- High Court declares the City of Mbombela's policy of charging commercial property rates on student accommodation unlawful.
- Judge finds that student accommodation is still considered residential property even if it is privately owned and run for profit.
- Municipality ordered to reverse higher rates and electricity tariffs imposed on Luhambo Students (Pty) Ltd and to pay legal costs.
Municipalities cannot charge commercial property rates just because student accommodation is privately owned and run for profit, the High Court in Mbombela has ruled.
Acting Judge PL Nobanda found that these properties remain residential for rating purposes under the Municipal Property Rates Act and declared the City of Mbombela Local Municipality's policy unlawful.
The judgment followed an application brought by Luhambo Students (Pty) Ltd, which owns a purpose-built student residence in Kamagugu Extension 4, against the City of Mbombela Local Municipality and its Municipal Manager. Several government ministers and the University of Mpumalanga were also cited because of their interest, but they did not oppose the application.
Student housing targeted for higher rates
Luhambo developed student accommodation specifically for students at the University of Mpumalanga. The municipality approved the project as student accommodation and dwelling houses, zoning it as residential property. In 2024, the university accredited Luhambo to provide private student accommodation. About 998 students lived there, with another 50 students on the waiting list.
The dispute began after the municipality changed its property rates policy to classify student accommodation as business and commercial property from 1 July 2023. A supplementary valuation then reclassified Luhambo's property, leading to much higher municipal rates and business electricity tariffs.
Luhambo objected to the reclassification, arguing that the property was still residential in nature because its main purpose was to provide student accommodation. The municipality dismissed this objection, insisting that the property's use as a profit-generating business justified classifying it as business and commercial property.
Municipality defended commercial classification
The City argued that student accommodation could not be regarded as ordinary residential property because it provides temporary accommodation for profit. They said that, unlike apartment blocks used as permanent homes, student residences are commercial ventures and should be rated as businesses. The municipality also argued that Luhambo should have challenged the Municipal Valuer's decision through administrative law processes instead of bringing a legality review.
Judge Nobanda rejected these preliminary objections, finding that the dispute was really about the legality of the municipality's policy, not the Municipal Valuer's administrative functions. The judge said it was the municipality itself that had decided to categorise student accommodation as business property through its rates policy.
Student accommodation remains residential
The judge rejected the municipality's argument that running student accommodation for profit turned it into commercial property.
Judge Nobanda found that the Municipal Property Rates Act defines residential property by its main or permitted use. Student accommodation is still residential, even if people stay there temporarily. "The City's attempt to separate student accommodation from residential property is not only incorrect but also irrational," the judge said.
The judgment also accepted Luhambo's argument that the commercial side of the development was, at most, secondary to its residential purpose.
"I agree," Judge Nobanda said, noting the primary use of student accommodation is residential. "Even the Supreme Court of Appeal in Stay at South Point recognises that student accommodation is 'a residence,' even if only for a limited time."
Municipality exceeded its legal powers
Judge Nobanda found that the City had effectively created a new sub-category of residential property without getting the required ministerial approval under section 8(4) of the Municipal Property Rates Act.
Quoting earlier authority on legality, the judge said local authorities and other state institutions may act only if the law gives them the power. The court concluded that the municipality's reclassification of student accommodation went beyond its legal powers and was therefore unlawful.
The court also found that the municipality unlawfully enforced its 2023/24 rates policy without publishing it in the Provincial Gazette. It also could not lawfully apply its 2024/25 policy retroactively by charging higher rates from July 2023.
Relief granted
The High Court declared the relevant parts of the City's 2023/24 and 2024/25 property rates policies invalid, set aside the supplementary valuation rolls that classified student accommodation as business property, and ordered the municipality to credit the extra property rates and business electricity tariffs charged to Luhambo.
The City of Mbombela Local Municipality was also ordered to pay Luhambo's legal costs.
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