When Residential Estates Become “Business Users”- The SCA Clarifies Electricity Tariffs in Mixed-Use Developments

A recent judgment of the Supreme Court of Appeal (SCA) has brought long-awaited clarity to a question that has increasingly troubled residential estates and community schemes across South Africa —When may a municipality lawfully apply a business electricity tariff in a development that is primarily residential in nature?

The short answer provided by the SCA is unequivocal. Where a residential estate has both domestic and non-domestic electricity loads that are supplied through a single, inseparable meter, the municipality is legally obliged to apply a non-domestic (business) tariff, even if the estate is overwhelmingly residential.

This ruling has significant implications for modern residential estates, particularly lifestyle and mixed-use developments that incorporate gyms, restaurants, cafés, or other commercial amenities on common property.

The case arose from two estates in Johannesburg. Both developments are zoned “Residential 3” and comprise hundreds of residential units.

Each estate also includes a lifestyle centre with a restaurant and a gym. Importantly, these facilities were not separately metered from the residential electricity supply.

The municipality classified the electricity supply as subject to a business tariff on the basis that the estates contained non-domestic uses and that the electricity supply to domestic and non-domestic loads could not be separated.

The estates disputed this classification, arguing that the developments were predominantly residential and that the lifestyle facilities were merely ancillary.

After losing both the High Court matter and the subsequent appeal to the Full Court of the Gauteng Division of the High Court, the estates appealed to the Supreme Court of Appeal.

At the heart of the dispute was section 5(10) of the City of Johannesburg’s Standardisation of Electricity By-Law, which provides that:

“Communal loads for both domestic and non-domestic uses which cannot be separated shall be metered at the appropriate non-domestic charge as determined by the Council from time to time.”

The municipality’s tariff policy aligns with this approach, expressly categorising restaurants, gyms, recreational clubs, and mixed domestic and non-domestic electricity supplies as business tariffs.

Notably, the estates did not challenge the validity of the by-laws or the tariff policy itself. The dispute concerned only whether they had been correctly applied.

The SCA dismissed the appeal and confirmed the municipality’s approach, making several findings of broad importance.

First, the Court held that restaurants and gyms are inherently commercial in nature. A restaurant that sells food for profit is a business, and a gym is not used for residential habitation. This remains the case even where access is limited to residents.

Second, the Court rejected the argument that a small or secondary commercial component can be ignored if the estate is “predominantly residential”. The by-laws do not introduce any proportionality, dominance, or threshold test. Once a mixed domestic and non-domestic load exists, section 5(10) is triggered.

Third, the Court made it clear that “mixed load means mixed load”. If electricity is supplied to both domestic and non-domestic uses through a single meter, the supply is mixed by definition.

Fourth, municipal zoning was found to be irrelevant. Zoning regulates land-use rights for planning purposes, not electricity tariff classification. Tariffs are determined by actual use, not zoning labels such as “Residential 3”.

Finally, the SCA confirmed that once the factual requirements of section 5(10) are met, the municipality has no discretion. It is legally obliged to apply a non-domestic tariff. The only lawful way for an estate to secure domestic tariffs for residential units is to install separate metering so that non-domestic loads can be billed independently.

In light of the SCA’s ruling, trustees should take proactive steps to assess their exposure and compliance.

Beyond tariff classification, the judgment highlights several practical risks for estates.

Where disputes over tariff classification arise, arrears often accumulate while matters are contested. Municipalities are legally entitled to disconnect electricity supply for non-payment, even during dispute or litigation periods. For community schemes, this creates serious operational and governance risks, particularly where electricity supply supports access control, security systems, lifts, water pumps, and other essential services.

In addition, while the Court confirmed that separate metering is the solution, the cost of installing split meters can be significant. Retrofitting electrical infrastructure in established estates is frequently complex, disruptive, and capital intensive, placing additional financial strain on schemes already exposed to higher tariffs or accumulated municipal arrears.

These realities underscore the importance of proactive financial and energy planning. Structured lending solutions can play a critical role in stabilising schemes during periods of tariff transition or dispute by funding municipal arrears, preventing service disconnections, and enabling infrastructure projects such as separate metering. Through tailored lending solutions offered by BC Funding Solutions, community schemes can address immediate compliance and cash flow pressures, including arrear levies and metering upgrades, while spreading costs sustainably over time.

At the same time, the escalation of electricity tariffs strengthens the case for alternative energy solutions. A fully funded solar installation, implemented through Bright Light, allows schemes to materially reduce reliance on municipal electricity, lower long-term operating costs, and mitigate future tariff risk.

By combining metering upgrades, arrear settlement, and renewable energy solutions, community schemes can reposition themselves for long-term stability and reduced exposure to municipal tariff volatility.

In an environment where regulatory clarity has removed uncertainty around tariff application, the focus for community schemes must now shift to resilience. Combining informed legal compliance with strategic funding and renewable energy solutions offers estates a practical pathway to financial stability, operational continuity, and long-term value preservation.