Heres a big win for real estate: No more historic debt worries

Local authorities may not hold the new owners of any property responsible for any historic debt incurred by the previous owners for municipal services.

This is the unequivocal conclusion drawn by Judge Dawie Fourie after a lengthy judgment in the North Gauteng High Court in Pretoria this month (November 2016) and, says Greg Harris, CEO of Chas Everitt Property Rentals, it is a big win for the real estate industry. 

“This will hopefully put an end to the very protracted battle on this issue between municipalities and property buyers, which has caused a great deal of anxiety and discouragement, especially in the buy-to-let sector of the market.

“It will no doubt also bring relief to many existing homeowners and landlords who, after purchasing a property, have found themselves in dispute with the municipality over debt that was incurred years ago by a previous owner - or even the tenant of a previous owner - and has suddenly been added to their municipal bills.”    

He says the judgment should also compel local authorities to improve their accounting procedures and make use of the ordinary legal means that are at their disposal to address arrears and collect debts timeously.

“They know now that they cannot expect new owners to finance their shortfalls, or coerce them to pay these historic debts by withholding the supply of municipal services until they do.”

Judge Fourie’s order covers five separate but essentially similar applications, each involving a situation in which a property had been transferred to a new owner after a clearance certificate had been issued by a local authority in the usual way under Section 118 (1) of the Municipal Systems Act – but the local authority had then tried to force the new owner to pay historical debts incurred by previous owners prior to the two years covered by the clearance certificate. 

In some instances, the local authority had also refused to supply municipal services to the property until the historical debts had been paid by the new owner. The local authorities involved were the city councils of Tshwane and Ekurhuleni.

The applicants were all seeking clarity on the provisions of Section 118 (3) of the Municipal Systems Act, which includes a security provision that a “charge upon the property” by a local authority survives transfer of ownership of that property and thus becomes the responsibility of the new owner. 

The constitutionality of this section was not considered when the Supreme Court of Appeal made a shock ruling earlier this year that new property owners could be held liable for historical debt dating back 30 years.

However, Judge Fourie ruled that the section is in fact unconstitutional as regards the security provision, because the new owner is not a debtor of the municipality with regard to municipal debts incurred prior to the transfer of the property, and should not therefore have to face the risk of being deprived of the property because they refuse to pay those debts.

He also ordered the Tshwane and Ekurhuleni councils to:

• Supply municipal services to properties where the new owners are not in debt to them for those services: and
• Stop claiming payment of outstanding amounts from new owners who have no debt relationship with them as regards municipal rates and/ or service charges.

Moneyweb published the full text of the judgment and it can be read here http://www.moneyweb.co.za/wp-content/uploads/2016/11/Jordaan-et-al-judgment.pdf

The judgment is to be sent to the Constitutional Court now for confirmation.

Issued by Chas Everitt International
For more information please contact
Greg Harris greg.harris@everitt.co.za 
Or visit www.chaseveritt.co.za