A Property Owner’s Liability for Historical Municipal Debt

The property owner in this judgment sought clarity form the Supreme Court of Appeal on whether he and his successors in title were liable for the historical municipal debt owed in respect of his property, in light of the fact that he bought the property at an auction (sale in execution).

The Supreme Court of Appeal handed down the judgment under discussion on 29 January 2016. The parties sought clarity from the Supreme Court of Appeal on the interpretation and application of Section 118(3) of the Local Government: Municipal Systems Act, 32 of 2000 (“the Act”).

Section 118(1) of the Act determines that the registrar of deeds may not register the transfer of a property if the transfer is not accompanied by a municipal clearance certificate. This certificate confirms that all municipal rates, taxes, duties and levies incurred in the two years immediately prior to the application for the municipal clearance certificate, had been fully paid.

Section 118(3) of the Act determines that municipal rates, taxes, duties and levies is a charge upon the property and enjoys preference over any mortgage bond registered against the property.

Prior to this judgment being handed down, various Courts had different views on the application of Section 118(3) and the right of the municipality to hold the current owner of immovable property liable for historical municipal debt.

This judgment confirms and entrenches the position that a historical municipal debt (municipal debt older than two years) is a debt upon the immovable property, as opposed to being a debt upon the previous owners of the immovable property. This means that the municipality is entitled to collect a historical municipal debt from the current owner(s) of the particular property and not only from the previous owner(s) of the property, during whose ownership the municipal debt was incurred.

This principle applies to private sales of property and to properties bought at an auction (sales in execution).

The legal position is thus that historical municipal debt attaches to the property and can be claimed from the current owners of property and/or their successors in title (subsequent owners).

It is however important to note that the municipality is not empowered to (a) prevent or frustrate the transfer of immovable property by claiming payment of historical municipal debt prior to issuing the municipal clearance certificate required by Section 118(1) of the Act, or by (b) refusing to open a municipal service account in the name of the purchaser of the property due to historical municipal debt being owed in respect of the property. The municipality must first obtain a Court Order declaring the historical municipal debt due and payable, before they would be able to enforce payment of the historical municipal debt outstanding in relation to the immovable property.

It is therefore vital for current and prospective property owners to know whether the property they own or plan to acquire is subject to a historical municipal debt. If the enquiry cannot be made prior to signing of the Offer to Purchase, the enquiry into determining whether historical municipal debt attaches to the immovable property should be entrenched in the Offer to Purchase as a condition in favour of the Purchaser. This means that it should be a requirement of sale that sufficient evidence is produced to show that the immovable property is clear from any historical municipal debt. Depending on how the condition is structured, the Offer to Purchase should either lapse if the Seller cannot provide such evidence, or, the Purchaser should be afforded an opportunity to make his own enquiries with the relevant municipality.

Our Conveyancing department is equipped to assist you with any queries you might have in this regard. Kindly email sunette@hahnlaw.co.za or call Sunette Everts at (012) 431 2480.

Herewith a summary of the judgment:

City of Tshwane Metropolitan Municipality v P J Mitchell (38/2015) [2015] ZASCA 1 (29 January 2016)

Facts

The matter before the Supreme Court of Appeal (“the SCA”) is an appeal against a judgment of the Gauteng Division of the High Court, Pretoria (“the High Court”). The facts that led up to the dispute are that Mr. Mitchell (“the respondent”) bought a house at a sale in execution auction and he was responsible of all the costs necessary to effect transfer. The respondent further needed a clearance certificate from the municipality in order for the transfer of property to be registered by the registrar of deeds. This is a requirement prescribed by section 118(1) of the Local Government: Municipal Systems Act, 32 of 2000 (“the Act”). When the respondent applied for the said certificate his application was denied as a result of outstanding fees, the outstanding amount was inclusive of debts owed to the municipality older than two years (historical debt). After the respondent queried the amount he was allowed to exclude payment for the historical debt portion of the amount due. The respondent went on to sell the property to Ms Lynette Prinsloo who attempted to open an account with the municipality in order to get services, but due to the historical debt owing on the property, she could not do so. She then halted the transfer process until the historical debt issue could be cleared.

Legal Question

The question before the SCA was: Is the security provided for in s 118(3) of the Act, in favour of the municipality for payment of moneys owed to it for services delivered in respect of the fixed property, extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser?

Main Judgment

The SCA described the principal elements of s 118 as ‘an embargo provision with a time limit (s 118(1))’ and ‘a security provision without a time limit (s 118(3))’. It held that the effect of s 118(3) is to create a security for payment of outstanding municipal debts in favour of the municipality. In BOE Bank Ltd v Tshwane Metropolitan Municipality this security was said to amount to a tacit statutory hypothec. This means that the historical debt is a charge upon the property just like the amount that has to be paid in order to obtain a clearance certificate. The court a quo quoted Voet 20.1.13 which states that a property with a special hypothec is subject to a burden; such burden passes on with the title to successive owners regardless of their ignorance to its existence. The common law does present an exception to this rule for sales in execution by stating that the hypothec ceases to exist and the new owner is granted a clean title. The SCA found that the reliance was misplaced as the exception relied upon does not apply to a hypothec created by a statute that places no limit to its duration. The legislator would have made provision for the common law exception, in the statute, had they intended for it to form part of the legislation. Since they had not made provision for the inclusion of the exception, it cannot be read into section 118(3). The court a quo erred when it said that the statutory hypothec had been extinguished by the sale in execution and subsequent transfer of the property to the respondent.

Case summary by:

Noluthando Ncame – Candidate Attorney

Article by:

Sunette Everts – Attorney, Notary, Conveyancer

Sources

City of Johannesburg v Kaplan N.O. & another (111/05) [2006] ZASCA 39 (29 March 2006); 2006 (5) SA 10 (SCA) para 13.

BOE Bank Ltd v Tshwane Metropolitan Municipality (240/2003) [2005] ZASCA 21 (29 March 2005); 2005 (4) SA 336 (SCA).

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