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