Property Owners Not Liable For Historic Rates Arrears

Judgment involving the City of Tshwane has corrected the misperception’ that municipalities can take action against a homeowner for historical rates arrears, or refuse to connect services to the new owner of a property where there is debt to the council.

Some municipalities had seized on a May 2013 judgment by the Supreme Court of Appeal and involving the City of Tshwane to hold owners and purchasers liable for arrears rates, taxes and service charges left by previous owners.

Some lawyers called this a ‘misinterpretation’ of the judgment in the City of Tshwane v Mathabathe and said it created massive uncertainty in the property market, with purchasers fearful that municipalities would sue them for a previous owner’s debts, or that their properties would be repossessed if they did not pay.

In some cases, new owners have had their electricity cut off, or have been unable to open a municipal account, because they have been held responsible for debts – sometimes running into hundreds of thousands of rand – they did not even know existed.

But now, says Andrew Bembridge, a director of Edward Nathan Sonnenberg (ENS), a recent judgment – also involving the City of Tshwane – has corrected the ‘misperception’ that municipalities can take action against a homeowner for a previous owner’s unpaid debt.

Bembridge said as a result of the latest judgment in the North Gauteng Division of the High Court, sitting in Pretoria, any person who had been forced to pay a debt incurred by a previous owner should immediately be refunded by the municipality concerned.

Both judgments turn, in the main, on the interpretation and application of a sub-section of the Local Government: Municipal Systems Act which states: ‘An amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property.

In the case City of Tshwane v Mathabathe, the City of Tshwane contended that this sub-section granted it a lien over the property for debts that have not prescribed, and that this lien survived the transfer of the property from one owner onto another. (A lien is claim over an asset or property belonging to another person until he or she discharges a debt.) But, in a judgment handed down on September 8 this year, Justice DS Fourie found that the lien held by the municipality was ‘extinguished’ by the transfer of the property into the name of a new owner, who cannot be held liable for debts incurred by previous owners.

Judge Fourie also found that the City of Tshwane had no right to refuse to supply municipal services to a subsequent owner on the grounds that ‘historical debt‘ was owed on a property.

Another sub-section of the Local Government: Municipal Systems Act requires a municipality to issue a clearance certificate if all amounts due on a property have been paid for the two years that precede the date of transfer. ‘Historical debt‘ means debt that is older than these two years.

The latest judgment was handed down in case concerning Perregrine Joseph Mitchell, who bought his property in Wonderboom, at a sale in execution in February 2013.

The City of Tshwane claimed it was owed a total of R232,828. Mitchell paid R126,608, which was the debt that had accumulated over the two years until the date of transfer, but the historical debt of R106,219 remained unpaid. Mitchell then sold the property to a woman with the surname of Prinsloo, who tried to open an account with the municipality in July 2013.

But the City of Tshwane said it would not supply services to the property unless the R106,219 was paid in full. Prinsloo declined to take transfer of the property until the issue of the historical debt had been resolved.

As a result, Mitchell applied to the North Gauteng High Court for an order that:

  • The lien over the property did not, on transfer, pass to him or his successor in title;
  • Neither he nor his successor in title is liable for the historical municipal debts of previous owners; and,
  • The City of Tshwane must open an account for the supply of services to the property.

Judge Fourie granted Mitchell an order on all three points.

Bobby Bertrand, a director at Bowman Gilfillan, said the way in which some municipalities had interpreted the Mathabathe judgment was ‘far-fetched’. Although the Mitchell judgment was significant, it was unclear how it would play out in practical terms.

This article “Property Owners Not Liable For Historic Rates Arrears” was issued by Pretoria News Weekend.

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