Demystifying the rates clearance process

Buying and selling property is a far from simple process but it can be especially tedious for sellers who are also required to produce an array of clearance certificates, including a rates clearance certificate from their local municipality which will only be issued if all accounts are up to date.

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, says: “In terms of Section 118 of the Municipal Systems Act 32/2000, a Registrar of Deeds may only register the transfer of a property on production of a rates clearance certificate which certifies that all amounts due in connection with that property for a period of two years preceding the date of the application for the certificate have been paid in full.

“This has proven very costly in some areas where municipalities still retained the outdated and controversial practice of charging applicants for rates and services up to the end of their financial year as advanced collection before issuing a rates clearance in terms of Section 118 when the property was changing hands.

“Effectively this meant that if you applied for a certificate in July and the municipality’s year end was in June, you would effectively have to pay an entire year’s rates and taxes in advance before the relevant council would issue a rates clearance.”

However, in March this year the Supreme Court of Appeal declared municipalities’ forward projection of rates in this manner as being invalid in its ruling in the case of Nelson Mandela Bay Municipality v Amber Mountain Investments 3 (Pty) Ltd (case (576/2016) [2017] ZASCA 36).

The court was tasked with determining whether the seller of immovable property, is liable to pay the total rates on the property for the financial year or only until the property transfer and it found that the intention of the legislation was to ensure that the past two year’s debt was fully paid when the clearance certificate is issued and not future debt estimated further than the date of transfer.

Specialist conveyancing attorney Elana Hopkins of Dykes Van Heerden, says: “Rates can therefore only be collected for the period it normally takes to transfer a property and then only until transfer. The balance is refunded to the seller.”

However, despite the ruling clarifying one issue, many people are unclear about the rates clearance process and what is required to obtain the certificate, but van Hopkins explains that although tedious, much of the application is handled by the conveyancing attorney.

Once the suspensive conditions contained in the deed of sale have been fulfilled and the instruction to attend to the registration of the transfer has been issued, the conveyancer will submit an application to the municipality for a rates clearance schedule reflecting all amounts owed to the municipality.

The conveyancer’s application for the outstanding rates figures must (at least in the City of Cape Town) be accompanied by the following supporting documents:

- A copy of the identity document of the sellers and the buyers.
- The future/forwarding billing address for the sellers and the buyers.
- The sellers’ bank account details and documentary proof thereof, for purposes of repayment of any credit refund that may be due to the sellers after registration of the transfer.

Hopkins says it’s important to note that the rates schedule remains valid for 30 days from the date of issue, after which it lapses and a brand new application will have to be submitted.

Once the rates schedule has been received from the municipality the conveyancer will request payment from the sellers for the full outstanding amount according to the rates schedule and will then make payment on the sellers’ behalf.

Once the sellers have made payment, they don’t have to continue to pay their monthly municipal bill – unless transfer is unduly delayed after such payment – for the duration of the transfer process, as sufficient provision for payment would have been made with the advanced collection amount that was included in the rates schedule to cover this period. This payment covers a period of 120 days in the case of the City of Cape Town and Overstrand Municipality.

Upon receipt and acknowledgement of payment, the municipality will issue the rates clearance certificate on the electronic rates system which conveyancers can access to print the rates clearance certificate for lodgment at the Deeds Office.

The rates clearance certificate is normally issued within 10 business days and it remains valid for 120 days from the date of issue, but if the transfer has not been effected during that time, a new application will have to be submitted to complete the transfer and registration process.

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