Property buyers liable for historical debt
The Tshwane metro recently won a major victory in the Supreme Court of Appeal that ruled that new property owners were liable for historic municipal debt dating back to three decades.
Stephane Bothma
Buyers of property face being responsible for paying all historical debt – water, electricity and rates and taxes – incurred by previous owners dating back up to 30 years.
This followed a ruling by the Supreme Court of Appeal (SCA) in favour of the Tshwane metro relating to the selling and resale of a property in Wonderboom in 2013.
The matter was however likely to be taken to the Constitutional Court.
Given that some 326 000 properties were sold in the country each year, the SCA ruling could have a far-reaching and drastic effect on the property market.
Until the SCA ruling last month, the law stated that a seller was liable only for debts incurred the previous two years for electricity, water and other services, and 30 years for rates in terms of section 118 of the Local Government Municipal Systems Act in order to obtain a clearance certificate.
The SCA case involved a matter between the Tshwane metro and Peregrine Joseph Mitchell, who had purchased a property in Wonderboom in 2013.
Mitchell had been ordered by Tshwane to pay R232 828 for a clearance certificate, but he refused.
He said under section 118 of the Act, he was liable to pay only R126 600 for debt due for the previous two years.
Mitchell had received the clearance certificate and later resold the property. However, Tshwane then refused to connect services for the new owner, claiming there was historical debt owing of R106 200.
The matter went to the High Court in Pretoria which on 8 September 2014 ruled that new owners were not liable for the historic debt.
Tshwane appealed against the High Court ruling to the SCA, which held that the hypothec, or lien, that existed in favour of the local municipality to secure amounts owing by the owner of a property to that municipality for rates and services was not extinguished by the transfer of the property from the owner who had incurred the debts.
This judgment, according to lawyers specialising in commercial and residential property practice and litigation, could have catastrophic implications for property owners.
According to attorney Chantelle Gladwin, who was quoted by Independent Online, the implications for property owners were huge.
“This means that a municipality can take legal action against the present owner of a property for any other amounts owing by any prior owner of that property.
“This action can range from suing for the old owner’s debts and attaching and selling the property itself,” Gladwin said.
“This has major implications for banks too, because the municipality would take the proceeds of the sale of the property to settle whatever is owing, and only then, anything remaining would be paid to the bondholder, and thereafter to the owner.”
Gladwin said given the problems most municipalities had with incorrect billing, faulty meters, incorrect meter numbers, illegal electricity and water connections, and meter tampering, it could be a nightmare for new owners as they would be unable to prove anything going back a number of years.
The unfortunate thing was that there was very little, if anything, that the new owner could do, other than contact the previous owner, who might be dead, have left the country, have ceased to exist as a juristic person, have not kept any records, or destroyed records older than a few years, she said.
“Basically, no property owner is safe, as no matter how much homework they do before purchasing a property, they can never be 100% sure that someone else’s debt will not appear out of the woodwork to haunt you,” Gladwin said.
This affects tenants as well because in many municipal jurisdictions, municipalities have by-laws that enable them to hold tenants and other occupiers of properties liable for charges.
“Again, there is no way for a tenant to screen a prospective property to ensure this will not happen.”
Gladwin said the only option was to take the matter to the Constitutional Court.
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