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The Importance of Rezoning to Your Utility Tariffs

Many buildings in and around South Africa and especially in Johannesburg city centre have been converted into modern apartment. The conversion from old warehouses, office blocks and factories has become a very prestigious and sought after investment. The move to modernize and refurbish the city centres and once derelict areas does however have its ups and downs.
 
When converting a building from commercial use to residential, one of the first things a developer must do is rezone the building. This in simple words means asking the municipality to mark the building from commercial use to residential use. Rezoning from one use to another can take a long time, however it is inevitable that this must be done earlier rather than later.
 
One major issue found in cases of developing or converting commercial to residential is the complete lack of alignment to municipal tariffs. If the municipality has not rezoned a building, it doesn’t know that the building must be billed at a different tariff and will continue to bill according to the tariff it has listed. When a building is built it is provided with one bulk connection from the municipality. Depending on the zoning the tariff can either be residential, commercial or industrial. Each of these tariffs has its purpose and its’ own benefits.
 
Such a case has led to a landlord losing all of his tenants due to the incorrect zoning of his building which was converted from a factory into modern apartments. The landlord approached Prepaid Meters to investigate as to why his tenants were being charged so much per kilo watt and why they were receiving so little. After a very short and simple investigation it was found that the problem was the tariff which was set to the previous zoning, not residential. The tenants were being charged a commercial rate instead of a residential rate and this has had disastrous effects. On the commercial tariff, tenants were being charged nearly twice the amount per kilo watt than they would have been charged if they were on a normal residential tariff. The figures below will show the difference between the rates.
 
For the months of March, April and May on the commercial tariff the tenant purchased R500 per month and received only 328.3 kilo watts per purchase. If the tenant was on the correct residential rate, the tenant would have received 444.92 kilo watts of electricity. For the month of June on the commercial tariff, the tenant purchased R750 worth of electricity and received only 310.31 kilo watts. If the tenant was on the residential tariff he would have received 667.38 kilo watts for his purchase. To compound the problem even further, for the month of June the commercial tariff had changed to commercial winter tariff, meaning the tenant would have received even less kilo watts per Rand. This is clearly noticeable in the fact that there is a R250 purchase increase for the month, however the Rand per kilo watt is even less.
 
There are many reasons as to how this could have gone so wrong for the landlord. Usually this happens due to lack of knowledge and poor advice. In reality the building should have been rezoned before or latest during development. Once the new zoning is applied the council must be informed of this to make sure the billing is aligned with the new zoning. The problem now lies in the fact that the landlord will have to firstly reimburse the tenants as according to the Rental Housing Act, Unfair Practices Regulations 1999, Act 50, (12) Municipal Services (1) (d) . A landlord who is obliged by law or in terms of the express or implied terms of the lease to provide water, electricity or gas services to a tenant must; d) charge the tenant the exact amount of services consumed in the dwelling is such dwelling is separately metered.
 
This will be a costly endeavour for the landlord as the reimbursement will have to be back dated to the first date of occupation for each tenant and the landlord must now charge the residential rate to tenants, which means he will have to subsidize the difference between commercial and residential until such time as the billing from municipality is adjusted. To keep the units rented and occupancy high, the tariff on the sub-meters must be adjusted to residential tariffs.
 
The process moving forward and fixing the problem permanently would be to have the building rezoned from commercial to residential, following which the tariff must be adjusted to the new zoning by the municipal billing department. Until such time as this is completed the landlord must subsidize the tenants on a monthly basis and this will be very expense as in a building with tens of tenants the subsidy per month could reach anywhere from R8,000 to R20,000 per month depending on the rate at which tenants use electricity, the DSM (demand site management) levy and occupancy rate.
 
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