Cas Coovadia: ConCourt property ruling a boost for investor confidence

Cas Coovadia, MD of the Banking Association of South Africa. (File, supplied)
Cas Coovadia, MD of the Banking Association of South Africa. (File, supplied)

Cape Town – The ruling by the Constitutional Court on Tuesday that new home owners are not liable for historical debt will bring confidence to investors and property developers, Banking Association South Africa (BASA) MD Cas Coovadia said on Tuesday.

Municipalities including Tshwane, eThekwini and Ekurhuleni took a high court ruling on the matter to the Constitutional Court. They argued that it was lawful for them to attach and sell a newly purchased property to extract money for debt owed to them.

However, the Constitutional Court ruled against the municipalities.  “Municipalities will immediately have to desist with the practices of imposing and trying to collect historical debt, which they omitted to collect from a previous owner, from the new owner,” explained Werksmans Attorneys’ Aidan Kenny.

BASA, which joined the court proceedings with the original applicants as a friend of the court, welcomed the ruling.

“It is obviously a good judgment for us,” said Coovadia. “It has been debilitating for property development and investment. It has placed on new owners the burden of debt incurred by previous owners that municipalities failed to take action against. They thought people were desperate to get clearance certificates, and this has been inhibiting people from investing in property.

“The judgment means municipalities should go after those who incurred the debt,” he said. “It should not be an albatross on new owners.

“All of this, in our view, instils confidence in the market. New owners and investors will have confidence and know they won’t be held (to) ransom before clearance certificates are issued.

“Municipalities must not let the debt spiral like that and they should have a system in place to manage debt,” he said. “Municipalities know the debt is there, but have been acting only when a transfer was necessary.”

Tshwane mayor Solly Msimanga also welcomed the judgment and said it gave clarity on two matters.

“First, new property owners cannot be held liable for historical municipal debts incurred on such properties,” his office said in a statement on Tuesday.

“Second, this principle can be upheld without declaring Section 118(3) of the Municipal Systems Act unconstitutional.”

Initially the high court declared Section 118(3) unconstitutional to the extent that it allowed municipalities to claim historical debt from new owners.

“This declaration of invalidity left municipalities with more questions than answers, and it was therefore necessary to seek clarification from the Constitutional Court,” explained Msimanga’s office.

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