What You Need to Know About Rates Clearance Certificates.

If you own an erf or a sectional title unit, you are liable for certain payments to the local authority with jurisdiction over the property. This local authority has the right to collect two types of contributions from property owners:

A form of tax which it may utilise to fund its operations, called 'rates and taxes'.

Payment for the services rendered to the property owner, such as electricity, water, refuse removal and sewerage services, generally referred to as 'services'.

If you're planning to sell your property, obtaining a Rates Clearance Certificate is a crucial step that ensures your property sale goes smoothly and legally. Here's a breakdown of what you need to know about Rates Clearance Certificates.

What is a Rates Clearance Certificate?

A Rates Clearance Certificate is a document certifying that you don't owe any money to the local municipality at the time of transferring your property to the new owner. It's a mandatory requirement under the Deeds Registries Act. Without this certificate, the transfer of your property cannot proceed. This ensures the municipality is paid any outstanding debts before the property changes hands.

Understanding Rates Clearance Figures

Generally, the municipality's assessment includes a charge for rates and taxes, electricity, water, sewerage and refuse for a period of 60 days in advance.

Validity Period

Rates clearance certificates are valid for 60 days after the date of issue. Thereafter they lapse, and if the transfer is not yet registered by then, new figures will have to be applied for and the process repeated.

Who is Responsible for Obtaining the Certificate?

As the seller, you are responsible for settling any amounts owed raised in the assessment by the Municipality. However, you should pay your conveyancer, not the city council directly. This ensures the payment is correctly linked to the transfer application, expediting the issuance of the certificate. The Municipality will credit the Seller's account accordingly. (The Seller can discontinue paying monthly rates for the period covered in the assessment.)

Rates Arrears

The city council examines your property's financial history over the past two years for any outstanding amounts related to electricity, water, sewage, refuse, municipal taxes, and other sundry charges. Any debts older than two years remain the seller's responsibility but do not affect the property transfer. The municipality is responsible for collecting any outstanding amounts from the seller after the property has been transferred.

Handling Meter Readings

It's essential for new owners to record meter readings on the day they assume ownership to ensure they align with the first municipal account. Sellers should also record meter readings on the day they vacate the property, preferably alongside the buyer, to confirm everything is in order.

Refund Process After Transfer and Overpayment

After transfer the local authority's rates department will process any possible refund and return the payment to the Seller. This does not happen automatically. The Seller must submit a refund application to the local authority and then be patient as it takes the municipality several months to update its records to show that the property has changed hands (despite the deeds office records reflecting this change immediately on the date of transfer), to reconcile the Seller's accounts, and then to process the refund.

Similarly, the Purchaser may wait a few months before he receives his first rates and taxes bill in respect of the new property, which may come as a shock as payment in respect of a few months may have accrued by this time. In addition, the Purchaser may need to apply to the municipality to open his own electricity account if the account change-over is not automatically dealt with by the municipality.

This refund is typically deposited into the transferring attorney's trust account, who will then disburse the funds to the seller at the appropriate time. 

Effects of Occupation After Transfer

If the purchaser takes occupation before the registration of the transfer, the seller remains liable for water and power consumption until the transfer is registered. The buyer and seller should agree on how the purchaser will reimburse the seller for these charges. Conversely, if the seller remains in occupation after registration, they must reimburse the new owner for any consumption costs, even if these were prepaid. Although most municipalities follow similar procedures for issuing a Rates Clearance Certificate, it's wise to rely on a conveyancer to handle these details according to the local city council's specific directives.

Step-by-Step Summary of the Rates Clearance Certificate Process

Conveyancer's Application

The conveyancer applies to the local authority for rates clearance figures, which figures refer to outstanding rates and taxes, electricity, water, sewerage and refuse in respect of the property.

Payment by Seller

The seller pays the conveyancer for the amount owed as reflected on the rates clearance figures received from the local authority and after payment of the due amount by the conveyancers to the local authority, the rates clearance certificate will be issued by the local authority which certificate will be valid for 60 days. The rates clearance certificate confirms that no outstanding amounts are due to the local authority. 

Transfer Process

With the Rates Clearance Certificate obtained, the conveyancer lodges it along with other required documents at the Deeds Office to proceed with the property transfer.

Registration of Transfer

Once the necessary documents have been signed by the Conveyancer and attested by the Registrar, the property is officially transferred to the new owner.

Registration with Municipality

The new owner must register the property in their name at the municipality, which can take up to six weeks.

Meter Readings

Both the seller and new owner should record meter readings on the day of transfer to ensure accurate billing.

Refund Process

If the transfer is completed before the 60-day period expires, the seller may be entitled to a refund. The Seller submits a refund form, and the local authority processes the refund to the conveyancer's trust account, which can take several months.

Final Reconciliation

The municipality reconciles any outstanding accounts, and any final payments or refunds are handled accordingly.