An Assessment of the Proposed Rate Increase

Philip Chan and Sim Miow Yean examine the legal aspects of the on-going rates controversy   


INTRODUCTION

The recent proposal by Kuala Lumpur City Hall (“DBKL”) to increase the assessment rates of properties in Kuala Lumpur by as much as 200-300% has raised the ire of the city dwellers. The Federal Territories Minister, Datuk Seri Tengku Adnan Mansor, justified the proposed increase in rates by stating that property prices in Kuala Lumpur have surged substantially and that the rates have not been changed for the past 21 years.

This article explains how assessment rates are calculated, when the annual values get reviewed and what legal remedies are available to an owner who is dissatisfied with the revised annual value. It also explains the consequences that could befall an owner who refuses to pay the assessment rates. 


POWER TO IMPOSE RATES

The power to impose the assessment rate or rates lies in Section 127 of the Local Government Act 1976 (“LGA”) which provides that a local authority may, with the approval of the State Authority, impose the assessment rate or rates within the local authority area when it is deemed necessary.
 

BASIS OF ASSESSMENT RATES

Section 130 of the LGA provides that the rates may be assessed upon the annual value or the improved value of a holding (e.g. land, with or without building, or a parcel of a sub-divided building including common property) as the State Authority may determine.

The expressions “annual value” and “improved value” are defined in Section 2 of the LGA. Broadly speaking, the “annual value” is “the estimated gross annual rent at which the holding might reasonably be expected to let from year to year the landlord paying the expenses of repair, insurance, maintenance or upkeep and all public rates and taxes.”

“Improved value” refers to “the price that an owner willing, and not obliged to sell might reasonably expect to obtain from a willing purchaser with whom he was bargaining, for sale and purchase of the holding.”

Sections 130(2)(a) and 130(3)(a) of the LGA provide that rates on the annual value and upon the improved value of holdings shall not exceed 35% of the annual value and 5% of the improved value respectively. In Kuala Lumpur, DBKL imposes rates assessed upon the annual value of the holding instead of the improved value.

According to Sani Habibu Muhammad and Mohd Bakri ibn Ishak in Comparative Analysis of Property Rate Charge between Local Authorities in Peninsular Malaysia, the multiplier rates imposed on holdings in the Kuala Lumpur area as of 2013 are as follows - 

Classification

Rate (Annual Value)

Residential (Traditional Village)

2%

Residential (within 36 miles)

6%

Commercial (within 36 miles)

12%

Vacant Land for Commercial (within 36 miles)

10%

Vacant Land for Residential (within 36 miles)

7%

Residential (outside 36 miles)

6%

Commercial (outside 36 miles)

12%

 


VALUATION LIST

Section 137(1) of the LGA requires a Valuation List to be prepared by the valuation officer appointed by the local authority. The Valuation List determines the annual value of the holding. Section 137(3) requires the Valuation List to be updated once every 5 years or within such extended period as the State Authority may determine.

The Valuation List shall contain the information prescribed under Section 137(1) of the LGA, namely: (a) the name of the street or locality in which such holding is situated; (b) the designation of the holding either by name or number sufficient to identify it; (c) the names of the owner and occupier, if known; and (d) the annual value or improved value of the holding.

Section 137(2) of the LGA provides that the Valuation List together with the amendments made under Section 144 of the LGA shall remain in force until it is superseded by a new Valuation List.

Notwithstanding Section 137(3) of the LGA which provides that the Valuation List is to be renewed every 5 years or within such extended period as the State Authority may determine, the preparation of a New Valuation List is still at the discretion of the State Authority or in this instance, the Federal Territories Ministry. As stated by the Federal Territories Minister, the Valuation List has not been revised for 21 years.

Notice of a new Valuation List and the place where such list may be inspected must be given to the public under Section 141(1) of the LGA by way of advertisement in two local newspapers (one of which is to be in the National Language) and the Gazette.

Any person claiming to be the owner or occupier of the holding or the agent of such person is permitted under Section 141(2) of the LGA to inspect and make extracts of the Valuation List without charge.

Where the valuation has increased, the local authority is required under Section 141(3) of the LGA to give notice of when the local authority will proceed to revise the Valuation List in the following manner: (a) advertisement in two local newspapers (one of which is to be the National Language); (b) the Gazette; and (c) notice to owner or occupier of the holding.

The date of revision of the new Valuation List shall not be less than 42 days from the date of the notification in the Gazette. In the instant case, the notices of the proposed rate increase in Kuala Lumpur were given on 18 November 2013 and the revised rates are expected to come into force on the 1 January 2014, thereby fulfilling this requirement.

 

OBJECTIONS TO THE NEW VALUATION LIST

A person may object in writing to the local authority at any time, not being less than 14 days before the revision of the Valuation List takes effect, if he is aggrieved on any of the grounds set out in Section 142(1) of the LGA, namely that -

  1. any holding for which he is rateable is valued beyond its rateable value;
  2. any holding valued is not rateable;
  3. any person who, or any holding which, ought to be included, has been omitted from the Valuation List;
  4. any holding is valued below its rateable value; or
  5. any holding which has been jointly or separately valued ought to be valued otherwise,

Section 142(2) requires all objections to be enquired into and the persons making them to be given an opportunity to be heard in person or by an authorised agent at the enquiry. 

Pursuant to the notices given to the owners in Kuala Lumpur, DBKL invited objections to be made on or before 17 December 2013 which is not less than 14 days before the date on which the revised Valuation List is to take effect.

 

CONFIRMATION OF THE NEW VALUATION LIST

Section 143(1) of the LGA provides that the local authority, with the approval of the State Authority, is to confirm the Valuation List (with or without revision) on or before 31 December of the year preceding the year in which the Valuation List is to come into force and the list so confirmed is deemed to be the Valuation List until it is superseded by another Valuation List. 

It has been reported in The Star on 29 November 2013 that the Federal Territories Minister has announced that the revised property valuation notices will remain unchanged, thereby indicating that the DBKL will proceed to confirm the new Valuation List without revision. Thus, from 1 January 2014, owners will receive their assessment bills which reflect the new rates. However, it has also been announced that owners may wait until March 2014 to pay the new assessment rates, pending the outcome of DBKL’s consultations with the stakeholders on the increase.

Section 143(3) of the LGA is important in two respects. First, it provides that the local authority is not required to hear and determine all objections to the Valuation List before confirming it. Secondly, it provides that the new valuation in respect of which an objection has been received will not come into force, and in lieu thereof the old rate will apply until the objection has been heard and determined. Hence, for owners who have objected and whose objections are not heard by 31 December 2013, the old rates will be continued to be payable.

 

AMENDMENT TO THE VALUATION LIST

The Valuation List may be amended pursuant to Section 144(1) of the LGA where by reason of - 

  1. a mistake, oversight or fraud, the name of any person or the particulars of any rateable holding which ought to have been inserted in or omitted from the Valuation List, has been omitted from or inserted in the Valuation List, as the case may be, or any rateable holding has been insufficiently or excessively valued or for any other reason whatsoever any rateable holding has not been included in the Valuation List;
  2. any building erected, modified, altered, demolished or rebuilt or other improvements made upon a rateable holding, the value thereof has been increased;
  3. any building, or part of a building, being demolished or any other works being carried out on the rateable holding, the value thereof has been decreased;
  4. any rateable holding which has been included in a joint valuation and which in the opinion of the valuation officer ought to have been valued separately or otherwise;
  5. the issue of any new titles in respect of any holdings; or
  6. any change to the rateable holding effected by any law relating to planning as a result of which the value of the holding has been increased or decreased.

The valuation officer may in any of the aforesaid circumstances amend the Valuation List and rates shall be payable in respect of the holding in question in accordance with the Valuation List so amended.

Section 144(2) of LGA requires notice to be given to all persons interested in the amendments of a time, not less than 30 days from the date of service of such notice, at which the amendment is to be made. A person who is aggrieved on any of the grounds specified in Section 142 by any proposed amendment to the Valuation List under Section 144(1) may object by giving notice in writing to the local authority not less than 10 days before the time specified in the notice. Such person must also be given an opportunity to be heard in person or by an authorised agent. 

Any amendment made in the Valuation List under Section 144 of the LGA is required to be confirmed by the local authority.

 

APPEAL PROCESS

Any person who has lodged an objection under Sections 142 or 144 of the LGA and is dissatisfied with the local authority’s decision thereon may appeal to the High Court under Section 145(1) of the LGA. The appeal is to be filed within 14 days from the date of the receipt by the person of the local authority’s decision. Additionally, the amount of the rate appealed against must be paid to the local authority.

The decision of the High Court in the appeal on any question of fact is final but either party may appeal to the Federal Court on questions of law under Section 145(5) of the LGA.

The Federal Court case of Majlis Perbandaran Subang Jaya v The Alice Smith Schools Association [2011] 2 MLJ 442 illustrates the application of the appeal process.

The Appellant as a local authority had increased the annual value of the Respondent’s holding. The Respondent objected to the increase under Section 142 of the LGA. The Appellant then appointed an independent valuer to conduct a valuation of the holding to determine its annual value. The valuer determined the value using the “comparison method”. The Appellant accepted the valuation and about 2 years later, increased the rate based on the valuation by the independent valuer. The Respondent was not satisfied and appealed to the High Court under Section 145(1) of the LGA.

The Judicial Commissioner in the High Court rejected the “comparison method” of valuation by the independent valuer and held that the appropriate valuation method should be the “contractor’s test”.

The Appellant appealed the decision of the High Court to the Federal Court on a point of law and succeeded in setting aside the High Court’s decision. The Federal Court was of the view that the Judicial Commissioner was wrong in preferring one method of valuation over the other.

The Federal Court held that the Judicial Commissioner could reject the valuation only if it was shown that the valuation officer had wrongly exercised his discretion or had contravened the law by acting in excess of the powers given by the LGA. The Federal Court also found that the valuation officer had exercised due care and diligence in arriving at the value of the holding.


NON-PAYMENT OF RATES

The actions which a local authority may take to recover arrears in payment of rates are set out in Sections 147 to 156 of the LGA. They include the right to issue a warrant of attachment which gives the local authority power, inter alia, to seize any movable properties found in the holding where arrears are due regardless of who they belong to. The provisions also give power to officer who executes the warrant to break into any building during daytime to effect the attachment.

If the arrears and costs are not paid within 7 days of the attachment, the movable properties attached may be sold to recover the arrears. Where the property is of a perishable nature or the expense of keeping it in custody will exceed its value, such property may be sold immediately. The proceeds of sale of the properties attached are to be applied in satisfaction of the arrears with interest thereon at the rate of 6 per centum and costs.

If the arrears cannot be fully recovered through attachment of moveable property within the holding, the local authority may apply to the Registrar of the High Court for an order for the attachment and sale of the holding in respect of which the arrear has accrued.

 

CONCLUSION

There is no doubt that DBKL has the right under the LGA to increase the annual value of holdings within its jurisdiction through the process of reviewing the Valuation List. In some instances, the annual value proposed, such as a proposed annual value of RM42,000.00 for a semi-detached house in Damansara Heights, does not seem unreasonable.

While the Federal Territories Minister may justify the drastic hikes of up to 200-300% on the basis that the rates have remained unchanged for the past 21 years, it is scant consolation for property owners who are now suddenly forced to stump out a much higher amount on payment of rates. Recent newspaper reports suggest that DBKL appears to be willing to consider a lower increase in the assessment rates. If DBKL takes the view that the proposed annual values are reasonable and likely to withstand challenge, one alternative to appease the public may be to reduce the multiplier rate imposed on the annual value of the holding under Section 130 of the LGA, e.g. by reducing the multiplier rate for residential property from 6% to say 4%.

Going forward we can probably expect two things. First, the local authority will review the Valuation List on a more regular basis to avoid a recurrence of this public relations disaster. Secondly, other local authorities are likely to follow suit. Indeed, the Selangor Government has on 30 November 2013 announced its intention to do so.

Writers’ e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it & This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Philip and Miow Yean extend their appreciation to Ng Choon Yon, a pupil in SKRINE, for his assistance in the preparation of this article.

Editor’s Note: The Federal Territories Minister announced on 19 December 2013 that the multiplier rates for commercial properties and residential properties will be reduced from 12% and 6% to 10% and 4% respectively. He also announced that further rebates will be given to disabled property owners, retirees and owner-occupied premises and that the new rates will not apply to low and middle-cost properties.

 

 

 

 
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