on the property that was erected or is being used for a purpose which is inconsistent with or in contravention of a condition of title, a provision of a town planning or land use scheme or any other legislation, as if the improvement was erected or is being used for a lawful purpose; and
3. the value of the use of the property for a purpose which is inconsistent with or in contravention of a condition of title, a provision of a town planning or land use scheme or any other legislation as if the property is being used for a lawful purpose.

3. In determining the market value of a property, the value of any building or other immovable structure ........, must be disregarded.

(4) In determining the market value of an agricultural property, the value of any annual crops or growing timber ..............., must be disregarded.

The abovementioned requires that the market value of property must take cognisance of all rights that may or may not encumber and/or enhance its value, such as leases (both registered and unregistered), personal servitudes, usufructs etc. This is not sustainable from both a practical and financial point of view because of the complexities involved in determining such value.

It is common practice in the USA where market value is the method of valuation to do so on a "fee simple" basis. The most complete form of ownership is title in fee which establishes an interest in real property known as fee simple interest, i.e. absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain (governments right to expropriate with just compensation), police power (right of government through which property is regulated to protect public safety, health, morals and general welfare), and escheat (the right of government that gives the state titular ownership of a property when its owner dies without a will or any ascertainable heirs).

Partial interests in property can be created according to the bundle of rights inherent in ownership that include

■ The right to sell an interest

■ The right to lease and/or occupy an interest

■ The right to mortgage an interest

■ The right to give an interest away

■ The right to do none or all of the these things.

Municipal rating should be based on the complete form of ownership, and not a portion thereof. This principle is also adopted in the UK where market valuations are based on the following assumptions:

■ vacant possession

■ freehold title

■ free of any rent charge or other similar encumbrance

■ free from any heritable security (mortgage)

The above principles are endorsed by the Natal Local Authorities Ordinance No. 25/1974, section 155 (5), wherein the prescribed valuation methodology is defined as follows:

This definition goes a long way to achieving what is desired in the Bill. Taking cognisance of the above, it is submitted that section 39 should read substantially as follows:

39. (1) Subject to any other applicable provisions of this Act, the market value of a property is the amount the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer and if the ownership of the property was not encumbered by any limitations other than those limitations which confer benefits of any kind upon other property situated within the municipality or by the limitations which have been imposed by the council or any other statutory body or the limitations included in 39(2), 39(3) or 39(4).

(2) In determining the market value of a property, the following must be included in the valuation of the property;

(a) the value of any licence or other privilege granted in terms of legislation in relation to the

property;

2. the value of any immovable improvement on the property that was erected or is being used for a purpose which is inconsistent with or in contravention of a condition of title, a provision of a town planning or land use scheme or any other legislation, as if the improvement was erected or is being used for a lawful purpose; and
3. the value of the use of the property for a purpose which is inconsistent with or in contravention of a condition of title, a provision of a town planning or land use scheme or any other legislation as if the property is being used for a lawful purpose.

3. In determining the market value of a property, the value of any building or other immovable structure ........, must be disregarded.

(4) In determining the market value of an agricultural property, the value of any annual crops or growing timber ..............., must be disregarded.

It is clear from the above that most registered rights (unless statutorily imposed) ought to be disregarded in determining value. For this reason, it is probably necessary to review the definition of "property" in section 1 of the Bill so as to exclude part (b) thereof, and any other applicable sections to do with registered rights.

Please do not hesitate to contact the writer should you have any queries relating to the above.