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Municipal Rates – Your liability for historical debt
02 June 2016  | Andries Oberholzer
You just bought your first home and moved in - you receive a notice that there is an unpaid municipal debt payable with respect to the property and that the property is to be sold, failing payment of the arrears.  Is this possible?

In accordance with section 118(1) of the Local Government, Municipal Systems Act (the Act) the Deeds Office may not give transfer of a Property without a certificate issued by the local municipality.This certificate confirms that the municipal rates payable with respect to the property have been paid in full and three months in advance. The purpose thereof being to enable the Municipality to collect the arrear rates and taxes payable with respect to the property on transfer of the property to the new owner thereof.

The Act however specifically prescribes that a Municipality is not entitled to withhold issue of the said clearance certificate for debt older than two years, effectively meaning that the Seller of a property only needs to secure payment of the previous two years rates and taxes, in order to enable the transfer of the property.  This means that, on issue of a rates clearance certificate, the new owner of the property cannot be assured that there is no historic debt payable with respect to the property, but only that the preceding two years’ debt have been paid.

Also of relevance is the provisions of section 118(3) of the Act, that prescribe 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.”

It is an accepted fact in law that one person, barring few exceptions (for example a suretyship), cannot be held liable for the responsibilities of another in the absence of a specific agreement to that effect.  However, does this principle apply to historic municipal debt?  This, in short was one of the questions that was decided upon by the Supreme Court of Appeal in the case of City of Tshwane Metropolitan Municipality v Peregrine Joseph Mitchell (38/2015) [2015] ZASCA 1 (29 January 2016).

In the mentioned case the court had to decide if a municipality could hold a successor in title (i.e. the new Purchaser/Owner of the property) liable for an unpaid debt pertaining to the property for municipal services.  These services were incurred by previous owners of the property and never paid in full.  In short, Mr A bought a property at a sale in execution, and was required to make payment of the previous 2 years municipal service fees and charges totalling R 126 608.50 – this after the Municipality first having advised him that they require payment of the total outstanding historical Municipal arrears in the amount of R 232 828.25.  The Municipality however accepted payment of R 126 608.50 (being the previous 2 years debt that they could collect as prescribed in section 118 of the Act) leaving an amount of R 106 219.75 of historical debt unpaid.

Mr A, after acquiring ownership of the property, sold it to a third party at which stage in time the issue of the historical debt again arose because the buyer was not interested in proceeding with the purchase of the property whilst the historical arrears were being claimed by the Municipality.  In order to address the issue of the historical debt Mr. A applied to court for an order directing that he, (the present owner of the property) could not be held liable for the historical debt payable with respect to the property – especially with a view to the fact that the property was sold to him at a sale in execution.  The High Court found in favour of Mr A, but, on appeal the court found that the Municipality still retained a hypothec (in other words a right against the property as security) over the property for payment of any municipal arrears.  This means the Municipality may sell the property for arrear debt by calling up the hypothec.

The nett effect of the aforementioned ruling is that there is now certainty regarding the question if you may be held liable for historic debt on your home. – The municipality cannot hold you liable for the historic debt personally, for example you cannot be called upon by the municipality to pay the debt – they may however, exercise their hypothec over the property.  This means they may apply to court for an order authorising the sale of the property to cover the arrear debt.

In light of the above all home owners (and especially purchasers) are advised to make certain that there is not historic debt (in other words debts older than 2 years) pertaining to the property to ensure that your investment is safe.  This can be done by contacting the Municipality in advance or by making it a condition of the sale agreement that proof is to be provided that all historic debt was paid (and not only the debt for the preceding 2 years as is the practise when applying for a rates clearance certificate.) 
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Tags: Property, Debt