NEW OWNERS OF PROPERTY

NEW OWNERS OF PROPERTY AND MUNICIPAL DEBTS OF PREVIOUS OWNERS

In the much reported landmark judgment, handed down by the Constitutional Court on 29 August 2017, clarity was finally obtained on the application of section 118(3) of the Local Government Municipal Systems Act (‘the Systems Act’). The Constitutional Court held that a municipality could not claim payment of old debts relating to a property from someone who became owner of the property after the debt was incurred.

Why was this thought to be possible in the first place, one may ask. To answer this, sections 118(1) and 118(3) of the Systems Act must be distinguished first.

1. Section 118(1): For ownership in a property to be transferred (such as when it is sold and transfer of ownership is registered in the deeds office), section 118(1) obliges the owner to settle the outstanding municipal rates for the 24 months preceding the date of transfer.

The municipality will then issue a clearance certificate (referred to as a ‘rates clearance certificate’, ‘RCC’ or ‘municipal clearance certificate’) and this certificate must accompany the documents that are lodged in the deeds office, in order for transfer of ownership to be formally registered. No transfer may take place without this certificate.

2. Section 118(3): If there are older debts existing beyond the 24 month period, these are not incorporated in the amount that is payable for the section 118(1) certificate to be issued. These are therefore not necessarily settled at the time that the section 118(1) certificate is issued, and a property can be transferred from a seller to a purchaser where 24 months arrear rates are paid up, but older, debts, beyond the 24 month period, remaining unpaid. For such older (or ‘historic’) debts, section 118(3) determines that “an amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property”. This, our courts have declared in the past, meant that the land itself remained the security for the debt – no matter if it was registered in the name of a new owner. The only limitations would be in those instances where prescription extinguished the claims. Municipalities was therefore empowered to claim payment of historic debts from new owners of a piece of land.

Then recently, in the Gauteng High Court Division, certain landowners successfully argued that it was unlawful for a municipality, relying on section 118(3), to suspend municipal services or refuse to conclude a consumer services agreement for municipal services until the historical debts relating to the property had been cleared by the new owner.

The Metropolitan municipalities of Tshwane and Ekurhuleni appealed against the former judgment to the Constitutional Court – and lost. The court stated, amongst other things, that while a municipality has the constitutional obligation to collect revenue and pursue debtors, it can only claim the money from the actual debtor (previous owner that incurred the debt) and cannot claim the historic debt from the new owners. Were municipalities to hold new owners liable for historic debt relating to properties, this would constitute an arbitrary deprivation of property.

This is likely to result in many owners instituting action against municipalities that recovered historic debt from them. The ruling gives relief to property owners who have been saddled with years of historical municipal debt of previous owners. 

For assistance with all matters pertaining to your property, contact Martin Sheard, Director at STBB I Smith Tabata Buchanan Boyes, Claremont office, on martins@stbb.co.za or on 021 673