Article by listed attorney: Fawzia Khan
The recent ruling by the Supreme Court of Appeal (SCA) regarding the issue of property debt due to the municipality has far reaching negative consequences, not only for future property owners, but also for the country’s economy as a whole. Social media platforms and group chats amongst attorneys and advocates are abuzz with fervent responses on how to deal with the aftermath of the SCA’s ruling for future property transactions. The effect of the SCA’s ruling in the case of City of Tshwane Metropolitan Municipality v PJ Mitchell (38/2015) was that all property owners could potentially be found liable for the historical debts of the previous property owners, going back 30 years. Anyone who has ever bought or sold immovable property would know that one of the key documents in any conveyancing process is the production of a ‘rates clearance certificate’, issued by the municipality. In fact the Registrar of Deeds will not register any transfer without such a clearance certificate. In terms of this certificate, the municipality confirms that all monies for services, rates and taxes for the last 2 years, due to it by the owner have been paid in full.
In terms of the Local Government Municipal Systems Act 32 of 2000, the municipalities have a hypothec (or land charge) over all immovable property in which it has rendered services to a property owner for rates, taxes, levies and services, such as electricity, refuse removal, water etc. It was generally accepted that in those instances where immovable property was sold in execution, then that hypothec which the municipality exercised over that property, would be extinguished after 2 years.
In the City of Tshwane case, the SCA was tasked with making a ruling, in those instances where immovable property was sold in execution and subsequently transferred to the purchaser, on whether Section 118(3) of the Local Government Municipal Systems Act 32 of 2000, allowed for the debt due to the municipality to be extinguished after 2 years.
The facts of the City of Tshwane case were briefly the following. On 22 February 2013, M purchased property at a sale in execution. The municipality advised him in a ‘written statement’ that the amount due to the municipality included debts older than two years prior to the date of the application for a clearance certificate. M disputed that he was liable for the amount as claimed. The dispute was thereafter settled and the municipality issued a certificate representing only the debt due for the two years prior to M’s rates clearance application. M paid the amount then due. However the historical debt of R106 219.75 still remained outstanding.
M then sold the property to P. When P approached the municipality to have the account for the services of water, electricity and refuse to be transferred into her name, the municipality refused to oblige. She was advised that she was liable for the historical debt of R106 219.75. Unsurprisingly P informed the owner M that until the issue of the historical debt due to the municipality was resolved, she was not proceeding with the transfer process. M then approached the High Court and obtained an order declaring that neither he, nor his assigns and successors in title of the property were liable for the historical debt owed to the municipality by previous owners. The Court also declared that given that M purchased the property through a sale in execution, the debts older than 2 years were extinguished. It held further that the municipality had no right to refuse the supply of municipal services (such as electricity, water, sanitation and waste removal) to the owner or his successor in title) for municipal debts older than 2 years.
The Tshwane Municipality then took the High Court’s ruling on appeal to the SCA. The SCA then ruled that that in terms of the Act these historical debts were not extinguished after 2 years. The result being that these municipal debts could remain due for up to 30 years. This case has now gone to the Constitutional Court. In the interim the SCA’S ruling now stands firm on this matter.
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