Relief for property owners prejudiced by historic municipal debt

The acquisition of rates clearance certificates can often delay property transfers, particularly when outstanding debts are a factor, says Mike Greeff, chief executive of Greeff Properties, an affiliate of Christie’s International Real Estate.

“Until now, municipalities have demanded that all outstanding debts, even those incurred by previous owners, be paid before a rates clearance certificate can be issued and the municipal services can be provided to the new owner,” says Greeff.

Section 118(3) of the Municipal Systems Act 32 of 2000 outlines the obligations of a new property owner regarding municipal debts which were incurred by a previous owner. STBB Property Law Update, however, summarises a recent judgment (Mitchell v City of Tshwane Metropolitan Municipality Authority) which has set a precedent that significantly alters the new property owner’s rights where the property was acquired subsequent to an execution sale.

“The new owner and his successors may no longer be held liable for debts pertaining to the property incurred by previous owners, if these debts are more than two years old,” says Greeff.

“The judgment went on to state that the municipality could not withhold services to the new owner or his successors should the unpaid debts be older than two years, unless the relevant municipal bylaws specifically make provision therefore.

“Despite transfer to a new owner following on an execution sale of the debtor’s property, the municipality is legally obliged to seek payment from the party who originally incurred the debt,” says Greeff.

The South African Property Owners Association (Sapoa) says: “This judgment is certainly welcomed by property owners as it clarifies property owners’ rights pertaining to the payment of outstanding debts incurred by a previous owner whose property is sold in an execution sale. The judgment sets a precedent. It will surely bring relief to property owners as the financial ramifications of paying the historical debts are indeed colossal.”

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