New home owners forced to pay previous owner’s debt Print
News - Aktueel
Thursday, 25 September 2014 18:15
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Liezel Wethmar

If you want to purchase a new home, you need be more than vigilant.

There is now an additional hurdle you possibly face when you purchase a new home, namely dealing with the debt of a previous owner even after a valid clearance certificate had been issued.

It is not fair, but the municipalities just don’t care. This is due to a recent Supreme Court of Appeal judgment: City of Tshwane Metropolitan Municipality versus Thomas Mathabathe and Nedbank, delivered on 22 May 2013.

How do they justify it?
Short answer: They are of the view that the municipal debt is “a charge on the property” and argue that the debt can be collected from the property owner. They demand payment from new owners, although it is historical debt incurred by the previous owners.

Long answer
Collection of debt with a clearance certificate: Section 118(1) of the Municipal Systems Act 32 of 2000: When an owner sells the property, the conveyancer must get a clearance certificate from the municipality. The municipality can only insist on payment of debt that is not older than two years and will only issue a clearance certificate on receipt of payment of the debt.

Collection of debt that is older than two years: Section 118 (3) of the Municipal Systems Act 32 of 2000: The court ruled that any amount that is due for municipal services, rates, taxes, levies and duties is a charge upon the property. These amounts are secured in terms of Section 118(3) and there is no time limit on its duration outside of insolvency and the municipality has preference over a registered mortgage bond on the proceeds of the property.

Since this debt is a charge on the property, the municipality argues that it follows the property and they can therefore demand payment of historical debt from the new owner and even sell the property in execution.

If municipalities used the debt collection process properly, they will not have debt that is older than two years. Due to their failure to initiate the debt collection process promptly, they conveniently make it the new owner’s problem by forcing the new owner to pay, instead of following due process themselves.

How do they do it?
The municipalities first cut the power and refuse to reconnect services until the unpaid bills are cleared by the new owner. This means that you could take ownership of your property, but may be refused basic services by the relevant municipality if there are historical municipal debts against the property.

Municipalities generally have a ‘pay first and sort out problems later’ attitude, which makes it difficult for individuals to make a stand against the policy. One cannot exclude the possibility that they might also issue summons and obtain a warrant of execution to sell the immovable property.

Only option
The only option available to potential buyers is to request that the seller provides the purchaser with a recent and original statement from the municipality for the current rates, taxes, water and electricity, and also attempt to obtain written confirmation from the municipality that there are no other monies due to the municipality in respect of the property at all.

If there are amounts due on the property prior to the two year period the purchaser must insist that it is paid by the seller before transfer of the property, because the clearance certificate will only deal with arrears of the last two years (Section 118(1)).