Real Estate Investor Magazine South Africa July 2016 | Page 30

LEGAL

Liability for Historical Municipal Debt

When is a tenant accountable for outstanding debt?
BY MARLON SHEVELEW

I

n a recent editorial published in the Cape
Argus, the chairman of Rawson opined that
“homebuyers, banks and tenants all need to take
action to protect themselves against the effects of the
recent Supreme Court of Appeal (SCA) judgment
that property owners can be held liable for historical
municipal debts dating back up to 30 years.”
Although no citation is included, the context
reveals that the article refers to the judgment of City
of Tshwane Metropolitan Municipality v Peregrine
Joseph Mitchell, in which the SCA interpreted
section 118 of the Local Government: Municipal
Systems Act No 32 of 2000.

It would be entirely unreasonable
for a municipality to attempt to
enforce a long-standing pre-existing
electricity debt against a tenant who
patently did not live at the property
the time charges factually accrued
Briefly, section 118 provides that a registrar of deeds
may not register the transfer of property, except on
production of a certificate – commonly referred to as
a ‘clearance certificate’ – confirming that all amounts
due to the municipality, in respect of that property for
service fees, levies, rates and taxes for the two years
preceding the date of application for the certificate,
have been paid in full.
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JULY 2016 SA Real Estate Investor

The editorial correctly states one of the Court’s
conclusions to be that the transfer of a property into
the name of a new owner does not extinguish the
hypothec created by section 118(3) of the Act in favour
of the municipality, which means that nothing would
prevent the municipality from obtaining a court
order, selling the property concerned in execution
and applying the proceeds to pay off the outstanding
historical debt. In such an instance, so the court
reasoned, “the [new owner] might be forced to pay
the debt in order to avoid losing his property [and] it
is in that sense that the respondent, as owner of the
property, could be said to be liable for the historical
debt.”
The correctness of this interpretation is debatable,
and, for the same reasons given in the editorial,
the constitutionality of the provision needs to
be conclusively assessed as a matter of urgency;
however, for various reasons, I do not entirely agree
with the author’s added deduction as to the import
of the judgment, namely that “tenants . . . could be
negatively affected by the SCA decision . . . [and] . .
. our advice to them would thus be to . . . sign a lease
only on condition that they are indemnified against
any claim for historical municipal debt.”
I imagine the writer bases this hypothesis on the SCA’s
reference to one of the City of Tshwane’s electricity
by-laws, which provides that “the consumer is liable
for all electricity supplied to his or her premises.”
The by-law defines ‘consumer’ as “the occupier of
any premises to which the Municipality has agreed
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