Only Pay Your Own Rates And Taxes And Not Those Of The Previous Owner
Category Industry News
In the recent judgment in City of Tshwane v Mathabathe, it was held that municipalities have a lien against the property for debts due to them. The interpretation of Section 118 of the Local Government: Municipal Systems Act 32 of 2000, which deals with the rates clearance certificates on transfer of a property, led to confusion. Whilst before the judgment, the clearance certificates guaranteed that no municipal debts were owing, the position after the judgment was that some municipalities interpreted this judgment to mean that the successor-in-title (i.e. the new owner of the property) was liable for the debts of the previous owner of the property. This should not have been a problem to start out with – before sale of a property, a rates clearance certificate is issued by the municipality, certifying that all amounts due to the municipality have been paid. But as a result of the inefficiencies within certain municipalities, amounts due to the municipalities are not always accounted for when the clearance certificate is issued. As a consequence of this interpretation, a prospective buyer was not assured that he would not be required to pay rates and taxes which may be due, but which were not incurred by him, to municipalities. The municipalities even enjoyed preference over the new bondholder’s mortgage bond. A clause stating that the seller was liable for all rates and debts owing to the municipality was the only way to keep the status quo as we knew it and hold the previous owner liable for the unpaid rates and municipal debts which he incurred. This misguided interpretation was laid to rest in the matter of Perregrine Joseph Mitchell v City of Tshwane Metropolitan Municipality, which clarified that the new owner does not become a co-principal debtor and is as such not liable for the debts of the previous owner. The security of the lien, which the municipality held, is extinguished on transfer of the property. It must be remembered, that although the lien was extinguished, the debt of the previous owner to the municipality was not, despite the transfer. As a result of this judgment, the situation as it has always been known has been confirmed, and every new owner who paid the outstanding rates of the previous owner must be refunded. Bisset Boehmke McBlain Attorneys 29 October 2014
Author: Janelle Fuller
