Legal Articles

Arrears rates and taxes

In a much anticipated Constitutional Court Judgment it was been ruled that new property owners are longer expected to take responsibility for settling municipal debt incurred by previous owners of the acquired property.

This was stemmed from a litigious battle which challenged the constitutionality of section 118(3) of the Local Government: Municipal Systems Act.

Section 118(3) followed the archaic notion that services rendered by the municipality on any property followed the land and not the individual who was the cause of the debt.

This resulted in an obstacle which was effective in stumbling new owners of immovable property, particularly first-time home owners.

The question of whether or not the buyer is responsible for unpaid municipal debt was considered in this case.

Preferred creditor

In terms of section 118(3), the Municipality is treated as a preferred creditor, and so compelled the new owner to settle the outstanding amount before being entitled to take transfer of the property.

Arrear municipal debt is therefore treated as a preferred debt and a rates clearance certificate may not be issued without these debts having been settled in full.

While section 118(3) doesn’t specifically request that purchaser settle the arrear municipal debt, the responsibility to deal with the situation usually falls on the party who is in the less favourable bargaining position.

More often than not, that party is the purchaser who in all likelihood has already taken occupation of the property and is desperate to have transfer effected.

Transfer of municipal debt

Section 118(3) was found by the High Court to be constitutionally invalid, to the extent only that it has the effect of transferring to new or subsequent owner’s municipal debts incurred before transfer.

This to be an unjustified deprivation of property in terms of section 25 of the Constitution. It said that new owners of property are not liable for municipal debts incurred by previous owners.

Thus, municipalities are not allowed to sell the property in order to recover the debt or refuse to supply municipal services on account of outstanding historical debts from the previous owner.

All costs relating to the purchasing and selling of a property were usually left to the purchaser to pay for on top of the bill for any outstanding municipal account for that property.

This was an injustice upon the people affected as they had to foot the bill for both the purchase of the property, as well as the arrear debt that was attached to the property.

Settling historical municipal debt

Settling this historical debt can present major delays in the transferring of a property, because the buyers usually have to source large amounts of money in order to clear the debt.

Municipal rates are linked to the value of the property and the area in which it is situated.

Buyers can therefore drastically reduce the chance of debilitating and unanticipated expenses arising from property transactions.

The Constitutional Court upheld the High Court’s view on the matter, and the ruling was certainly welcomed, coming at a time when even the most capable of consumers are struggling to make ends meet without the assistance of financial relief.

This decision will definitely encourage young professionals who are looking to purchase immovable property to reconsider the investment option and may assist in removing the stigma associated with a person having debt, responsible for deterring so many from taking that massive step towards purchasing their own property.

Van Deventer & Van Deventer incorporated - Property lawyers in Johannesburg

Van Deventer & Van Deventer incorporated can assist where you find obstacles to speedy transfer of property. Contact us at any time.