August 30, 2017

Landmark ruling on Municipal Debt.

It’s official – your property cannot be attached for a previous owner’s debt.

Homeowners across the country heaved a collective sigh of relief today, when the Constitutional Court ruled that new homeowners are not at risk of having their homes attached for historical debt of prior owners.

At issue was Section 118(3) of the Local Government: Municipal Systems Act, 2000 (“the Act”).

Section 118(1)(b) of the Act says that a property cannot be transferred unless the municipality concerned has issued a certificate saying that all amounts that became due to the municipality for municipal rates and services during the previous 2 years have been paid (what is commonly known as a clearance certificate).

The effect is that the municipality MUST issue the certificate (and transfer to a new owner can go ahead) if all billing 2 years and younger is paid, even if there remains outstanding debt that is older than 2 years.

Section 118(3), however, says that money owing to a municipality (without distinguishing between debt that is older or younger than 2 years) is a charge upon property and enjoys a preference over a bond registered over the property. Several municipalities used this wording to argue that the historical debt (older than 2 years) remains a charge upon the property and the municipality may attach and sell the property even after the property has been transferred from the owner who incurred the debt to a new owner (i.e. after a clearance certificate in terms of Section 118(1)(b) has been issued.

Of course, this interpretation would have a ridiculous result: the property can be transferred to the new owner because the municipality has to issue a clearance certificate when the billing that is 2 years old and younger has been paid, but then the same municipality can effectively dispossess that new owner by having the property sold to recover the historical debt.

The scary thing is that there were a great number of people at risk of losing their homes (or, more practically, paying the historical debt to avoid this). Inefficiency and ineptitude at many municipalities has led to billions of Rands of historical debt.  Frankly, if a municipality (or any other creditor for that matter) has been too slack to take the necessary steps to collect its money within 2 years, it deserves to lose it.    Actually no, that’s not right – because who loses out are the ratepayers in the municipality, who ultimately foot the bill for the ineptitude.  What SHOULD happen is that the individuals who were responsible for collecting the money should be made to cough up!  But in our current culture of no accountability, that’s certainly not going to happen any time soon…

But at least the people who buy property now have certainty – they don’t have any risk in connection with historical debt in respect of their new homes.

Author: Robin Twaddle

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