Owner liability to shaft tenants

Ex-QDMS

Dr Sayed Iqbal Mohamed

The common law burdened an owner with the payment for all municipal services rendered to the property, and therefore holds the owner responsible for all outstanding amounts – even if the account with the municipality was in the tenant’s name.

In Mkontwana v Nelson Mandela Metropolitan Municipality and another 2005 (1) SA 530 (CC)), the Constitutional Court’s judgment held that the owner was responsible for all outstanding amounts regarding consumption charges due to the local authority, even if the account was in the tenant or non-owner occupier’s name.

This confirmed the common law position that the owner is liable for all municipal debt on the property.

Services supplied by a local authority to the property place the owner in a debtor-creditor relationship; the owner incurring a debt for rates, water, electricity and refuse removal charges that becomes due to the municipality/creditor.

In a lease contract, parties can agree that the tenant would pay certain municipal charges (Proud Investments (Pty) Ltd v Lanchem International (Pty) Ltd 1991 (3) SA 735 (A)) either to the landlord or directly to the municipality.

In the absence of an express clause, the payment for water and electricity charges would fall upon the landlord.

For the tenants or occupiers to be liable, there must be an agreement either between the owner and the occupier, or between the occupier and the local authority. In the absence of such an agreement, it is implied that the owner would be burdened with the payment for such services.

This would now change in certain municipal districts such as Durban, with the new policy that will not allow tenants or occupiers to maintain accounts in their own names.

Municipalities are obliged to exercise proper and effective debt control. Rates, taxes and other service charges must be paid; if owing, these can have a devastating result in the event of a disconnection of services, or an owner wanting to sell a property.

When there are outstanding debts with the municipality, an owner cannot transfer her or his property to a purchaser because a rates and tax clearance certificate must be submitted to the registrar of deeds. A municipality will not issue such a certificate unless the debt is settled.

Debts

In the City of Cape Town v Real People Housing (Pty) Ltd (77/09) (2009) ZASCA 159 (30 November 2009), the City of Cape Town municipality refused to issue the owner, Real People Housing (RPH), with a municipal clearance certificate because it had owed debts for many years.

RPH paid rates and taxes for the two years preceding the certificate it required in keeping with the section 118(1) of the Local Government Municipal Systems Act 32, 2000.

The municipality, however, allocated this payment to the oldest debt in terms of its credit control and debt collection policy. But the court ordered the municipality to grant the certificate upon receiving payment for the two years preceding RPH’s application for the certificate.

The municipality can sue for the remaining debt but cannot frustrate an owner’s right to transfer upon receiving payment of the last two years’ debt.

In Body Corporate Croftdene Mall v eThekwini Municipality (603/2010) (2011) ZASCA 188; (2012) 1 All SA 1 (SCA) (10 October 2011), water and electricity to the common areas were cut off due to outstanding rates. The court held that the Local Government Municipal Systems Act 32, 2000, and the Durban Extended Powers Ordinance 18 of 1976 empower the municipality, in the absence of a dispute, to disconnect services if any amount is outstanding in its consolidated billing.

The eThekwini municipality has introduced a new credit control and debt collection policy from July 1, 2012, that will not allow new tenants or occupiers from this date to have municipal accounts for electricity and water services on their names.

Tenants will not be given copies of the owners’ accounts and owners will have to consolidate the rates, water and electricity into one account.

How does this new policy affect owners and tenants?

Simply put, tenants will be the biggest losers and the municipality will be the biggest beneficiary in recovering its debts through a consolidated account with owners.

All existing accounts in the names of tenants will not be affected. Owners, usually quite anxious about tenants making full and prompt payments, or tenants absconding without settling municipal debts, ought to be relieved.

What happens to tenants when the owners/landlords fail to settle the municipal bill regarding water and electricity charges?

There are many tenants who are concerned about the electricity and water being disconnected because they have no idea if the account has been settled in full and on time. This will affect all new tenants as from July 1.

However, in Joseph and Others v City of Johannesburg and Others (CCT 43/09) (2009) ZACC 30 (9 October 2009) the Constitutional Court in a unanimous judgment held that the tenants were entitled to procedural fairness before their household electricity supply was terminated, and the opportunity to make representations to the municipality in the event of an impending disconnection.

All municipalities are therefore obliged to provide a prior warning by providing a copy of the notice to tenants and to engage with them to prevent a pending disconnection, even though there is no contractual relationship between the tenants and the municipality.

And what about outstanding rates on the property occupied by tenants, or on a separate property?

Unfair

The owner’s consolidated account would be grossly unfair to tenants if she or he fails to pay rates. The municipality would disconnect the basic services tenants are entitled to.

Tenants would not be able to settle the owner’s rates bill and would therefore suffer extreme prejudice, even if they are given a prior warning notice. Legal remedy would be long, drawn out and unaffordable to tenants.

A new lease entered into from July 1, 2012, ought to stipulate how a tenant would pay for service charges relating to electricity and water consumption. There would be no problem if the service charges are included in the rental.

If a tenant has agreed to pay for such services separate from the rental amount, this must be clearly indicated in the lease. A tenant has the legal right to examine the original consolidated municipal bill before making payment to the landlord. The new policy is bound to generate challenges, including legal ones.

* Dr Sayed Iqbal Mohamed is the chairman, Organisation of Civic Rights.

For tenants’ rights advice, contact Loshni Naidoo or Pretty Gumede at 031 304 6451.