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Property shock on historical debt for new owners

Published Feb 15, 2016


Anna Cox

JOHANNESBURG: Property owners face the grim prospect of owing huge sums of money to municipalities in debt incurred by previous owners dating back up to 30 years.

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This follows the judgment handed down by the Supreme Court of Appeal (SCA), which ruled that new property owners can be held liable for historic debts dating back 30 years.

As the law stood before, a seller was only liable for debts incurred over the past two years for electricity, water and other services, and 30 years for rates in terms of section 118 of the Local Government Municipal Systems Act, to obtain a clearance certificate.

The SCA case involves a matter between the City of Tshwane and Peregrine Joseph Mitchell, who purchased a property in Tshwane in 2013. He was told he had to pay R232 828 for a clearance certificate, but he claimed that in terms of S118, he was only liable to pay R126 600 for debt due for the past two years.

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He obtained the certificate and later resold the property. However, the City refused to connect services for the new owner, claiming there was historical debt of R106 200 owing.

The matter went to the Gauteng Division of the High Court, which found that new owners were not liable for the historic debt. This then went to the Appeal Court, which held that the hypothec, or lien, that exists in favour of the local municipality to secure amounts owing by the owner of a property to that municipality for rates and services, is not extinguished by transfer of the property from the owner who incurred the debts.

This judgment, according to lawyers specialising in commercial and residential property practice and litigation, could have “catastrophic implications” for property owners.

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One of the attorneys, Chantelle Gladwin, said: “The implications are huge. This means that a municipality can take legal action against the present owner of a property for any other amounts owing by any prior owner of that property. This action can range from suing for the old owner’s debts and attaching and selling the property itself,” Gladwin said. “This has major implications for banks as well.”

Gladwin said given the problems municipalities have with incorrect billing, faulty meters, incorrect meter numbers, illegal electricity and water connections and meter tampering, it could be a nightmare for new owners as they would be unable to prove anything going back a number of years. The same problem exists on the property rates.

“Basically, no property owner is safe. They can never be 100 percent sure that someone else’s debt will not appear out of the woodwork.”

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This affects tenants as well because many municipalities have by-laws that enable them to hold tenants liable for charges.

The only thing people can do is a thorough investigation into the chances of any old debt popping up, and taking out insurance to cover the risk. Purchasers need to insist that sellers pay all amounts owing when passing transfer.

Gladwin said the only option is to take the matter to the Constitutional Court.

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