Rates clearance certificate - be aware of the risks

There is a possible risk that buyers of property need to be aware of when the municipality issues the rates clearance certificate on the property they are purchasing, says Annette Evans, regional manager of the Institute of Estate Agents, Western Cape.

This certificate confirms that all rates, service charges and levies due on the property have been paid in full but what is sometimes omitted is that this certificate only goes back two years before the application, she said.

This means that transfer of the property can take place even if the seller owes the municipality for charges dating before the clearance period (which seems unusual, but it can happen).

This old debt can then arise in the form of a charge attached to the property or a lien once the buyer takes ownership. While most would argue that the municipality should be suing the old owner to recover these debts, the Supreme Court of Appeal (SCA) has previously ruled that the municipality must issue a clearance certificate even if the seller only pays amounts due for a two year period prior to the application for a certificate, according to a Bisset Boehmke law update.

In the case presented to the SCA, there was a debt of R151 324 still outstanding. This decision means that the buyer could be sued for the amounts still due, said Evans.

'This should act as a warning to buyers and agents, to check thoroughly what amounts are still owing to the municipality and the seller should be asked for proof before transfer takes place, that all the old debts, as well as any new amounts, have been settled. This provision should, as a precaution, be written correctly into the purchase agreement,' she said.

If there is any doubt on the wording in a contract or the conditions thereof, the buyer should always check with his attorney first before signing any offer to purchase, as once the agreement has been signed by both parties, this contract is binding, reminded Evans.

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