In a lease contract, parties can agree that the tenant will pay certain municipal charges either to the landlord or directly to the municipality.
RENTAL WATCH: The common law burdened an owner with the payment for all municipal services rendered to the property, and therefore holds the landlord responsible for all outstanding amounts even if the account was in the tenant’s name.

This common law rule was confirmed 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.

Services supplied by local authority to the property places the owner in a debtor-creditor relationship. The owner incurs a debt such as 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 v Lanchem International 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 responsible for the payment for such services.

When there are outstanding debts with the municipality, an owner cannot transfer her or his property to a prospective new owner 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.

In the City of Cape Town v Real People Housing (2009) ZASCA 159, the City of Cape Town municipality refused to issue the owner, Real People Housing (RPH) a municipal clearance certificate because it owed debts for many years. RPH paid rates and taxes for the two years preceding the certificate they 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. The court ordered the municipality to grant the certificate upon receiving payment for the two years preceding the 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 (2011) ZASCA 188, 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 empowered the municipality, in the absence of a dispute, to disconnect services if any amount is outstanding in its consolidated billing.

Following the decision of the Mkontwana case, most municipalities introduced a new policy that prevents tenants or occupiers from maintaining accounts in their own names. Tenants with municipal accounts in their names prior to the new policy were not affected.

The eThekwini municipality introduced a new credit control and debt collection policy from July 1, 2012, followed by other municipalities, whereby tenants with leases after this date would not be given copies of the owners’ accounts and owners will have to consolidate the rates, water and electricity into one account.

All existing accounts in the names of tenants will not be affected. Owners who are usually quite anxious about whether tenants have made full and prompt payments or tenants absconding without settling the 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 is settled in full and on time. This will now affect all tenants who have entered into lease agreement after the implementation of the new policies.

However, in Joseph and Others v City of Johannesburg and Others (2009) ZACC 30, the Constitutional Court, in a unanimous judgment, held that the tenants were entitled to procedural fairness before their household electricity supply was terminated and be given 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? 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 that tenants are entitled to. Tenants would not be able to settle the owner’s rates and would therefore suffer extreme prejudice even if they are given a prior warning notice.

Legal remedy would be long drawn and unaffordable to tenants.

A new lease entered into after the new municipal policy 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.

Dr Sayed Iqbal Mohamed is chairperson,Organisation of Civic Rights and deputy chairperson of the KZN Rental Housing Tribunal. He writes in his personal capacity. For advice, contact Pretty Gumede or Loshni Naidoo on 0313046451/ [email protected] or [email protected]

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