What the introduction of "development charges" in the Municipal Fiscal Powers Amendment Bill means for municipalities, land owners and property developers

​​On 3 January 2020, the Minister of Finance published the Amendment Bill for public comment (to be submitted by 31 March 2020). The Amendment Bill has several important provisions which municipalities, land owners and property developers will need to be aware of. The official media statement released by National Treasury on the Amendment Bill can be accessed here.

The purpose of the Amendment Bill, amongst other things, is to uniformly regulate the power of municipalities to levy development charges on land owners, to provide for policies and by-laws that will give effect to policies on the development charges, to establish an entitlement on the part of municipalities to withhold other approvals or clearance due to non-payment of development charges, and to provide for engineering services agreements.

In terms of the Spatial Planning and Land Use Management Act 16 of 2013 (SPLUMA), municipalities have the power to impose such conditions as are determined by the Municipal Planning Tribunal prior to the approval of a land development application. One such condition is the payment of a development charge. The power to impose this condition now appears to have been formalised by the Amendment Bill. Whilst the power to impose further conditions in terms of SPLUMA has not been revoked, the formalisation of development charges effectively creates an unambiguous basis for municipalities to recover costs incurred when installing or upgrading infrastructure for proposed developments.

Key features of the Amendment Bill of importance to municipalities, land owners and property developers are the following:

  • The wording of the Amendment Bill suggests that the imposition of development charges by municipalities on land owners is not mandatory, but that it is to the discretion of municipalities. Therefore, in circumstances where a municipality chooses to impose a development charge, a resolution to do so must be adopted by the municipal council where after the municipality must comply with the Amendment Bill. The development charge must be imposed by the competent authority as defined in SPLUMA (i.e. the Municipal Planning Tribunal) as a condition for approving the land development application, and, unless otherwise provided for in the conditions of approval, a land owner will have to pay the full amount of the projected development charge before exercising the rights as approved.
  • In terms of accounting for the development charges, municipalities must note that the development charges collected by municipalities are not to be regarded and/or recorded as a general source of revenue but rather as a liability in their financial statements.  This is because the development charges collected must be used for purposes of funding or acquiring capital infrastructure assets and only once they have been utilised for that purpose can the development charge be recognised as revenue. The development charge will perceptibly vary from application to application as it must be calculated to being proportional to the extent of the demand that the land development is projected to create for existing or planned bulk engineering services and must be calculated based on a reasonable assessment of the costs of providing existing or planned bulk engineering services.
  • The decision to impose development charges also requires the municipality to adopt a policy on the levying of development charges which must be preceded by a process of community participation in terms of chapter 4 of the Municipal Systems Act 32 of 2000 (MSA). The policy, among other things, must outline the methodology for the calculation of a unit cost per municipal engineering service, specify any municipal engineering service zones and can provide that a municipality may allow for payment to be done in tranches for identified categories of land development. However, the policy may provide for the municipality, at its own instance or on request by a land owner, to increase or decrease the calculated impact of a land development on external engineering services to reflect the actual anticipated demand for one or more of the required external engineering services. In such an instance, the adjustment will be calculated at the expense of the land owner who must use the services of a registered professional engineer. Subsequent to the adoption of the policy on development charges, a municipality must adopt and publish by-laws in terms of sections 12 and 13 of the MSA to give effect to its implementation.
  • Over and above creating a regulatory framework of the imposition of a development charge, the Amendment Bill provides that an engineering services agreement (Agreement) must be entered into where it sets out who, between the municipality and the land owner, will be responsible for installing the internal or external engineering services in respect of any approved land development.  The Agreement must at the minimum, amongst others, outline the nature and extent of the internal or external engineering services to be installed by either party, the commencement and completion of the installation and the engineering standards in which the installations must conform to. In cases where a municipality is responsible for the installation of bulk engineering services and fails to do so within a prescribed period; the municipality will have to reimburse the land owner for the portion of the development charge which is attributable to the failure.
  • Finally, the Amendment Bill provides that a municipality may withhold any approval or clearance, including a rates clearance certificate if a development charge owed or payable has not been paid or the land owner has failed to install external engineering services in accordance with the conditions of approval or an engineering services agreement.