municipal debt

municipal debt

According to Section 118(1) of the MSA, a property may not be transferred unless a rates clearance certificate has been issued by the municipality where the property is situated. The certificate must certify that all amounts due to the municipality for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties (“municipal fees”) during the two years preceding the date of application for the certificate have been fully paid. This subsection says nothing about historical arrears which may be older than two years.

According to Section 118(3) an amount due for municipal fees is a charge upon the property and enjoys preference over any mortgage bond registered against the property, thereby creating a security provision in favour of the municipality for the payment of the outstanding debts. No time limit is attached to this provision and it does not matter when the secured debt became due. It can include debts up to 30 years old (for rates, refuse and sewer charges) and 3 years old (for electricity and water), including debts of more than one previous owner, all of which are secured through Section 118(3) in favour of the municipality.

The issue that is the cause of the consternation is where a new (innocent) owner is now held responsible for municipal debts older than two years incurred by previous owners, without any prior knowledge that there is arrear debt and that municipalities may, as in your case, hold the new owner responsible for the arrear debt of someone else. The new owner is caught by surprise, particularly as a rates clearance certificate was issued creating the impression (even if not legally correct) that all debts with the municipality have been settled by the seller.

Our Supreme Court of Appeal has recently confirmed that a rates clearance certificate does not mean that there is no further municipal debt tied to a property. Our courts also confirmed that if the seller or previous seller is unable to pay or cannot be located, the purchaser or new owner will be held liable for these debts, in extreme cases even potentially allowing the municipality to sell the property itself to settle the arrear debts. This right (or hypothec) of the municipality over the property established by Section 118(3) thus survives any form of property transfer without exception.

Based on this court decision, it potentially leaves a new owner vulnerable to the municipality enforcing its rights over the property, even resorting to disconnecting water and electricity to force a new owner to settle arrear municipal debts.

Our courts have not however had occasion to test the constitutionality of Section 118 of the MSA, and in our view there could be constitutional grounds for testing the fairness of the current interpretation of Section 118(3) and the application thereof by municipalities.

We accordingly recommend that should the municipality persist in your case to require settlement of a previous owner’s arrear municipal debts or face disconnection of municipal services, you should approach a legal advisor for assistance.

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