Will I inherit a property's municipal debt?
On 23 May 2017, the Constitutional Court heard an application for confirmation of an order of the High Court of South Africa, that declared section 118(3) of the Local Government: Municipal Systems Act, 2000, constitutionally invalid.
Section 118(3) explains that municipal debt on any property is a charge upon that property and enjoys preference over any mortgage bond registered against the property. However, the question is whether this means that, when a new owner buys the property, the property remains with the debts of a previous owner.
Section 118 of the Municipal Systems Act
Section 118 of the Municipal Systems Act provides as follows:
- A registrar of deeds may not register the transfer of property except on production to that registrar of deeds of a prescribed certificate, issued by the municipality or municipalities in which that property is situated; and which certifies that all amounts that became due in connection with that property for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties during the two years preceding the date of application for the certificate have been fully paid.
- A prescribed certificate issued by a municipality in terms of subsection (1) is valid for a period of 60 days from the date it has been issued.
- In the case of the transfer of property by a trustee of an insolvent estate, the provisions of this section are subject to section 89 of the Insolvency Act, 1936.
- An amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property.
What has the High Court said?
The High Court found section 118 constitutionally invalid, to the extent that it only has the effect of transferring to a new or subsequent owner municipal debts incurred before transfer and not by the new or subsequent owner.
The Court said that new owners of property are not liable for municipal debts incurred by previous owners. Therefore, municipalities may not sell the property in execution to recover the debt or refuse to supply municipal services on account of outstanding historical debts.
What is the role of municipalities?
According to the High Court, to deny or suspend services is unlawful and unfair. Section 118(3) can be valid only if the charge against the property lasts only for so long as the debtor who sustained the debt also owns the property. Holding new owners liable for the debts of previous owners encourages a municipality not to pursue its debt collection.
What do the municipalities say?
The municipalities claim that the provision is valid. They have said that section 118(3) does not require the new owner to pay the municipal debts of a previous owner. Rather, the debts remain "a charge on the property", meaning that the property is security for payment of the debt.
- The Constitutional Court of South Africa
- Jordaan and Another v City of Tshwane Metropolitan Municipality and Others; New Ventures Consulting & Services (Pty) Ltd and Others v City of Tshwane Metropolitan Municipality and Another; Livanos and Others v Ekurhuleni Metropolitan Municipality and Another; Oak Plant Rentals (Pty) Ltd and Others v Ekurhuleni Metropolitan Municipality (74195/2013; 13039/2014; 13040/2014; 19552/2015; 23826/2014)  ZAGPPHC 941;  1 All SA 585 (GP); 2017 (2) SA 295 (GP) (7 November 2016)
Author: Meridian Realty