Susan Campbell, in response to ‘Knysna East Head Lease Deception?’, has requested that the following legal argument, in favour of the lease, be posted. Her comments are in red.

MUNICIPAL FINANCE MANAGEMENT ACT (MFMA)

14(5) Any transfer of ownership of a capital asset in terms of subsection (2) or (4) must be fair, equitable, transparent, competitive and consistent with the supply chain management policy which the municipality must have and maintain in terms of section 111.

NOTE: THIS REFERS TO “TRANSFER OF OWNERSHIP” AND NOT A LEASE.

THEREFORE THIS SECTION IS NOT RELEVANT TO EAST HEAD LEASE.

Disposal of capital assets 90(5) Any transfer of ownership of a capital asset in terms of subsection (2) or (4) must be fair, equitable, transparent and competitive and consistent with the supply chain MANAGEMENT POLICY WHICH THE MUNICIPAL ENTITY MUST HAVE AND MAINTAIN IN TERMS OF SECTION 111.

NOTE: REFERENCE TO “DISPOSAL” AND NOT LEASE.

THEREFORE THIS SECTION IS NOT APPLICABLE TO EAST HEAD LEASE.

MFMA SCM REGS

40. Disposal management

(1) A supply chain management policy must provide for an effective system of disposal management for the disposal or letting of assets, including unserviceable, redundant or obsolete assets, subject to sections 14 and 90 of the Act

NOTE: DISTINCTION DRAWN BETWEEN “DISPOSAL” AND “LETTING” OF ASSETS, THEREFORE “DISPOSAL” DOES NOT INCLUDE LETTING.

THE KNYSNA SCM POLICY IS APPLICABLE TO EAST HEAD LEASE

(2) A supply chain management policy must—

(a) specify the ways in which assets may be disposed of, including by— …….

(c) provide that—

(i) immovable property is let at market related rates except when the public interest or the plight of the poor demands otherwise; and

NOTE: AS THE EAST HEAD RENTAL IS MARKET RELATED THIS PROVISION HAS BEEN COMPLIED WITH.

(ii) all fees, charges, rates, tariffs, scales of fees or other charges relating to the letting of immovable property are annually reviewed; and

(d) ensure that where assets are traded in for other assets, the highest possible trade-in price is negotiated.

KNYSNA SCM POLICY

PART 26:

DISPOSAL OF IMMOVABLE ASSETS

26.1 Council is permitted to dispose or let immovable property in its ownership, on a long term or short term basis, by way of Private Treaty or Open Bid for development purposes aligned with its strategic objectives.

NOTE: COUNCIL IS PERMITTED TO LET BY PRIVATE TREATY. AN OPEN BIDDING PROCESS IS NOT COMPULSORY.

NOTE: EAST HEAD LEASE THEREFORE COMPLIES WITH 26.1.

26.1.2 Where possible, Council’s immovable property should be managed as a sustainable resource by leveraging environmental, social and economic returns on such immovable property while Council retains ownership thereof.

NOTE: EAST HEAD LEASE COMPLIES AS ECONOMIC RETURN IS GENERATED WHILE OWNERSHIP IS RETAINED.

26.1.3 Unless otherwise provided for in this Policy, vacant or improved immovable property shall be disposed of or let at a fair market related rental except when the public interest or the plight of the poor demands otherwise.

NOTE: EAST HEAD RENTAL IS MARKET RELATED THEREFORE THIS HAS BEEN COMPLIED WITH.

26.1.4 All fees, charges, rates, tariffs, scales of fees or other charges relating to the letting of immovable property must be reviewed annually.

26.1.5 All applications to dispose of or lease immovable property must be considered in accordance with this Policy Framework and other applicable legislation.

NOTE: EAST HEAD LEASE WAS CONSIDERED IN TERMS OF THIS POLICY AS WELL AS OTHER RELEVANT POLICIES.

26.1.6 Unless otherwise provided herein, the disposal of or letting of viable immovable property by Council, shall be affected by means of a process of public competition/open bid.

NOTE: CLAUSE 26.2.1 PROVIDES THAT A LEASE OF PROPERTY EXCEEDING THE VALUE OF R 10 M AND/OR EXCEEDING A PERIOD OF 3 YEARS HAS TO BE ADVERTISED.

AS THE VALUE OF THE PROPERTY IS LESS THAN 10 MILLION AND THE LEASE DOES NOT EXCEED 3 YEARS IT DOES NOT HAVE TO BE ADVERTISED.

THE EAST HEAD LEASE THEREFORE COMPLIES WITH CLAUSE 26.2.1 OF THE SCM POLICY.

26.2PROCESS

26.2.1 ADVERTISEMENT PROCESS

This process applies to properties exceeding the value of R 10 m and/or exceeds a period of 3 years.

NOTE: EAST HEAD LEASE COMPLIES WITH THIS CLAUSE.

26.2.2 APPLICATION PROCESS

Applications must:

Be made on the prescribed forms (if applicable).

All applications must be accompanied by a covering letter on the letterhead of the person, organisation or body, signed by the Head of the Organisation or body and must include the following information:

• Date of application;

• Contact details of the organisation or body;

• Date established;

• Type of organisation;

• Registration number;

• Banking details;

• References;

• Confirmation of adherence to all conditions;

• Checklist of supporting documentation; and

• Prescribed declarations

NOTE: EAST HEAD LEASE COMPLIES WITH ALL OF THESE REQUIREMENTS

MUNICIPAL ASSET TRANSFER REGULATIONS “MATR”:

NOTE: THESE REGULATIONS ARE ALSO APPLICABLE

DEFINITIONS

“long term” means a period of longer than three years;

NOTE: DEFINITION OF LONG TERM LEASE IS LONGER THEN THREE YEARS

“right to use, control or manage“, in relation to a capital asset, means a right to use, control or manage the capital asset for a period exceeding one calendar month without ceding legal ownership in the asset; (Fn 2: In other words, where the granting of such rights do not amount to the transfer or permanent disposal of the asset, for example when a right is acquired through a leasing, letting or hiring out arrangement.)

Part I: Decision-making process for municipalities

Granting of rights to use, control or manage municipal capital assets

34. (1) A municipality may grant a right to use, control or manage a capital asset only after –

(a) the accounting officer has in terms of regulation 35 conducted a public participation process regarding the proposed granting of the right; and

(b) the municipal council has approved in principle that the right may be granted.

(2) Subregulation (l)(a) must be complied with only if – the capital asset in respect of which the proposed right is to be granted has a value in excess of R10 million; and a long term right is proposed to be granted in respect of the capital asset.

NOTE: NO PUBLIC PARTICIPATION PROCESS WAS REQUIRED FOR EAST HEAD LEASE AS THE LEASE WAS SHORT TERM AND THE VALUE IS LESS THAN R10 MILLION.

(3) (a) Only the municipal council may authorise the public participation process referred to in subregulation (])(a).

(b) A request to the municipal council for authorisation of a public participation process must be accompanied by an information statement stating –

(i) the reasons for the proposal to grant a long term right to use, control or manage the relevant capital asset;

(ii) any expected benefits to the municipality that may result from the granting of the right;

(iii) any expected proceeds to be received by the municipality from the granting of the right; and any expected gain or loss that will be realised or incurred by the municipality arising from the granting of the right.

(4) A municipal council may delegate to the accounting officer its approval power referred to in subregulation (l)(b) excluding the power to grant long term rights to use, control or manage capital assets of a value in excess of R10 million.

Public participation process for granting long term rights to municipal capital assets with value in excess of R10 million

NOTE: NO PUBLIC PARTICIPATION PROCESS WAS REQUIRED FOR EAST HEAD LEASE AS THE LEASE WAS SHORT TERM AND THE VALUE IS LESS THAN R10 MILLION.

35. If the municipal council has in terms of regulation 34(3)(a) authorised the accounting officer to conduct a public participation process in connection with any proposed granting of a long term right to use, control or manage a capital asset with a value in excess of R10 million, the accounting officer must at least 60 days before the meeting of the municipal council at which the decision referred to in regulation 34(l)(b) is to be considered –

NOTE: I CONTEND (AND ALL THE LAWYERS WHO WERE INVOLVED CONTENT) THAT SECTION 35 DID NOT HAVE TO BE COMPLIED WITH AS THE EAST HEAD LEASE WAS SHORT TERM AND THE VALUE LESS THAN 10 MILLION. THE COUNCIL HOWEVER COMPLIED WITH A NUMBER OF THE REQUIREMENTS.

NNB: THIS IS WHERE THE DIFFERENCE IN INTERPRETATION BETWEEN THE LAWYERS AND THE CFO CAME INTO PLAY. THE CFO BELIEVES THAT ALL THESE CONDITIONS HAVE TO BE COMPLIED WITH IN ALL INSTANCES AND THE LAWYERS INTERPRET THE REGULATION AS APPLYING TO CASES WHERE SUBREGULATION 2 HAS TO BE COMPLIED WITH. SUBREGULATION 2 IS REPEATED TO ILLUSTRATE WHY THE LAWYERS INTERPRET THE REGULATIONS THIS WAY.

“(2) Subregulation (l)(a) must be complied with only if – the capital asset in respect of which the proposed right is to be granted has a value in excess of R10 million; and a long term right is proposed to be granted in respect of the capital asset.”

(a) in accordance with section 21A of the Municipal Systems Act –

(i) make public the proposal to grant the relevant right together with the information statement referred to in regulation 34(3)(b); and

(ii) invite the local community and other interested persons to submit to the municipality comments or representations in respect of the proposed granting of the right; and

(b) solicit the views and recommendations of the National Treasury and the relevant provincial treasury on the matter.

NOTE: NO PUBLIC PARTICIPATION PROCESS WAS REQUIRED FOR EAST HEAD LEASE AS THE LEASE WAS SHORT TERM AND THE VALUE IS LESS THAN R10 MILLION.

Consideration of proposals to grant rights to use, control or manage municipal capital assets

36. The municipal council must, when considering in terms of regulation 34(1)(b) approval for any proposed granting of a right to use, control or manage a capital asset, take into account-

(a) whether the capital asset may be required for the municipality’s own use during the period for which the right is to be granted;

NOTE: ALL OF THIS WAS CONSIDERED BY THE COUNCIL IN GRANTING THE RIGHT TO USE THE EAST HEAD PROPERTY

(b) the extent to which any compensation to be received for the right together with the estimated value of any improvements or enhancements to the capital asset that the private sector party or organ of state to whom the right is granted will be required to make, will result in a significant economic or financial benefit to the municipality;

NOTE: ALL OF THIS WAS CONSIDERED BY THE COUNCIL IN GRANTING THE RIGHT TO USE THE EAST HEAD PROPERTY

(c) the risks and rewards associated with the use, control or management of the capital asset in relation to the municipality’s interests;

NOTE: ALL OF THIS WAS CONSIDERED BY THE COUNCIL IN GRANTING THE RIGHT TO USE THE EAST HEAD PROPERTY

(d) any comments or representations on the proposed granting of the right received from the local community and other interested persons;

NOTE: NOT APPLICABLE TO EAST HEAD LEASE AS LESS THAN 10 MILLION AND SHORT TERM LEASE.

(e) any written views and recommendations on the proposed granting of the right by the National Treasury and the relevant provincial treasury;

NOTE: NOT APPLICABLE TO EAST HEAD LEASE AS LESS THAN 10 MILLION AND SHORT TERM LEASE.

(f) the interests of any affected organ of state, the municipality’s own strategic, legal and economic interests and the interests of the local community; and

NOTE: ALL OF THIS WAS CONSIDERED BY THE COUNCIL IN GRANTING THE RIGHT TO USE THE EAST HEAD PROPERTY

(g) compliance with the legislative regime applicable to the proposed granting of the right.

NOTE: ALL OF THIS WAS CONSIDERED BY THE COUNCIL IN GRANTING THE RIGHT TO USE THE EAST HEAD PROPERTY DEPITE THE FACT THAT COUNCIL DID NOT HAVE TO COMPLY WITH SUBREGULATION 35.

MANAGEMENT OF IMMOVABLE PROPERTY POLICY OF KNYSNA MUNICIPALITY

NB: THIS IS THE LAST POLICY THAT HAD TO BE COMPLIED WITH FOR EAST HEAD LEASE. THE FOLLOWING CLAUSE ALLOWS THE MUNCIPALITY TO LET A PROPERTY WITHOUT FOLLOWING A COMPETEITIVE BID PROCESS:

VIABLE PROPERTY: DEVIATION FROM A COMPETITIVE PROCESS

21.2.2.1 The Municipal Manager may dispense with the competitive processes established in this policy, and may enter into a Private Treaty Agreement through any convenient process, which may include direct negotiations, including in response to an unsolicited application, but only in the following circumstances: –

d) the Municipal Manager is satisfied that the Property Transaction will be exceptionally beneficial to, or have exceptional cost advantages for the Municipality which would not be realised if a competitive process were to be followed by the Municipality; or will be exceptionally beneficiate to the community or the natural environment;

NOTE: THE EAST HEAD LEASE TICKS ALL THE BOXES, EXCEPT FOR THE NATURAL ENVIRONMENT WHICH IS NOT REALLY RELEVANT.

THERE ARE A NUMBER OF REASONS WHY THIS IS APPLICABLE (I SUGGEST YOU READ THE EAST HEAD PROPOSAL): THE MAIN REASON IS THAT THE MUNICIPALITY IS TIED UP IN THE CORNUTIIS LITIGATION. THE CORNUTIIS LEASE XPIRES AT THE END OF DECEMBER 2016 AND EVEN THE OPPOSITION COUNCILLORS EXPRESSED CONCERN THAT WE COULD NOT HAVE OUR PRIME TOURIST FACITITY WITHOUT A RESTAURANT.

THIS IS NOT ANY RESTAURANT BUT NO 1 ON TRIPADVISOR AND WE NEED THE STEADY INCOME AND A GUARANTEE THAT THE RESTAURANT WILL KEEP TRADING.

UNDER THE PREVIOUS MANAGEMENT THE RESTAURANT WAS MEDIOCRE AND AS WE LEART WITH CORNUTTIS EVEN A WELL KNOW NAME DOES NOT GUARANTEE THAT RETAL WILL BE PAID.

MORE THAN R2.5 HAS BEEN SPENT BY JEROME ON THE RESTAURANT AND THE KITCHEN REQUIRED AN URGENT UPGRADE. JEROME IS TO SPEND SOME 300K ON IMPROVING THE KITCHEN AND DECK.

SURELY THE PUBLIC INTEREST OVERWHELMINGLY FAVOURS THAT JEROME KEEPS TRADING THERE!

WE DO NOT NEED ANOTHER WELL-KNOWN TENANT WHO ENDS UP OWING THE MUNICIPALITY MORE THAN 4 MILLION AND COSTING US A FORTUNE IN LEGAL FEES.

e) in exceptional cases where the Municipal Manager is of the opinion the public competition would not serve a useful purpose or that it is in the interest of the community and the council, and where none of the conditions as set out in the policy provides for such exception, is permitted, and where they are not in conflict with any provision of the policy. In such cases the Municipal Manager must record full reasons for preferring such out-of hand sale or lease to those by public competition.

NOTE: THE EAST HEAD LEASE TICKS ALL THE BOXES EXCEPT FOR THE NATURAL ENVIRONMENT WHICH IS NOT REALLY RELEVANT.

f) where it is impractical or impossible to follow one or more of the Competitive Processes referred to above. In such an event the following factors must be considered –

i) pursuant to the Property Transaction, whether the Property will be used for a public purpose by the Municipality’s local community; and/or

ii) whether the Municipality is satisfied that the Property Transaction will be exceptionally beneficial to, or have exceptional cost advantages for, the Municipality;

NOTE: THE EAST HEAD LEASE TICKS ALL THE BOXES EXCEPT FOR THE NATURAL ENVIRONMENT WHICH IS NOT REALLY RELEVANT.

(o) lease contracts with existing tenants of immovable properties may be renegotiated where Council is of the opinion that public competition would not serve a useful purpose or that renewal is aligned with Council’s strategic objectives and in the interest of the Community, subject to such renewal being advertised calling for public comment. The existing tenant shall give notice of the intention to renegotiate the lease at least six months before the date of termination.

NOT APPLICABLE

n) an owner of fixed immovable property, who leases Council immovable property, may be substituted by a successor-in-title as deemed necessary on the same terms and conditions and/ or additional terms and conditions.