LEGAL
Landmark Ruling
Historical debt no more
BY MONIQUE DU TOIT
T
he Constitutional Court ’ s August 29th ruling regarding historical municpal debt has been widely celebrated as a victory for property owners .
In effect , the ruling meant that “ a municipality could not claim its old debts relating to a property from those who became owners of the property after the debt was incurred ”, explains Maryna Botha from STBB .
Bruno Simão , from Bruno Simão Attorneys , agrees : “ The implications of the ruling are vast for all market participants but , needless to say , it brings with it much-awaited order .”
The wild west
Prior to the ruling , “ issues had arisen whereby municipalities had adopted policies which not only prejudice individual purchasers or sellers , but also gave municipalities an easy way out of implementing effective debt collection measures , by holding someone else accountable for their failures ”, explains Kai Howie from MDW Attorneys .
The court case , Jordaan and others v City of Tshwane Metropolitan Municipality and Others , brought to light the ways in which municipalities went about the “ discontinuation of services to certain properties consequent to the refusal of those respective owners to pay historical debts incurred by the previous owners ,” says Simão . As Botha rightfully points out , how did we get to this point ?
Prior to selling a property , the seller must be in possession of a clearance certificate , “ in order for transfer of ownership to be formally registered . No transfer may take place without this certificate ,” explains Botha .
This clearance certificate is obtained once the owner of the property has settled any and all outstanding municipal rates for the two years preceding the date of transfer . The recent ConCourt case , then , involves historical debt , i . e . debt that falls outside of this two year window .
As can be expected , the municipal defence was that it was necessary to hold property owners accountable to debt ( even if said debt was incurred by previous owners ) in order to raise the necessary revenue to provide services . In response to this , explains Botha , the court was clear : “ while a municipality has the constitutional obligation to collect revenue and pursue debtors , it can only claim the money from the actual debtor , rather than claim the historical debt from the new owners .”
Howie expands on this , explaining that the ruling found municipal methods “ superfluous , because municipalities have sufficient mechanisms with which to enforce the payment of outstanding debt .” The first , and most obvious , being the refusal to issue the abovementioned clearance certificate .
The issue arose in the interpretation of section 118 ( 3 ) of the Systems Act .
Interpreting the act
This section discusses the issue of historic debts ( thus , older than 24 months ) and was used by municipalities to collect debt from new owners . The court ruled in favour of home owners , stating that it is unconstitutional to do so , especially since municipalities have set policies in place to collect unpaid debt from those responsible for paying it . Furthermore ,
28 OCTOBER 2017 SA Real Estate Investor Magazine