Do you have to pay previous owner’s debt?

2016-04-27 06:00
NATALIE ­STEENKAMP

NATALIE ­STEENKAMP

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Question:

I bought a house a few months ago.

The municipality issued a rates clearance certificate to the seller and the property was transferred in my name.

When I recently queried a high water account with my municipality, the municipality responded by saying that there was still quite a large arrear debt against the property and that, unless I pay, they will take steps against me to collect and even sell my property if necessary. Surely this can’t be lawful?

Answer:

Section 118 of the Municipal Systems Act (“MSA”) has been the cause of a lot of concern for home owners, as this section and in particular Section 118(3) is viewed as enabling a municipality to hold a new home owner responsible for the arrear municipal debts of a previous owner.

According to Section 118(1) of the MSA, a property may not be transferred unless a rates clearance certificate has been issued by the municipality where the property is situated. The certificate must certify that all amounts due to the municipality for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties (“municipal fees”) during the two years preceding the date of application for the certificate, have been fully paid.

This subsection says nothing about historical arrears which may be older than two years.

According to Section 118(3), an amount due for municipal fees is a charge upon the property and enjoys preference over any mortgage bond registered against the property, thereby creating a security provision in favour of the municipality for the payment of the outstanding debts.

No time limit is attached to this provision and it does not matter when the secured debt became due. It can include debts up to 30 years old (for rates, refuse and sewage charges) and three years old (for electricity and water), including debts of more than one previous owner, all of which are secured through Section 118(3) in favour of the municipality.

The issue that is the cause of the consternation is cases where a new (innocent) owner is now held responsible for municipal debts older than two years incurred by previous owners, without any prior knowledge that there is arrear debt, and that municipalities may, as in your case, hold the new owner responsible for someone else’s arrear debt.

The new owner is caught by surprise, particularly as a rates clearance certificate was issued, creating the impression (even if not legally correct) that all debts with the municipality have been settled by the seller.

Our Supreme Court of Appeal has recently confirmed that a rates clearance certificate does not mean that there is no further municipal debt tied to a property. Our courts also confirmed that if the seller or previous seller was unable to pay or could not be located, the purchaser or new owner would be held liable for these debts, in extreme cases even potentially allowing the municipality to sell the property itself to settle the arrear debts.

This right (or hypothec) of the municipality over the property established by Section 118(3) thus survives any form of property transfer without exception.

Based on this court decision, it potentially leaves a new owner vulnerable to the municipality enforcing its rights over the property, even resorting to disconnecting water and electricity to force a new owner to settle arrear municipal debts.

Our courts have not, however, had the opportunity to test the constitutionality of Section 118 of the MSA. In our view, there could be constitutional grounds for testing the fairness of the current interpretation of Section 118(3) and the application thereof by municipalities.

We recommend that, should the municipality persist in requiring settlement of a previous owner’s arrear municipal debts or if you continue to face the disconnection of municipal services, you should seek legal advice.

  • Natalie Steenkamp, Associate, Phatshoane Henney Attorneys

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